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Greece May Need Third Bailout

A guest post written by DAR Wong

Currency Market Observations – 21 July 2014

Fundamental Outlook

The US policy revolves in debate of credit tightening before year-end as inflation increases. FED chief Yellen reassures of low benchmarks rates even after stimulus ends. Bank of Japan chief Kuroda remains neutral towards strengthening Yen. Euro area’s economy continues to wobble as European Central Bank (ECB) begins to mend the slowdown. UK posts improvement from pulling out of recession.

The US retail sales rose 0.2 percent in June while core data was up 0.4 percent, both below expectation. Producer prices rose 0.4 percent in June after up 0.2 percent in prior month. Core data grew 0.2 percent matching the forecast.

Another separate report shows American housing starts fell 9.3 percent to an 893,000 annualized rate in June, the weakest data in past 9 months as construction slumped in southern states. Jobless claims declined by 3,000 to 302,000 in the week ended July 12.

President of the St. Louis FED, James Bullard, comments that interest rates may raise more quickly than planned as unemployment falls and inflation rises. In FED testimony, Janet Yellen warns she sees signs of asset price bubbles forming in some leveraged loans and lower-rated corporate debt. However, she hints that equities are not overpriced yet.

FED chief Yellen also reiterates of maintaining low benchmark policy rate near zero even after stimulus is fully withdrawn. Central bank plans to reduce the size of its USD4.38 trillion balance sheet as it normalizes monetary policy.

The crisis in Ukraine escalates after a Malaysian Airlines passenger jet crashed with 295 people on board. The government in Kiev blamed pro-Russian rebels for shooting down the jet, while the separatists deny the accusation.

Foreign exchange traders preempt the Bank of Japan’s chief Kuroda has hinted neutral stance towards stronger yen. Last week, Kuroda told reporters in Tokyo the Yen is no longer excessively strong and the country economy is on its way to meet inflation target.

German investor confidence declines for a seventh month in July after the ZEW centre index dropped to 27.1 from 29.8 in June. The progressive slowdown in Germany worries policymakers as the largest economy in Euro area may drag the region into slump.

Greece will need to top up the EUR240 billion (USD325 billion) of loans received from Europe Union and International Monetary Fund (IMF) since 2010. Economists say Greece will need a third bailout as IMF forecasts Greece will have a EUR12.6 billion financing gap next year.

European Central Bank (ECB) President Mario Draghi targets to increase lending program for boosting growth. Media reports ECB policymakers will flush the market with EUR700 billion (USD950 billion) cash to stimulate growth.

UK consumer prices rose 1.9 percent in June from a year ago after rising 1.5 percent in May. Another data on producer prices was unexpectedly down 0.8 percent after it was revised at 0.3 percent growth in prior month. Unemployment slid to 6.5 percent in the three months through May, from 6.6 percent in the period ending April. Claimant for jobless benefits was down by 36,300 counts and better than median expectation.

Technical Forecast

USD/JPY closed at 101.29 on Friday as it edged towards 101.00 benchmarks. The market is showing weakness after Kuroda did not retaliate of rising yen. This week, we reckon the resistance will emerge at 101.80 levels while it is prone to break below 101.00 levels for lower grounds. We predict 100.00 benchmarks could be possible but reversing above 102.00 resistances need to abandon your short-view.

EUR/USD is very prone to decline further after it closed at 1.3522 for the weekend. The market is very strongly resisted at 1.3570 – 1.3600 regions and might drop into the 1.3400 regions in coming week. Pay attention to the economic data in Euro area and resurging debt crisis among the 18 nations. Reversing above 1.3600 need to remove your short-view.

GBP/USD is showing exhaustion as it has been loitering below 1.7191 recent highs. The market is temporary supported at 1.7050 levels and may gather strength to make another surge in coming week. Piercing above 1.7200 indicates a new wave demand. However, breaking below 1.7000 benchmarks will be a sign of reversing down and might eradicate the bullish trend!

Dar Wong

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

DAR Wong is an approved fund manager in Singapore with 25 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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