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Japan Increases JPY10 Trillion Stimuli

A guest post written by DAR Wong

Currency Market Observations – 24 September 2012

Fundamental Outlook

The US home demands begin to recover as buyers take advantage of low mortgage rates. Japan’s exports decline and Bank of Japan (BOJ) announces expansion in asset-purchase program to total JPY55 trillion. Europe dawdles in slowdown and no taker has come forward for the financial after European Central Bank (ECB) rolled out stimulus.

The US current deficit shrank in Q2 by 12 percent to USD117.4 billion from USD133.6 billion in prior quarter. The Treasury Department said international net buying of US long-term equities, notes and bonds totaled USD67 billion in July, up from net purchases of USD9.3 billion in June.

Existing home sales in US housing markets increased 7.8 percent in August to 4.82 million annual rates, the most since May 2010. Buyers are taking advantages of low mortgage rates and rock bottom property prices. Another report showed building permits climbed 2.3 percent to a 750,000 annual rate but less than forecast, from a revised 733,000 annual pace in July.

Last Thursday, US jobless claims decreased by 3,000 in the week ended September 15 to 382,000 but still above median forecast. The leading indicators reported by New York-based Conference Board fell 0.1 percent after a 0.5 percent increase in July, indicating low confidence on growth in 3 to 6 months ahead.

Japan’s exports fell 5.8 percent in August from a year earlier, making the third straight decline. Demands from China have been dropping due to tensions over Diaoyu islands in the East China Sea.

On Wednesday, BOJ increased stimulus in asset-buying program by another 10 trillion yen to total JPY55 trillion now. The spending aims to complete by December 2013 from previous set date June 2013. However, the yen has not reduced against greenback as traders weigh the effects of this JPY10 trillion (estimated USD12.5 billion) stimulus as futile compared to US stimulus of monthly USD40 billion input announced in FOMC 2 weeks ago. 

The European banks pledged last year to cut more than USD1.2 trillion of assets to help them weather the sovereign-debt crisis. Since then, they have grown more in assets in-line with debts. Since the ECB President Draghi announced the unlimited bonds-asset stimulus to aid indebted euro member country, no one has approached the authority for help. A senior Italian official said Italy and Spain will not request for bailouts unless a new surge in bond yields occur, as no government will voluntarily accept conditions imposed for the aid.

Britain posted its biggest August budget deficit on record. The shortfall excluding government support for banks was GBP14.4 billion (USD23.5 billion). After the data, pound rose on Friday in short-squeeze as investors expected new stimulus from government.

Technical Forecast

USD/JPY has been resisted at 79.20 after the BOJ announced stimulus. The market is uncertain now as it sits on 78.40 supports. In our opinion, the trend has to break beyond either this extreme in order to lead a new extension. Otherwise, observe the continual consolidation inside this mentioned range.

EUR/USD made the recent 4-month high at 1.3172 and began to fall. Technically, we foresee the trend could be trading sideways this week inside the range from 1.2900 supports to 1.3100 resistances. After this phase, the market trend will probably move into bearish sentiment due to profit-taking. However, breaking beneath 1.2900 supports will land on 1.2750 as our next target.

GBP/USD made 5-month record high at 1.6309 and receded to 1.6228 at closing on Friday. This week, we reckon the resistance will emerge at 1.6260 areas with selling opportunity and trend is likely to turn bearish from the top. We expect the bears to drive down to 1.6000 levels which will go lower in coming weeks. Abandon your short-view if the trend pierces above 1.6310 again!

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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