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The UK Economy Deepens Into Recession

A guest post written by DAR Wong

Currency Market Observations – 13 August 2012

Fundamental Outlook

The US economy remains gloomy while report shows US banks have been biggest lenders since post crisis in 2009 for supporting the ailing markets. Japan has announced the rise in tax from 2014 which causes roaring from many citizens. The Eurozone deepens into viral debt crisis as Germany begins to weaken in exports.

The US FED data showed the borrowings by consumers and businesses rose in the week ended July 25 to USD7.1 trillion, within 2.9 percent range from the peak recorded in October 2008. Till now, US banks still serve as biggest lenders to business borrowers despite the high unemployment rate at 8.3 percent.

The American borrowings by consumer market rose in June at USD6.5 billion, but lower than expected and followed a revised USD16.7 billion gain in May. The jobless claims unexpectedly slid by 6,000 to 361,000 in the week ended August 4, proving more jobs creations in market for the unemployed.

Another report showed US trade deficit shrank in June after the gap narrowed 11 percent to USD42.9 billion with a rise in exports. The import-price index also fell 0.6 percent in July after followed a 2.4 percent decline in June, due to lower oil prices.

Japan’s Prime Minister Yoshihiko Noda won parliamentary approval for his bill to raise the country’s sales tax for the first time in 15 years. The bill raises the tax to 8 percent in April 2014 and to 10 percent in 2015. Housewives and middle-class citizens protest over such extra living cost to be added.

German exports fell 1.5 percent in June vs. 4.2 percent growth in prior month, indicating slowdown in demands from euro trade partners. Another separate report showed German industrial output also fell 0.9 percent from May, when it gained a revised 1.7 percent, again threatened from impact of euro crisis to the largest economy among 17 nations.

UK industrial output fell less than estimated in June at 2.5 percent decline from May. Manufacturing also fell 2.9 percent from May but less than economist forecast. In the three months through June, factory output slipped 0.9 percent from the previous quarter.

Another British official report said its trade deficit increased to GBP28.3 billion (USD44.3 billion) in Q2 ended June from GBP25 billion in the previous quarter, affected by debt crisis and deepening recession. The Halifax Ltd reported the housing prices dropped 0.6 percent in July from June when they rose 0.8 percent. Housing slump persists while Britain has stepped into recession.

Technical Forecast

USD/JPY shows a bearish pattern from Friday’s closing after Japan announced its notorious tax rise. However, we are still not getting any clue on its direction unless the trend breaks beyond the range beneath 78.00 supports or above 79.20 resistances. This week, we reckon a good opportunity to pick bottom if the market approaches 77.70 regions.

EUR/USD has been bearish as we forecast last week. The trend is still prone to weakness if the market can be capped below 1.2350 areas this week. Technically speaking, we remain our view of reaching 1.2100 regions as the bear takes control in tandem with fundamental weakness.

GBP/USD tried to break 1.5700 resistances last week but failed. This week, we reckon the bear will engulf market and 1.5470 supports still stays within our target if the trend successfully settles below 1.5600 levels in early coming week. Abandon your short-view if the trend closes above 1.5700 benchmarks.

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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