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The U.S. Government Cuts Estimate for Q1 Growth

A guest post written by DAR Wong

Currency Market Observations – 1 June 2015

Fundamental Outlook

The U.S. orders for durable goods and housing data are stronger, but government still cuts estimate gains in Q1 growth due to enlarging trade deficits. Japan’s inflation struggles to meet policymaker’s preset target at 2.0 percent though consumer spending increases. U.K. maintains pace of growth in Q1.

The U.S. Conference Board’s Consumer Confidence Index rose to 95.4 in May. April’s reading was revised lower to 94.3 from 95.2. Orders for core durable goods, excluding transportation and equipment, rose 0.5 percent in April after the previous month was revised higher to 0.3 percent gains. Another separate report on new homes sales climbed by 517,000 in April.

American weekly claims for state unemployment benefits rose 7,000 to a seasonally adjusted 282,000 for the week ended May 23, remaining below 300,000 levels for gradual growing workforce. Pending homes sales rose 3.4 percent in April after the previous month was revised to 1.2 percent growth.

The U.S. government cuts its estimate for Q1 Gross Domestic Product (GDP) at minus 0.7 percent annual rate instead of the 0.2 percent growth pace estimated last month, probably due to larger trade deficit and rising stock inventories. The consumer sentiment reported by University of Michigan is revised higher to 90.7 against the previous estimate 88.6.

Japan posts a trade deficit in April following a single-month’s surplus in March. Shortfall of JPY3.4 billion (USD439.6 million) deficit in April was shown after JPY227.4 billion surplus in March, the first in several years.

Japan’s consumer spending rebound to minus 1.3 percent in April on annual basis after it contracted 10.3 percent in previous month. Core national core consumer inflation downsized to 0.3 percent gains in May versus last month 2.2 percent gains. Another separate report on core inflation in Tokyo city grows 0.2 percent and way below the 2.0 percent target preset by policymakers. Unemployment rate improved in April by weighing down to 3.3 percent.

Bank of Japan’s (BOJ) decision makers expect private consumption will remain resilient as incomes are improving. However, policymakers remain concerned their 2 percent inflation goal will be difficult to keep. BOJ has pushed back its timeline for reaching its inflation target to fiscal 2016.

Japan’s retail sales rebound to 5.0 percent growth in April after it contracted 9.7 percent in prior month. Positive data adds to signs of improvement in consumer confidence and eases pressure on the Bank of Japan to expand its massive stimulus program in the near-term horizon.

The second estimate for Gross Domestic Product (GDP) in U.K. growth gained 0.3 percent in Q1 and in-line with first estimate. Business investment in Q1 gained 1.7 percent in prelim report and better than forecast.

Technical Forecast

USD/JPY has pierced above 122.00 resistances convincingly and hovers at 124.00 regions. This week, we reckon the bulls will continue to climb and possibly reach 125.00 levels as our first target. Logically, support will emerge at 122.00 regions in case of drawdown.

EUR/USD bounced off 1.0800 floors last week. Market is hovering around 1.1000 regions for consolidation and may pull up to 1.1100 before the next fall. This week, we predict the range will move from 1.0800 – 1.1100 regions and complete the sideways trend for another 1 -2 weeks before going into a new direction again.

GBP/USD has been dropping for whole of last week from 1.5700 tops. While it closed at 1.5270 regions for the weekend, we reckon the trend will be supported at 1.5200 levels in coming week and probably consolidate at 1.5500 areas. Range trading is expected from 1.5200 – 1.5500 regions.

Dar Wong

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

DAR Wong is an approved fund manager in Singapore with 25 years of global trading experiences. You may reach him at dar@pwforex.com

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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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