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The US FOMC Meeting Lowers Growth Outlook

A guest post written by DAR Wong

Currency Market Observations – 25 June 2012

Fundamental Outlook

The Federal Open Market Committee meeting extends its credit swap of USD267 billion in short-term securities to longer-term debt through the end of 2012. Federal Reserve (FED) officials downgrade the forecast to 1.9 percent range from earlier outlook of above 2.4 percent in April. Moody’s agency cut the rating’s of 15 financial institutions on last Thursday, including giants like Bank of America, Goldman Sachs and JPMorgan etc for their risk exposure to financial stability.

The US existing home sales dropped 1.5 percent to 4.55 million annual rate in May. Another separate report on jobless claims decreased by 2,000 to 387,000 in the week ended June 16, showing struggling job markets. The index of US leading economic indicators for May increased 0.3 percent after a 0.1 percent drop in April, propelled by ump in building permits.

Bernanke expressed on FOMC meeting on last Tuesday on no further immediate stimulus injection though on standby if situation worsens. The swap of credit instruments to long-term maturity deteriorates the investors’ confidence and has bludgeoned the commodities prices.

German investors’ confidence measured by ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations plunged to minus 16.9 from 10.8 in May, making the steepest decline in June since October 1998. Another report from Munich-based Ifo institute on business climate index shed for a second straight month to 105.3 from 106.9 in May.

Along the 17 nations, the services and manufacturing output contracted for a fifth month in June by remaining at 46, suggesting the Eurozone economy may fail to grow in the current quarter. While Europe is still immersed in the threats of debt crisis, G20 leaders met and aimed to stub out Europe’s financial crisis by trying to stabilize the region’s banks. German Chancellor Angela Merkel was again placed in pressure to loan more cash to avoid the crisis eruption.

The UK consumer prices rose 2.8 percent in May from a year earlier, compared with a 3 percent increase in April. Another separate report on retail sales rose 1.4 percent excluding auto sales in May, recovering some losses from previous month affected by poor weather.

The London-based Markit Economics said the gauge of euro-region manufacturing fell to 44.8 in June from prior month 45.1, affected by economic contraction and debt crisis. The jobless-benefit claims climbed 8,100 in May from the previous month to 1.6 million. The UK Monetary Policy Committee (MPC) remained its bonds-purchase program at GBP325 billion in June meeting despite Governor King favored an expansion.

Technical Forecast

USD/JPY breaks above 79.80 resistances and hits the higher resistance at 80.50 levels now. Last week, G20 leaders stressed on rising yen and US FOMC outcome has put yen on the slide. This week, it is difficult to gauge the trend though the chart shows toppish patterns. We reckon the bulls may charge up to 81.50 – 82.00 areas while supported at 79.80 regions.

EUR/USD has turned down but moved in little range on Friday. This week, we expect the trend may re-test 1.2630 regions before sliding further to 1.2400 levels. The fundamental factors point to market weakness but it will be crucial to see if 1.2400 supports can be broken for lower grounds. Abandon your short-view if the trend pierces above 1.2700 resistances.

GBP/USD failed to clear above 1.5777 last week due to weakness in many data release in UK economy. The trend has formed strong resistance at 1.5700 regions and prone to be weaker in coming week. Moving forward, we foresee the trend will re-test 1.5400 supports due to negative fundamental strength in UK economy.

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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