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The US Economy Expanded in Q2

A guest post written by DAR Wong

Currency Market Observations – 1 October 2012

Fundamental Outlook

The US growth marked by Gross Domestic Product (GDP) advanced in Q2 and lifted demands for commodities. Japan poises in weakness as yen continues to strengthen in threatening exports. Europe slows down in performance as yields of Italy and Spain roll back to high end.

The US consumer confidence measured by Conference Board’s sentiment index increased to 70.3 in September from prior month 61.3. New home sales fell 0.3 percent in August to a 373,000 annual pace following a revised 374,000 rate in July that was higher than previously estimated and the strongest since April 2010.

The US GDP expanded at 1.3 percent pace in Q2, higher than initial estimate, after growing at a 2 percent rate in the first quarter. Orders for durable goods slumped 13 percent in August, the most since January 2009. Initial jobless claims decreased by 26,000 to 359,000 in the week ended Sept. 22, the lowest since July. Consumer spending rose 0.5 percent in August and stagnated.

Japan’s consumer prices fell 0.3 percent in August from a year earlier, matching the median forecast. Japan’s jobless rate decreased to 4.2 percent last month from 4.3 percent in July. Another separate report on industrial output fell 1.3 percent from July, when it dropped 1 percent, undermined by the slowdown in China and Europe.

As yen continues to strength unfavorably against dollar that hurt Japan’s exports, no sign of further intervention is seen after the recent stimulus injection of JPY10 trillion failed to reduce yen’s value. Japan Prime Minister Yoshihiko Noda says Japan will not compromise with China over dispute on its ownership on Diaoyu islands, thus damaging a trade relationship of USD340 billion with China.

The German Ifo institute in Munich said its business climate index dropped for a fifth straight month to 101.4 in September from prior month 102.3. Spain’s 10-year benchmark yield rose above 6 percent and its government seeks an approval in implementing an austerity budget cut to reduce the bonds yield.

British Bankers Association said the UK mortgage approvals climbed to 30,533 in August, the most since April, from prior month 28,750. Britain’s growth measured by GDP for Q2 fell 0.4 percent instead of the 0.5 percent drop estimated last month. Real household disposable income rose 1.9 percent, the biggest jump for three years. UK economy is still poising for recovery amid austerity budget cut.

Technical Forecast

USD/JPY recovered to 78.00 areas on Friday’s closing. Literally, we reckon the market trend is still weak but may climb slightly in coming week due to euro weakness. The range of movements is constricted to 77.50 – 79.00 regions with no clear action from Bank of Japan.

EUR/USD has been supported at 1.2830 regions last week while market prone to weakness. This week, the market may consolidate and rebound to 1.3050 levels in sideways trend. However, beware of breaking below 1.2830 supports again that might land at 1.2750 levels.

GBP/USD dropped on Friday and proven the resistance to be strong at 1.6260 areas. We expect the trend to continue in southward direction and reach 1.6000 regions in coming week. Abandon your short-view if the trend reverses above 1.6260 levels again!

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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