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Greece Faces Default by End June

A guest post written by DAR Wong

Currency Market Observations – 22 June 2015

Fundamental Outlook

The FED policymakers stress on near zero interest rates but vote for rate hike before year-end. Japan central bank also pledges for consistent monetary expansion annually. European Central Bank (ECB) is facing challenge of Greece default after the failure of reaching a reform deal. Europe slides into alarm while investors keep eyes on this week’s meeting outcome on lending countries.

The U.S. factory output declined 0.2 percent in May after it was revised at 0.5 percent contraction in April. Building permits grew 1.25 million annualized rates in May and higher than expected. Housing starts were reported at 1.04 million annually and lower than revised annualized rates at 1.17 million in April.

American jobless claims for state unemployment benefits dropped 12,000 to a seasonally adjusted 267,000 for the week ended 13 June, making fifteen straight week below 300,000 claims.

Consumer prices in May recorded their largest increase in more than 2 years as gasoline prices surged. Consumer Price Index rose 0.4 percent last month after gaining 0.1 percent in April while core prices gained 0.1 percent.

In FOMC meeting, FED policymakers gave no hint on the interest rates trend. Chairperson Yellen reiterates on keeping rates near to zero for ensuring growth recovery. There are 7 committee members who voted for rate hike before year-end compared to previous meeting with 3 votes.

Japan’s exports climbed 2.4 percent on yearly basis and imports fell at annual 8.7 percent. Trade balance stood at a deficit of JPY216 billion, narrower than expectation.

In central bank meeting held on last Friday, policymakers pledged to increase base money at an annual pace of JPY80 trillion (USD660 billion) through purchases of government bonds and risky assets. Kuroda remains optimistic on recovery and keeps his long-term inflation on rising track.

German ZEW Economic Sentiment grew 31.5 and much lower than forecast, declined from previous month 41.9 reading. In the 19 countries, consumer inflation rose 0.3 percent in May on annual basis while core prices gained 0.9 percent. Both are same as expectation.

European Central Bank (ECB) has raised the funding cap on its Emergency Liquidity Assistance (ELA) for Greece’s banks by EUR3.3 billion (USD3.7 billion). Citizens have been queuing in Greece for bank withdrawals after government has failed to reach an agreement of economic reform with lending countries. Eurozone leaders will hold an emergency summit on Monday to discuss on the possibility of salvaging Greece from debt default at the at the end of the month.

U.K. consumer inflation rose 0.1 percent in May on annual basis after it contracted 0.1 percent in previous month. Another report on retail price index shows 1.0 percent gains in May annualized rates versus 0.9 percent annual gains in April.

U.K. claimant counts was narrowed by 6,500 in May and smaller than expected, after April was revised at 7,800 counts. Bank of England voted to remain interest rate unchanged by all 9 committee members and bond purchase program stay put at GBP375 billion.

Technical Forecast

USD/JPY dropped last week after FED Yellen’s remark on keeping near term rates at zero. This week, we reckon the trend may drive lower to 121.50 supports before new demand comes into market. Resistance stays at 123.50 areas in case of technical recovery. Range trading will be more likely to occur this week.

EUR/USD edged higher to above 1.1400 last week and trade sideways due to weakening Dollar. This week, we predict support will lie strong at 1.1250 levels and probably push the prices higher at 1.1550 areas. Observe the outcome for Eurozone meeting on Greece debt issue as this could pressure the Euro value southwards.

GBP/USD climbed above 1.5820 resistances last week. Moving forwards, the bulls might ascend to 1.6000 benchmarks in coming week if Dollar stays weak. However, the trend must not fall beneath 1.5820 levels again lest rapid liquidation will follow through the market reversal downtrend.

Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

DAR Wong is a registered fund manager in Singapore with 26 years of global trading experiences. You may reach him at dar@pwforex.com

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DISCLAIMER: This post is written for general information only. The author, publisher and/or any third party involved in the distribution of this work assume no legal responsibilities and shall have no liability whatsoever for any direct or consequential losses, costs or expenses arising from the use of the information contained herein.

 






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