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The Euro Debt Crisis Persists in Worries

Currency Market Observations – 21 Nov 2011

Fundamental Outlook

The US consumer market demands remain sluggish despite industrial output showed mild recovery. Euro debt crisis continues to post threats to growth in America and Britain that hammered the commodities down last week. International Monetary Fund (IMF) announces it will not release next tranche of bailout package for Greece until more political supports are being backup by Euro leaders.

The US producer prices declined 0.3 percent after a 0.8 percent gain in September, reflecting inflation shrinkage. Retail sales purchases climbed 0.5 percent in October at mild demands. The industrial production that measures output at factories, mines and utilities climbed 0.7 percent after a revised 0.1 percent drop in September, indicating steadiness commercial sectors.

The American weekly claims for unemployment benefits dropped to the lowest level in 7 months when the data ended on 12 November slid 5000 to 388,000. Another separate report shows housing starts dropped 0.3 percent to a 628,000 annual rate in October.

Japan’s GDP grew at an annualized 6 percent in Q3 of 2011, growing at fastest pace over past 18 months and recovered from slump in prior quarter caused by Tsunami earthquake in March. However, recent intervention showed little changed in yen weakening and exports are still affected by strong yen in overseas demands.

Europe GDP expanded 0.2 percent in Q3 with little rise from previous quarter. Eurozone is still worrisome of debt crisis contagion that might explode anytime while Italian bonds yields are hovering at 7-year high. On the other hand, IMF said it will hold back the release of next rescue plan worth EUR 110 billion (USD148 billion) for Greece with European Union (EU) until broad political support is shown among Euro leaders.

UK consumer confidence fell to a record low in October as Europe’s debt crisis worsened. The index for consumer sentiment slid 9 points to 36. Retail sales unexpectedly rose 0.6 percent in October probably due to many discounted sales going down the streets. The central bank governor Mervyn King said Europe’s woes remain as biggest threat to the British economy should it become contagion!

Technical Forecast

USD/JPY traded in very tight range last week around 77.00 regions. This week, we foresee not much difference in the market while it may move from 76.50 – 77.50 levels. This market will only climb up again if there is any new intervention by Japan’s government, otherwise should remain weak while being hedged by traders against falling dollar and euro.

EUR/USD broke the previous 1.3500 supports and reached 1.3421 low last week before rebound. The market remains sensitive to news of Euro debt in its trending. This week, we reckon it will consolidate sideways from 1.3450 to 1.3700 levels for technical digestion. However, falling beneath 1.3400 benchmarks may attempt the 1.3200 regions.

GBP/USD is in the midst of a new down trend while it may consolidate from 1.5700 – 1.5880 regions for few days before declining again. Breaking above 1.5880 may attempt higher at 1.5980 while staying sideways for a while will probably be capped within 1.5700 – 1.5850 band. Be prepared to see another series of decline once this consolidation completes!

Dar Wong

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

Wong is founder and principal consultant of and holds a professional qualification in NASD series 3 and 5 approved by National Futures Association (USA). He was previously attached with Bankers Trust Futures Inc, Barclays ZW Futures and Smith Barney Shearson (Citigroup) Inc.

He is also an active trader and author of 8 Ways to Invest In China’s Emerging Markets. Wong is also columnist for The Star, The Borneo Post in East Malaysia, The Busy Weekly, The Trader’s Journal, The Forex Journal, The Pulses, The Analysts and Capital Asia magazine.

He is a regular speaker on trading topics as well as Master Speaker for the annual Asia Traders and Investors Convention (ATIC).

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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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