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Scotland Votes for Non-Independence

A guest post written by DAR Wong

Currency Market Observations – 22 September 2014

Fundamental Outlook

The US FED maintains path to cut another USD10 billion stimulus while Yellen vows to keep low interest rates. Japan improves in trade balance and increases national household asset net worth through the economic reforms. UK celebrates reunion after Scotland voted for non-independence and ended the worries of economic breakup with England.

The US industrial production shrank 0.1 percent in August against positive forecast. Producer prices grew at par in August after rising 0.1 percent in July. Core producer prices stayed stagnant at 0.1 gains in-line with previous month.

Another US inflation measure through consumer prices unexpectedly declined 0.2 percent in August and core prices stayed at par. The National Association of Home Builders/Wells Fargo sentiment climbed to 59 exceeding the highest estimate, from 55 in August.

American jobless claims decreased by 36,000 to 280,000 in the period ended 13 September, at 2-month low record and spiked Dow Jones benchmarks to record highs last week. Housing starts dropped to a 956,000 annualized rate in August compared to revised 1.12 million in prior month.

In the FOMC meeting, Federal Reserve officials raise their median estimate for the federal funds rate at the end of 2015 to 1.375 percent, compared with 1.125 percent in June. FED calls for another USD10 billion stimulus cut in coming month and Chief Janet Yellen stresses on keeping low rates for a while even after all the financial aid is removed by year-end.

Japan’s trade deficit fell slightly to JPY948.5 billion (USD8.75 billion) in August, from a year ago at revised JPY971.4 billion and better than forecast JPY1.028 trillion.

Under reforms of Abenomics, household assets increased to JPY1,645 trillion (USD15 trillion) at the end of June, up 2.7 percent from a year earlier. Holdings in investment trusts climbed 15 percent to an all-time high of JPY82 trillion.

In Euro area, trade balance grew EUR12.2 billion in July after seasonally adjusted, contracting from EUR13.8 billion surplus in previous month. Inflation in the 18 countries was higher in August after consumer prices presented 0.4 percent gains from a year ago. Core inflation was up 0.9 percent.

German ZEW economic sentiment reports the index for investors’ confidence rose 6.9 in September and above median forecast. Investors are waiting for new stimulus worth EUR700 billion before year-end as promised by European Central Bank President Draghi to alleviate the slow growth.

UK claimant counts in August contracted by 37,200 compared to revised data 37,400 in previous month. Unemployment rate was 6.2 percent and lower than forecast. Consumer prices grew at 1.5 percent in August from a year ago but remained stagnant without rising.

After the national referendum in Scotland, the people have voted to stay in the U.K for reinforcing the 307-year-old union. Prime Minister David Cameron promises more financial power to aid Scotland’s economic growth.

Technical Forecast

USD/JPY climbed above 108.00 before weekend as predicted last week. This week, the market will be prone to rise further until we see 110.50 targets. Support will emerge at 107.00 regions in case of drawdown. We reckon the bullish sentiment will remain in market till end of month.

EUR/USD showed an engulf pattern on day-chart on Friday’s closing. The market is now resisted strongly at 1.2920 levels while it could decline again this week at 1.2700 areas. Sentiments in market are still weak though short sellers have begun to cover for profits. Observe the USD trend that will directly affect the Euro direction now.

GBP/USD also showed a strong engulf pattern on Friday after Scotland voted for reunion with England. Long traders took profit and resumed the market sentiment of strong USD against European currencies. This week, we foresee pound will fall back to 1.6050 bottoms while resistance will emerge at 1.6400 areas.

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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