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S&P’s Agency Downgrades Spain

A guest post written by DAR Wong

Currency Market Observations – 30 Apr 2012

Fundamental Outlook

The US economy deteriorates in contracting new home sales and durable goods orders. FED chairman Bernanke reiterates of aiming to support with more stimulus programs while keeping interest rates at bay. Eurozone debts rise to record high in 2011 since it started and Spain is downgraded in credit rating. UK slips into recession after GDP for Q1 slid 0.2 percent.

The US new home sales rose to 328,000 annual rates, making a 7.1 percent decline from revised rising figure of 353,000 pace in February. The Conference Board’s measure of consumer confidence dropped to 69.7 in April from prior month 70.2. Amid shedding confidence of investors, FED Chairman Ben S. Bernanke said the central bank is on standby mode to add more stimulus if necessary even while leaving the existing low interest policy. He also upgrades the view of the economy for this year that verbally brought the DJIA stock higher last week.

The US orders for durable goods fell in March by most in 3 years by 4.2 percent, more than forecast and the biggest decrease since January 2009. Another report on existing home sales rose 4.1 percent to 101.4, probably due to lower prices and interest rates of used homes that lured buyers into property markets.

Japan’s consumer prices rose in March with core prices increased 0.2 percent from a year earlier. On Friday, Bank of Japan expanded its stimulus program by another additional JPY10 trillion (USD124 billion) after Spain was downgraded by S&P’s agency on previous day. This will amount to JPY40 trillion funds before June 2013 from the current bonds-purchase program worth 30 trillion.

Debt of the euro region rose last year to the highest record since the single currency commenced. European Union states the total national debts has climbed to 87.2 percent of Gross Domestic Product (GDP) in 2011 from 85.3 percent the previous year.

Last week, Standard & Poor’s agency cut the Spain’s sovereign credit rating to BBB+ from A. Yields on 10-year Spanish bonds surpassed 6 percent in April and has been hovering around this level, thus worrying investors that the borrowing costs may soon need prompt bailouts just like Greece, Ireland and Portugal. However, Spanish government rules out the possibility and stresses their banks are still fully funded.

UK slipped back into fear of recession after the Q1 GDP slid 0.2 percent. Nationwide Building Society said its consumer confidence index rose to a nine-month high of 53 in March from 44 in February but could be short-lived.

Another separate report on UK consumer confidence was unchanged this month from March by holding at minus 31. Prime Minister David Cameron expresses disappointment of decline in growth though austerity measures have taken effects.

Technical Forecast

USD/JPY is still basically threading between 80.00 – 81.50 regions. The trend is making technical consolidation but prone to weakness, unless some solid stimulus is injected into the market by BOJ policymakers for jacking up the prices. This week, we foresee the trend will decline to slightly lower area in 79.50 levels where bargain hunting will begin.

EUR/USD has come to our predicted area around 1.3250 regions as mentioned last week. This week, we expect the resistance to act strong at 1.3300 levels that will drive the prices back to 1.3050 regions for consolidation. Abandon your short-view if the bulls break above 1.3300 resistances.

GBP/USD has conquered above 1.6200 that we forecast the probability of this violation last week. The strength will remain strong this week unless it turns down beneath 1.6150 supports. Topside target may aim at 1.6400 regions before the bulls take a breather!

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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