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The Euro Fell Due To Resurging Debt Woes

A guest post written by DAR Wong

Currency Market Observations – 21 May 2012

Fundamental Outlook

The US stocks and global equities fall due to chain-fear spread over from Euro debt crisis. Investors move back into buying US dollar as safe haven while euro tumbles to 4-month low. The market attention is focused on Greece in forming a new government through coming mid June while the European Central Bank (ECB) has stopped lending to some Greek banks. Spain is being monitored for "cleaning up" within the national banks.

The US retail sales slowed down in April by rising 0.1 percent after followed prior month gain of 0.7 percent. Industrial output climbed 1.1 percent, the most since December 2010 and propelled by increasing auto-manufactures. Housing starts rose 2.6 percent to a 717,000 annual rate from March’s revised 699,000 pace, showing gradual recovery in housing demands. 

The weekly data on American jobless claims were unchanged at 370,000 after ended on May 12. Foreclosure filings in April sank to 5-year low when the property seizures totaled 188,780, down 14 percent from a year earlier and 5 percent from the previous month. Towards the weekend, FED chairman Bernanke said will not discount the possibility to implement another Operation Twist if needed to prevent the economy from "drowning" though the recovery is mild now.

The inflation rate in the 17-nation euro area dropped to 2.6 percent in April compared to prior month 2.7 percent. Another separate report said Euro-region exports fell 0.9 percent in March from the previous month at 2.2 percent gain. The Eurozone economy is slipping into recession when more than 10 countries suffer from 2 quarters of negative growth.

The ECB would halt further lending to Greece while waiting for its internal re-structuring. The new caretaker government for Greece will most likely hold an election in coming June 17 and thereafter decide the fate of Greece as a continual member of Eurozone. On the other hand, Spanish bond yields jumped to over 4 percent and triggered investors’ fear in tracking after Greece. European Union (EU) and International Monetary Fund (IMF) are taking quick actions to clean up it savings banks and shoring up capital resources.

Last week, euro slid to a 4-month low after Spain’s borrowing costs rose at an auction, stoking concern that the region’s financial contagion is spreading from Greece. Dollar index rose to January’s high and cleared above 80.00 benchmarks.

Technical Forecast

USD/JPY broke the 79.50 supports unexpectedly though dollar strengthened against the European and Asian currencies. This week, we foresee the trend may sink further and attempt 78.30 grounds before recoiling up. Immediate resistance has formed at 80.50 levels which will counter the bulls for time being.

EUR/USD should be hitting the support at 1.2650 regions after it closed at 1.2777 on Friday. We reckon the trend will be strongly supported at 1.2600 – 1.2650 levels while topside resistance lies at 1.2950 – 1.3000 areas. If the market stays in this zone for coming week, trade from extremes and control your risk tightly for some potential profit gains.

GBP/USD violated our forecast support at 1.6000 benchmarks due to fundamental forces and tested the 1.5732 bottoms. This week, we foresee the trend will hover around 1.5880 levels which the range is targeted to move from 1.5700 – 1.5950 regions. Abandon your view if the market settles beyond any of these extreme 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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