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Japan Faces Challenge in Slow Recovery

A guest post written by DAR Wong

Currency Market Observations – 24 February 2014

Fundamental Outlook

The US economy stays flat while Dow Jones benchmarks hover slightly above 16,000 levels. FED policymakers predict interest rates may rise if unemployment falls below 6.5 percent. Japan remains far from the inflation target at 2.0 percent while investors remain wary of new sales tax in April. British policymakers vow to keep low interest rates for pulling through the recovery period.

The US jobless claims declined by 3,000 to 336,000 in the week ended 15 February. Another report on consumer inflation rose slower at 0.1 percent after December gained 0.3 percent. Core inflation remained at 0.1 percent as expected. FED policymakers say interest rate may rise if jobless rate falls to 6.5 percent or lower.

The monthly manufacturing gauge for January was unexpectedly stronger at 56.7 and helped in maintaining firm equity prices in Dow Jones markets. Existing home sales dropped to the lower level in January as purchase of previously owned homes slid 5.1 percent to 4.62 million annual rate at fewest since July 2012.

China’s manufacturing growth slowed to least in 7 months after the manufacturing PMI showed 48.3 in January and below median forecast. Markets traders are observing China’s inflation growth to gauge the direction of Gold prices after the yellow metal began to correct after recent rise.

Japan’s growth measured by Gross Domestic Product (GDP) grew 1 percent at annualized rate in Q4 of last year. The gains were at half of economists’ forecast and may post risk of economic slowdown. Market is remaining wary of looming sales tax for the coming April while Prime Minister Abe is far from pushing the inflation to reach 2.0 percent.

Japan’s trade deficit widened to a record in January due to surging import. The Finance Ministry reports shortfall of JPY2.79 trillion (USD27.3 billion) that is more than median forecast. Last week, the Yen slid after Bank of Japan (BOJ) boosted its lending programs and said it will maintain monetary easing to stamp out deflation.

German home prices rose by the most in 2013 for past decade due to cheap borrowing rates. Housing prices gained 4 percent last year from a year ago. The manufacturing index in Euro region unexpectedly slipped to 53.0 from 54.0 in January, while the services measure rose less than estimated to 51.7 from 51.6. A composite gauge fell to 52.7 from 52.9.

The UK consumer-inflation rose 1.9 percent in January from a year ago while below the 2 percent target preset by policymakers. Core inflation climbed 1.6 percent and below forecast. The jobless rate unexpectedly rose in Q4 by climbing to 7.2 percent from prior 7.1 percent in the 3 months through November.

Bank of England policymakers vow to stay committed in keeping interest rates low. Another report shows the Britain’s budget surplus rose lesser in January while it recorded GBP4.7 billion (USD7.8 billion), compared with GBP6 billion from a year ago. Retail sales fell 1.5 percent after surging 2.5 percent in December.

Technical Forecast

USD/JPY went up to 102.83 levels on Friday. This week, we reckon the market will be strongly resisted at 103.00 regions while it may start to correct downwards. The market may slide to 100.50 areas if there is no fundamental news to push up above 103.00 levels. Breaking below 100.50 supports could further sink down to 99.50 targets.

EUR/USD tested our predicted resistance area at 1.3770 levels and closed slightly below here for the weekend. This week, we expect the technical correction to begin and trade lower at 1.3600 levels. The market should move sideways from 1.3600 – 1.3770 ranges if there is no further fundamental news to lift Euro higher. Abandon your short-view in case the trend breaks above 1.3770 resistances.

GBP/USD has begun to fall from recent high at 1.6823 levels. Technically, we foresee the downfall will stretch lower at 1.6550 areas before bargain hunting emerges. Likewise to Euro, the Pound should be threading sideways against Dollar in coming week as it consolidates. Short traders should beware of rising trend above 1.6823 levels.

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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