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Nine Euro Nations are Downgraded by S&P’s Agency

A guest post written by DAR Wong

Currency Market Observations – 16 Jan 2012

Fundamental Outlook

The US consumer borrowings increase while retail sales decline, indicating slowdown in spending and a tough journey to road of recovery. Trade deficits widen and post bigger gap due to falling exports. Nine euro nations were downgraded by Standard and Poor’s rating agency with only Germany still sitting on AAA with positive outlook. UK economy is still unstable though policymakers show no intention in increasing the bond purchase program.

The US consumer borrowing increased USD20.4 billion in December to USD2.48 trillion while showing signs of increased liquidity among bank lenders. The wholesale inventories rose only at 0.1 percent in November after followed 1.2 percent revised gain in prior month. Another separate report showed retail sales were up also at 0.1 percent in December, thus confirming a possible slowdown in consumer market for 2012.

The US Labor Department confirmed jobless claims climbed by 24,000 to 399,000 in the week ended 7 January and showed more filings than expected. Trade deficit widened more than forecast in November due to sliding exports with trade gap expanded 10.4 percent to USD47.8 billion.

A study commissioned by the European Central Bank reported the total pension funds obligation in 19 of the European Union nations will be about 5 times higher than their combined gross debt. The debt amount is estimated at EUR30 trillion and ticking away like a time-bomb that has caused panicky in European regions.

Standard and Poor’s rating agency cut nine Euro nations in credit ratings. Among them, France and Austria are also downgraded to AA+ from AAA and face the risk of further reductions. Only Germany sits on the AAA ratings now with positive outlook.

London-based RICS reported property index gained one point to minus 16 in December while housing demand is still under continual stress. The UK factory output prices unexpectedly fell in December for the first time in 18 months from the report on producer prices declined 0.2 percent.

British Chambers of Commerce said the stimulus implemented by Bank of England (BOE) may not be enough to revive UK economic growth. However, BOE Governor Mervyn King is holding on to adding more stimuli as policymakers believe the economy will show resilience while heading into 2012.

Technical Forecast

USD/JPY was trapped in very small range last week with support lying at 76.50 regions. This week, we foresee the market will either break beneath 76.50 and hit lower to 76.00 levels or stay range bound to topside at 77.50 regions. No big expectation is laid unless some announcements are released.

EUR/USD has a hard fall on Friday after the nine downgrades by S&P rating agency. Moving forward, we foresee the market will stay bearish with 1.2880 regions acting as very strong resistance. This week, we expect the trend to drive lower at 1.2500 benchmarks before some buying interest may emerge.

GBP/USD came off 1.5500 regions last week as we predicted previously. This week, we foresee 1.5230 will be a crucial support because giving its way may land on 1.4850 before the weekend. Resistance should stay strong at 1.5370 levels and ideal for establishing new shorts. Abandon your short-view if this resistance is violated.

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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