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The US Halts in Further Stimulus

A guest post written by DAR Wong

Currency Market Observations – 19 Dec 2011

Fundamental Outlook

The US FED chairman Bernanke expresses no intention to reduce borrowing cost further and no aid to assist in euro crisis. Fitch rating warns of downgrading Italy, Spain and Belgium amid more analyst calling recession in euro area. Euro currency slides amid stronger dollar while commodity prices weaken across the board.

The US retail sales rose 0.2 percent in November at the slowest pace in past 5 months and below the median forecast. The producer price index climbed 0.3 percent in November while the core measure increased 0.1 percent. Another back-to-back report on inflation measure reported consumer prices stayed unchanged but core prices rose more than forecast at 0.2 percent. Both increments in core measurement were probably triggered by higher oil prices.

Another separate report on weekly jobless claims dropped 19,000 to 366,000 in the week ended 10 December. Improvement kicks in after November payroll showed higher employment. FED policymakers said they will refrain from lowering borrowing cost further and Chairman Ben S. Bernanke announced no additional aid to European banks amid the region’s sovereign debt crisis.

Japan’s quarterly Tankan report on large manufacturer index fell to minus 4 from 2, indicating pessimism in post-quake recovery. The strong yen has caused difficulty in smoothening exports and economic recovery though the government has reinforced its tight watch on currency markets. Interest in yen’s market has been reducing if no stimulus is further implemented by Japan’s government.

Euro area exports dropped 1.9 percent in October, led by declines in Germany and Spain. Fitch Rating may cut the credit outlook for Italy to Spain and Belgium as Europe’s debt crisis remains at large. On the other hand, European Central Bank (ECB) President Mario Draghi said the euro area will be heading into recession as unavoidable due to governments’ austerity measures.

The British unemployment rose to a 17-year high in the three months through October, reflecting economic weakness in Europe. Unemployment rose 128,000 to 2.64 million while the jobless rate climbed to 8.3 percent from 7.9 percent between May and July. Investors are taking a steer away from European assets back to US treasuries.

Technical Forecast

USD/JPY is still threading sideway from 77.00 – 78.50 without much changes. Last week, the market tried briefly above 78.00 levels and declined. This week, we expect the trend to be weak and may re-test the 77.00 supports. The movement will be range bound with little expectation beyond the constriction.

EUR/USD fell in disappointment against the EU outcome and also fear of moving into recession in euro area. The market tested 1.2945 low in weak sentiment. This week, we reckon a consolidation will emerge from 1.2945 – 1.3150 regions while moving into holiday seasons. Abandon your long-view if the support is broken!

GBP/USD has been supported at 1.5400 regions as we predicted the nosedive last week. Moving forward, we expect the trend to slow down and thread between 1.5400 – 1.5600 regions as traders retreat for year-end seasons. Trade cautiously as the market is expected to thin down after mid-week.

Dar Wong

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

Wong is the founder and Principal Consultant of 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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