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The EU Prepares To Bailout Greece

A guest post written by DAR Wong

Currency Market Observations – 19 November 2012

Fundamental Outlook

The US economy slows down again in wake of contracting retail sales and higher jobless claims. Obama administration plans to increase taxation on wealthy while cutting budget in January which worry some analysts of pushing US into recession. Japan Prime Minister Yoshihiko Noda dissolves the cabinet for election in December. The Gross Domestic Product (GDP) in Eurozone declines as European leaders will meet to bailout Greece in coming week.

The US retail sales dropped 0.3 percent in October after followed a 1.3 percent increase in September, affected by the Sandy Storm that contracted the consumer demands. The producer-price index slid 0.2 percent while another separate report on consumer price index rose 0.1 percent in October after followed a 0.6 percent gain in prior month. However, the core consumer prices climbed 0.2 percent, more than projected, reflected rising rents and clothing costs.

The weekly jobless claims by Americans surged 78,000 to 439,000 in the week ended 10 November after job market was struck by Sandy storm. The Obama government plans to raise personal income tax rates on the wealthiest Americans in January while proposes to cut USD607 billion in budget spending. Analysts remain inquisitive if this may revive the economy or deepen into recession.

As largest economy in Eurozone, German investors’ confidence fell in November unexpectedly. The ZEW Center for European Economic Research in Mannheim reported its index declined to minus 15.7 from minus 11.5 in October.

On the other hand, Greek economy contracted for a 17th straight quarter as it slid 7.2 percent in Q3 from a year ago. European finance ministers will meet in Brussels on 20 November to discuss ways of structuring bailouts for indebted nations.

Debt crisis is gradually damaging the growth in Eurozone as exports, manufacturing and industrial production erode. The GDP growth in the 17-nations economy slipped 0.1 percent in the Q3 after a 0.2 percent decline in the previous three months.

The British inflation prices for October rose 2.7 percent from a year earlier, the fastest since May. Core inflation accelerated to 2.6 percent from September 2.1 percent.  Another report by ONS said house prices rose 1.7 percent in September from a year earlier, down from 1.9 percent in August and indicates unsteady demands in property assets.

The UK jobless claims increased 10,100 to 1.58 million in October amid slowdown in British economy. Another report on retail sales including fuel dropped 0.8 percent from September, when they gained a revised 0.5 percent.

Technical Forecast

USD/JPY market surged last week as traders expected a newly elected government will steer the current recession into growth. Prime Minister Noda announced the disintegration on Friday. This week, we expect the trend to be resilient and well supported at 80.60 levels. The market has potential to cross above 82.00 benchmarks should yen reduce further.

EUR/USD performed short-covering to 1.2802 as we predicted last week. The market closed below 1.2760 levels that indicated a bearish sign in coming week. Moving forward, we reckon a further slide will occur and probably reach 1.2500 benchmarks once euro weakens again. However, beware the market may act resilient too if the EU announces firm bailout for Greece in coming week. Abandon your short-view once the market pieces above 1.2830 resistance.

GBP/USD has shown bearish sign after it broke below 1.5900 levels. This week, we reckon the trend will continue to fall as long as the 1.5950 resistances are not violated. On breaking beneath 1.5820 supports, the market may drill lower to try 1.5650 levels.

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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