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Japan Delays Stimulus Till 2014

A guest post written by DAR Wong

Currency Market Observations – 28 January 2013

Fundamental Outlook

The US Treasury Secretary Geithner reiterates the debt limit will be reached sometime in February and should be planned with more budget cutting. Japan policymakers announced the unlimited stimulus measures but will begin only from January 2014. Contracting exports and inflation rate are far from Japan’s government’s 2 percent target. International Monetary Fund (IMF) predicts growth for 2013 will expand 3.5 percent, lesser than the 3.6 percent forecast in last October.

The US existing home sales unexpectedly slid in December by 1 percent to a 4.94 million annual rates. Leading indicators reported by Conference Board for outlook over next 6 months increased 0.5 percent after no change in November. Another report showed jobless claims was down 5,000 to 330,000 in the week ended 19 January, lower than median forecast.

Despite improvement in economic data, the US Secretary Timothy F. Geithner said the government might reach USD16.4 trillion debt ceiling in mid-February. The House Republicans say any increase in the limit should be matched by equal reductions in future spending.

Japan’s exports dropped 5.8 percent in December from a year earlier, falling for seventh month. The annual trade deficit was JPY6.93 trillion (USD78 billion) and swelled to record high. Another separate report on national consumer prices excluding fresh food fell 0.2 percent in December from a year earlier.

Japan policymakers ended 2-day meeting on 22 February by implementing open-end asset purchase program and set inflation target at 2 percent for recovery. However, market was disappointed that the stimulus plan of JPY13 trillion monthly injection (USD145 billion) will only begin in January 2014. After the inflation data released at far from the target, Bank of Japan (BOJ) faced increasing pressure to add more stimulus.

An euro-area composite index based in both manufacturing and services rose to 48.2 in January from prior month 47.2. German investor confidence increased to the highest in 2-1/2 years in January. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations jumped to 31.5 from 6.9 in December.

IMF predicts global growth for 2013 will expand 3.5 percent this year, lesser than the previous estimate 3.6 percent forecast in October. U.K. jobless claims unexpectedly fell in December by declining 12,100 from November to 1.56 million, the lowest since June 2011.

Technical Forecast

USD/JPY receded in mid-week to 88.06 after disappointment in BOJ stimulus measures. However, it made new recent high at 91.00 levels on Friday when market traders expected more funds will be injected after sliding exports and contracting inflation were reported. This week, we reckon the support will rest at 90.00 regions while topside may aim at 92.50 levels should the bulls continue to ascend.

EUR/USD has been consolidating between 1.3250 – 1.3400 ranges for past 2 weeks but finally skipped above 1.3400 resistances on Friday. The market reached 1.3480 highs after European Central Bank (ECB) said borrowing banks will pay back loans next week at more than forecast. This week, we expect euro to continue strengthen with resistance probably emerging only at 1.3660 regions. Supports have emerged at 1.3400 levels now.

GBP/USD was down for the past week and tested the 1.5750 supports at the close of the week. The market is going to lean on fundamental news this week for deciding the forthcoming trend. Breaking below 1.5750 will test lower supports at 1.5630 levels while making technical recovery will aim for 1.5950 areas.

Dar Wong

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

Wong is the founder and Principal Consultant of and holds a professional
qualification in NASD series 3 and 5 approved by National Futures Association (USA).

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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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