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The Eurozone Snatches Limelight in Debt Crisis

Currency Market Observations – 14 Nov 2011

Fundamental Outlook

The US economy stabilizes and shows the world’s largest economy may prevent an imminent recession. Both Greek and Italy Prime Ministers step down and arouse concerns in debt restructure in the Eurozone. Britain continues its QE2 program by spending the GBP75 billion in another 3 months.

The US consumer credit rose in September by USD7.4 billion vs. down 7 billion in August. Increment in non-revolving credit and auto-purchase helped in the spending. Another report showed wholesale inventories decreased 0.1 percent in September compared with a 0.5 percent gain in prior month.

The US trade deficit unexpectedly narrowed in September on record exports and jobless claims fell to a 7-month low, showing recovery. Trade gap shrank 4 percent to USD43.1 billion from a revised $44.9 billion in August. Initial jobless claims dropped 10,000 to 390,000 for the week ended 5 Nov. Another positive report on national budget deficit showed USD98.5 billion shortfalls in October compared to USD140.4 billion deficits in same month a year ago.

European finance ministers have pledged to produce a massive rescue plan in December. Meanwhile, Greek Prime Minister Papandreuo and Italian Prime Minister Berlusconi both agreed to step down. Italian bonds’ yields hit 7-year record high last week and Parliament is preparing to vote for an austerity plan next week. European Central Bank (ECB) policymakers remained inactive and claimed to observant. So far, ECB has purchased EUR183 billion worth of government bonds from debt-strapped nations.

The London-based RICS reported housing price index fell to minus 24 from minus 23 in September, showing weakness in UK property prices. A retail sales index fell 0.6 percent in October from a year earlier and indicated slump in consumer spending.

The Bank of England (BOE) maintained its plan for asset purchases over next 3 months to prevent viral crisis. Policymakers will continue its QE program devised last month at GBP75 billion while keeping it under constant review. A top fund manager in UK claimed Britain will follow Europe into recession next year as growth will be weighed down by debt crisis.

Technical Forecast

USD/JPY begins to recede again as global traders are not convinced of the recent intervention by BOJ. We expect the market will thread sideways from 76.50 – 78.00 regions while slowly moving into stagnation again. Only economic recovery can drive the market out of this consolidation as any intervention is viewed as short-lived booster.

EUR/USD touched last week’s low 1.3483 and rebound to close at 1.3741 for the weekend. From the technical outlook, we are more keen to expect uncertain swings moving from 1.3500 – 1.4000 regions in few weeks ahead. Basically, Eurozone is still creating volatile news to swing the trend without any clear direction. Abandon your long-view if the market breaks beneath 1.3500 levels again!

GBP/USD has found its temporary support at 1.5870 regions as we foresee the trend will consolidate on higher band from here to 1.6150 levels. The 1.6000 benchmarks become a balancing point in market for the trend to turn its sentiment should the prices on whichever side now. However, we are still more prone bias to shorting once the bears travel beneath 1.6000 in near future.

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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