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Pound Surges as UK Economy Strengthens

A guest post written by DAR Wong

Currency Market Observations – 14 April 2014

Fundamental Outlook

The US stocks fall despite being assured of low interest rates by FED meeting. Stronger economic data rise worries among investors that stimulus withdrawal will expedite. China shows stronger inflation amid contraction in import/export trades. Bank of England leaves interest rates unchanged as recovery picks up as expected.

The US consumer borrowing rose more than forecast in February. Credit advanced USD16.5 billion and exceeded forecast while non-revolving credit gained in automobiles, schools etc. Another report on weekly jobless claims slid 32,000 to 300,000 in the week ended April 5, the least since May 2007 that signaled picking up in hiring.

American producer prices rose 0.5 percent in March after declined 0.1 percent in prior month. Core prices gained 0.6 percent and above median forecast. The better-than-expected figures put pressure on Dow Jones benchmarks and slammed equity prices towards weekend.

Last week, the FOMC minutes revealed policymakers in assuring low interest rates as recovery will take sometimes to regain traction. Stocks were bullish during mid-week but declined on Thursday and Friday after economic data showed stronger outlook than consensus.

China’s imports and exports fell in March unexpectedly as overseas shipment declined 6.6 percent from a year ago, while imports fell 11.3 percent. However, the trade surplus still recorded USD7.71 billion and lifted positive outlook.

Another separate report on consumer prices rose 2.4 percent in March from a year ago after it advanced 2.0 percent annual rate in previous month. The producer prices was at minus 2.3 percent annualized rate and worse than expectation.

Last week, the Ministry of Finance in China failed to sell all of the bonds offered at an auction for the first time in 10 months. Market investors speculate short-term interest rates will climb as corporate tax payments tie up funds.

Japan records surplus in current account for the first time in 5 months, after February rose JPY613 billion (USD5.9 billion). Yen has begun to rise slightly against Dollar as policymakers remain dormant in stimulus action. Market investors are observing the announcement of Kuroda on coming Thursday for clarifying the view of central bank.

European Central Bank and the Bank of England both agree that regulators must support and promote the asset-backed bond market. This will help to ensure the protection of financial system and will not jeopardize the use of securities.

The UK industrial production rose in February by 0.9 percent and exceeded forecast. Another report on manufacturing output rose 1.0 percent versus 0.3 percent revised gains in January.

British trade deficits were reported at GBP9.1 billion (GBP15.2 billion) compared with GBP9.5 billion in January. The RICS reports the housing-price gauge of property rose to 57 in March from a revised 47 the previous month.

Last week, the Pound re-tested above 1.6800 highs after lifted by few stronger economic data. Bank of England left interest rates unchanged to expedite recovery growth.

Technical Forecast

USD/JPY fell from 103.40 to 101.50 regions last week as market traded in waning confidence of Japan’s recovery. This week, the sentiment will be prone to Bank of Japan’s governor Kuroda’s speech on coming Thursday. Technically, we reckon the resistance will emerge at 102.50 – 102.80 areas while downside potential may extend to 100.00 benchmarks if policymakers do not adopt any new stimulus to excite market traders.

EUR/USD remains well resisted at 1.3900 levels. The market may be hovering around 1.3900 – 1.3950 regions in coming week before turning down. We expect the trend to drawdown at 1.3800 targets if the correction begins. However, abandon your short-view if the trend shoots above 1.4000 levels.

GBP/USD fell from 1.6820 last week. The market may be prone to test 1.6820 – 1.6850 regions in coming week before the market slides. Technically, we expect the market to decline after middle of coming week with target set at 1.6650 levels. Trade cautiously and abandon your short-view in case the bulls pierce above 1.6850 resistances.

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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