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The US Jobless Rate Falls In Optimism

A guest post written by DAR Wong

Currency Market Observations – 8 October 2012

Fundamental Outlook

The US unemployment rate falls to lowest rate since Obama took office in 2009 and more jobs were added in September. European Central Bank (ECB) policymakers vow to take necessary action to bailout debt crisis but not responded till now by Spain and Italy. ECB and Bank of England (BOE) both hold rates unchanged while maintaining the asset purchase program as pledged previously.

The US Institute for Supply Management’s factory index rose to 51.5 in September compared to prior month 49.6, charting the first recovery after 3 months of declines. Another report from the same institution reported the non-manufacturing index climbed to 55.1 in September and expanded the most in last 6 months. 

The American initial jobless claims climbed by 4,000 to 367,000 in the week ended Sep 29. The US economy added 114,000 workers last month after a revised 142,000 gain in August. Unemployment fell to 7.8 percent and at lowest record since took office in 2009.

Bank of Japan (BOJ) held off from more easing after adding another JPY10 trillion stimulus in September. Policymakers are preserving its financial firepower despite increased political pressure and signs of an economic contraction. However, yen value gradually recedes against dollar as USD/JPY rate hikes above 78.00 levels again.

The retail sales in the 17-member euro area rose 0.1 percent in August and up from previous 0.1 percent gain in July. Last Thursday, ECB kept its benchmark rate at 0.75 percent.  ECB President – Draghi rules out allowing the ECB to take losses in any further Greek debt restructuring and damped speculation of another ECB interest-rate cut. Draghi called his bond-purchase plan as Outright Monetary Transactions (OMT) and claimed borrowing costs have been lowered across sovereigns across Europe, but waiting for Spain to come forward for negotiation in debt restructuring.

Nobel laureate Paul Krugman said. US and the European Union are ‘nowhere close to ending’ the financial crisis and German-led austerity efforts may lead to a 1930s-style economic depression.

The UK Chartered Institute of Purchasing and Supply said purchasing managers fell to 48.4 from 49.6 in August. Central Bank BOE keeps its asset-purchase target at GBP375 billion (USD605 billion) while maintained rate unchanged at 0.5 percent. The pound rose after Thursday in technical recovery on this news but slid on Friday evening as US non-farm payroll increased.

Technical Forecast

USD/JPY has been bullish and traded above 78.00 levels last week. The market is likely to consolidate and climb to 79.20 – 79.50 regions before it falls back into technical correction. We foresee a continual trend in euro may help to support USD/JPY strength until mid-week before the bulls fizzle out.

EUR/USD reached our predicted price area at 1.3050 levels on Friday. This week, we reckon the strength may begin to lose steam but attempting 1.3100 regions is possible before market turns down. Our downside support is identified at 1.2850 levels if the trend begins to recede.

GBP/USD is hard to predict as the market trend is still in sideway consolidation. The large range is estimated from 1.6050 – 1.6270 areas in coming week while fundamental news will play as important factors to decide the direction. Trade cautiously and control risk if the prices beyond the extremes.

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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