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Spain Adds Pressure to Euro Plunge

A guest post written by DAR Wong

Currency Market Observations – 30 July 2012

Fundamental Outlook

The US home markets stays in fatigue bottoms while job market remains weak. Expansion for Q2 cooled down amid low demands. Spanish unemployment rises to record high and worries investors for poor outlook in following 6 months. The UK deepens into recession after the third quarter shows consecutive decline in Q2.

The US Zillow Home Value Index rose to USD149,300 at 0.2 percent increase from the Q2 2011, showing first gain in year-to-year comparison since 2007. According to the Commerce Department, new home sales declined in June by down 8.4 percent to a 350,000 annual rate while pending home resale decreased 1.4 percent to 99.3 after a revised 5.4 percent gain in May. Both reports indicated no recovery in housing slump.

Another report showed orders for US durable goods climbed more than forecast in June with bookings increased 1.6 percent for a second month. Jobless claims decreased by 35,000 in the week ended July 21 to 353,000 in worsening job market.

The growth for GDP in Q2 rose 1.5 percent at annual rate after a revised 2 percent gain in the prior quarter, cooling down as job markets dwindled. American household spending rose at a 1.5 percent rate from April through June, down from a 2.4 percent gain in the prior quarter.

In Japan, a formal official said Bank of Japan (BOJ) should consider buying euro bonds to help reverse rising yen as the national exports is hurt. On the other hand, market players speculated European Central Bank (ECB) may buy euro bonds to support the falling prices and rumors lifted DJIA trend on Friday.  

Spanish unemployment rose to 24.6 percent in the Q2 from 24.4 percent in the prior 3 months. Last week, the 5-year borrowing costs in Spanish bond briefly rose above 10-year yields that worried the investors of an imminent plunge in euro economy. During mid week, the loss of confidence in Euro currency has caused impact for making yen rise rapidly as safe haven for hedging against defunct euro instruments.

As the largest economy in Eurozone, German business confidence measured by Ifo institute showed index dropped to 103.3 from 105.2 in June. A composite index on both industries in the 17-nation euro area reported at 46.4 in July that was identical to prior month, showing no expansion ion growth.

The UK GDP in Q2 fell 0.7 percent from the first quarter, when it dropped 0.3 percent. Growth shrank for the third quarter and added pressure on Prime Minister David Cameron to abandon Britain’s biggest budget squeeze since World War II. On Friday, UK stocks and pound rebounded from a four-day decline after ECB President Mario Draghi said the lender will act to preserve the euro amid surging bond yields for the currency zone’s most-indebted members.

Technical Forecast

USD/JPY was supported at 78.00 levels last week as we predicted. Moving forward, we reckon the trend will move tightly from 78.00 – 79.20 regions while still waiting for fundamental stimulus from ECB or BOJ to take action. However, beware of market falling beneath 78.00 levels in case Euro economy turns sour!

EUR/USD bounced off 1.2042 lows last week and closed at 1.2321 on Friday. This week, we expect the trend to consolidate in early week and reckon good opportunity to attempt selling in 1.3350 – 1.3400 regions with controlled risk. As the 1.2300 levels were previously read as the first resistance, we reckon the trend falling beneath here will initiate a new selling pressure.

GBP/USD closed at 1.5734 after rising from our expected support at 1.5450 regions forecast last week. This week, we reckon the trend has shown toppish sign and might turn down with resistance capping at 1.5770 – 1.7800 levels. We expect the trend to consolidate from 1.5500 – 1.5800 regions while following the fundamental news in deciding the bailout for Euro economy.

Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

Wong is the founder and Principal Consultant of PWForex.com 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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