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Japan Increases New Stimulus as FED Withdraws

A guest post written by DAR Wong

Currency Market Observations – 3 November 2014

Fundamental Outlook

The US announces full withdrawal of stimulus while Japan decides to increase its monetary base. European Central Bank (ECB) also starts to buy covered bonds in the Euro area as support to ailing economy. Global stock sentiments have moved into celebration as commodity prices correct in drawdown.

The US pending home sale grew 0.3 percent in September but below median forecast, after contracted at minus 0.1 percent in August. Orders for durable goods unexpectedly dropped 1.3 percent while core orders, excluding aircrafts, also dropped to minus 0.2 percent after revised growth at 0.4 percent in previous month.

Conference Board’s index climbed to 94.5 in October, the highest since October 2007, from a September reading of 89. Market analysts reckon the fall in crude prices projects better profit margin by most manufacturers.

The US Gross Domestic Products (GDP) rose 3.5 percent in Q3, higher than forecast and compared to revised 4.6 percent growth in prior quarter. Jobless claims for the week ended 25 October was at 287,000 and almost unchanged from previous data. .

Last week, FED Chair Janet Yellen has completed the 2-year bond purchase program and claims that rising job data will withstand the withdrawal of stimulus. In the statement after Federal Open Market Committee (FOMC) meeting, policymakers showed confidence in withholding market sentiment by committing to maintain low interest rates for a “considerable time”.

Japan’s retail sales rose the most in 4 months after it climbed 2.7 percent in September compared to 1,9 percent in prior month. Japanese industrial production gained the most since January when output increased 2.7 percent from dropping to minus 1.9 percent in August.

The Japan inflation measured by core consumer prices rose 2.5 percent in October from a year ago in Tokyo while national inflation gained 3.0 percent. Both data were in-line with median forecast. Another separate data on household spending contracted to minus 5.6 percent and worse than forecast, probably still affected by pull down in sale-tax rise since April.

Last Friday, Bank of Japan’s Governor Haruhiko Kuroda surprised the market new stimulus announcement. Policymakers have decided to enlarge the monetary base to JPY80 trillion (USD724 billion), up from current JPY60 – 70 trillion, resulted in pushing up the Japanese stock benchmark and devaluing Yen.

German preliminary CPI in October contracted to minus 0.3 percent after stagnated at par growth in previous month. However, unemployment change reduced 22,000 in September versus a revised 9,000 gains in August.

European Central Bank (ECB) says it has settled EUR1.704 billion (USD2.2 billion) of covered-bond purchases last week as policymakers have begun latest effort to revive the euro-area economy. Together with Japan’s new stimulus, the effect has lifted the global stocks before the weekend closed.

In a separate report, Euro CPI estimate for October among the 18 nations rose 0.4 percent from a year ago while core estimate data gained 0.7 percent. Unemployment rate recorded at 11.5 percent in September and same as expectation.

Technical Forecast

USD/JPY surged from 109.00 bottoms on Friday to above 112.00 levels. The market has traded in bullish sentiment after the Japan announced new stimulus and we reckon it will continue to stay firm in coming week. Technically, we have identified the support to rest at 110.50 levels while the bulls might continue to climb till 114.50 regions.

EUR/USD dipped down to 1.2500 bottoms again last week after Dollar strengthened and ECB increased bond purchase program. This week, we reckon the market will see strong selling pressure emerging at 1.2600 levels and chances of breaking below 1.2500 for settlement are highly possible. If this happens, we shall see new selling pressure in market that could land the market at 1.2350 as next support grounds.

GBP/USD turned down again last week after failing to cross above 1.6200 resistances. This week, we foresee the bears will challenge 1.5900 supports while immediate resistance will emerge at 1.6100 levels. Beware of breaking below 1.5900 supports as this will drive the trend lower at 1.5750 targets!

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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