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Moody’s Cut Rating of Italian Bond

A guest post written by DAR Wong

Currency Market Observations – 16 July 2012

Fundamental Outlook

The US economy remains flat with nothing new in market. Eurozone struggles in debt contagion while Italian bond suffers rating cut by Moody’s Investor Service. The UK policymakers prepare to increase lending for loosening market liquidity by more collateral swap to fight slowdown.

The US consumer credit rose by USD17.1 billion in May and exceeded the highest estimate, after followed USD9.95 billion gain in prior month. Revolving credit on credit card spending gained USD8 billion and charted at highest since November 2007. Data showed the Americans have been living on credit expansion while affected by tightening income and job shrinking.

The weekly initial jobless claims reported by US Labor Department dropped 26,000 in the week ended July 7 to 350,000. However, the decrease in filing may not indicate a recovery in job markets but could be lesser job opportunity amid uneven recovery. Another separate report on producer price index unexpectedly gained 0.1 percent in June after followed 1 percent decrease in prior month due to rising food cost. Core prices rose 0.2 percent as expected.

The minutes from the US Federal Reserve’s latest policy meeting failed to signal more stimulus measures to spur economic growth and bludgeoned the investors’ confidence. Stocks were weak last week but made technical recovery on Friday due to short-covering for profits.

The industrial production among the 17-nation eurozone rose 0.6 percent from April, when it fell 1.1 percent. Overall sentiment in the euro area was strapped in pessimism despite few positive data. The euro sank to 2-year low record below 1.2200 though euro leaders met to discuss in giving financial aid.

Moody’s Investors Service cut rating of Italian bond by 2 levels from A3 to Baa2. Spanish banks hit record high for their net borrowings from the European Central Bank (ECB) at EUR337 billion (USD411 billion) in June. 

The UK factory output unexpectedly rose 1.2 percent in May, compared to prior month at 0.8 percent decline. National exports rose 7.8 percent in May from April, led by cars, oil and chemicals. Imports increased 1.5 percent. The goods-trade deficit narrowed to GBP8.36 billion from prior GBP9.71 billion.

Bank of England (BOE) said its new lending plan will increase by minimal GBP80 billion (USD124 billion) to support liquidity for companies and loosening credit for households.

Technical Forecast

USD/JPY has been trading narrowly from 79.00 – 80.00 range. We reckon the 79.00 support will be essential to hold the bulls lest failing below will possibly open more rooms to test below 78.00 in near future. Topside resistance is pretty strong at 80.00 but need to pierce above here before looking at long-term recovery.

EUR/USD closed at 1.2248 for the weekend after dipped below 1.2200 as we forecast. The market shows neutral sentiment for the time being but might be going either direction in coming week. Resistance still hold well at 1.2400 – 1.2450 regions while sinking below 1.2150 could effectively test 1.2000 benchmarks soon.

GBP/USD has a strong recovery on Friday from positive fundamental news and closed at 1.5573. The market made 1.5400 lows last week as we predicted. This week, we expect the trend to move from 1.5450 – 1.5650 areas which will likely test the topside resistance first before slide down.

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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