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The U.S. Shutdown Risks Global Recession

A guest post written by DAR Wong

Currency Market Observations – 14 October 2013

Fundamental Outlook

The U.S. government remains partially shut since 1 October and many emerging countries are worried of global recession from this political impasse. Global stock markets have been down and only bounced on last 2 days before weekend when U.S. Congress said negotiation might begin. U.K. factory output and construction decline and drag pound from the recent height.

The U.S. released few data last week due to shutdown in Commerce Department. Jobless claims surged 66,000 in the week ended 5 October to 374,000 and made highest record in past 6 months. On Thursday and Friday, DJIA recovered about 400 points after Congress lawmakers moved towards meeting for reaching an agreement to raise debt limit ceiling.

Janet Yellen has been nominated to be next FED governor from January. Emerging markets from South Korea to Brazil express relieve from immediate tapering in U.S. stimulus that could roil out markets capital.

As the U.S. government shutdown has affected global financial stability, China shows concern this may trigger global recession and also possible default in U.S. treasuries. Till end of July, China remains as the largest foreign investor in U.S. debt instruments amounting USD1.28 trillion.

Bank of Japan will put a cap on direct debt purchases from the government in next financial year after proposing for an JPY18 trillion (USD185 billion) this year. Japan’s market analysts suspect the central bank is financing the government’s spending by rolling over maturing debt into short-term bills.

European Central Bank (ECB) and the People’s Bank of China (PBOC) have both agreed to establish a bilateral currency swap line. This will help to bolster trade finance in the Euro area and expose Chinese Yuan on international trade practice.

U.K. industrial production unexpectedly slid 1.1 percent in August after it gained 0.1 percent last month. The trade deficit narrowed to GBP9.63 billion in August from a revised GBP9.94 billion. Another report shows construction slipped 0.1 percent from July against rising forecast. Pounds fell from recent top before weekend.

Last Thursday, The Bank of England kept its benchmark interest rate at a record low 0.5 percent and maintained its bond-buying target at GBP375 billion (USD599 billion).

Technical Forecast

USD/JPY began to recover after middle last week after optimism on probable negotiation in U.S. Congress. The market closed at the mid-range price of 98.50 between 96.50 – 100.50 ranges. This week, we reckon the trend will still move within this same area unless positive outcome of raising debt ceiling in U.S. Congress could spur the market above 100.50 resistances.

EUR/USD is beginning to fall so long as it is capped under 1.3600 resistances. In coming week, we predict the trend will continue to be weakened as it consolidates from 1.3450 – 1.3570 ranges. Breaking beneath 1.3450 supports will lead another selling pressure to 1.3320 levels if U.S. Dollar appreciates from optimism in U.S. raising debt ceiling.

GBP/USD closed at 1.5952 after it has fallen from weaker economy data. Technically, we see strong support lying at 1.5910 levels for the time being buy buying interest might ambush at 1.5870 – 1.5910 regions in early coming week. Upon recovering higher, we foresee the market could advance to 1.6150 levels as consolidation emerges.

Dar Wong

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

Wong is the founder and Principal Consultant of PWForex.com 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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