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The US Payroll Surges in Recovery

A guest post written by DAR Wong

Currency Market Observations – 7 July 2014

Fundamental Outlook

The US non-farm payroll rises better than forecast as the trade deficit narrows. FED chief Janet Yellen implies that monetary policy may not be good measure to lead economic recovery, hinting rate increase irrational to economic growth. European Central Bank (ECB) President Mario Draghi stresses on low interest rates to support recovering growth. UK persists in steadfast escalation in manufacturing sector.

The US pending home sales index climbed 6.1 percent in May, making largest jump since April 2010. The Institute for Supply Management’s manufacturing index was 55.3 in June, little changed from a 5-month high of 55.4 in May. Another services index from the same institution was 56 after 56.3 in May, highest since August.

The US trade deficit shrank 5.6 percent in May, the biggest drop since November. Trade gap narrowed to USD44.4 billion from the prior month’s USD47 billion. Exports climbed to USD195.5 billion versus USD193.5 billion in April.

American non-farm payrolls rose 288,000 in June and above consensus. Jobless rate fell to 6.1 percent. Following the data release, Dow Jones benchmarks rose to historical highs at 17,074 amid optimism. Federal Reserve chief Yellen comments no necessity to change current monetary policy for addressing financial stability, hinting the detachment of interest rates to economic recovery.

Japan’s quarterly Tankan report shows the sentiment among large manufacturers fell to 12 from 17 in March, signaling pessimism in the outlook for coming 6 months. Non-manufacturing index was also down to 19 from previous quarter 24. Policymakers remain resilient to new stimulus and have kept the Yen rate in uncertain sideways against Dollar for past 5 months.

Eurozone inflation rose 0.5 percent in June on annual basis but below central bank’s target. Core prices unexpectedly went up 0.8 percent annualized rate. The unemployment rate in 18 nations remains at 11.6 percent after the April’s data was revised down from 11.7 percent.

European Central Bank (ECB) President Mario Draghi reiterates on keeping low interest rates. Policymakers will monitor the recovery after rate cut to historical low 0.15 percent last month while making all efforts to revive the ailing economy.

Markit Economics in London reports UK manufacturing PMI rose to 57.5 in June from 57 in May, fastest in past 7 months as demand surged. Another report on construction PMI hit 4-months high at 62.6 compared to 60.0 in May. British Pound has been surging since the data report and stays strong above 1.7000 benchmarks.

Technical Forecast

USD/JPY bounced off 11.24 last week and closed at 102.01 for the weekend. The market is still trapped with little movements with no clear direction. Trend is constricted within 101.00 – 103.00 regions and waiting for definite fundamental influence to pull it out of the aforementioned range.

EUR/USD turned down from 1.3700 resistances and remained weak after the non-farm payroll released on Thursday. This week, we reckon that the market will consolidate within 1.3500 – 1.3700 ranges and will probably trade sideways. Only breaking beyond the aforementioned range will extend into new direction.

GBP/USD climbed up to 1.7180 in strong sentiment last week. Fundamental strength is strong in British economy amid growing demand for Pound. This week, the market may continue to march up to 1.7300 regions with support sitting on 1.7000 benchmarks. Pay attention to EUR/GBP cross rate that might be falling further!

Dar Wong

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

DAR Wong is an approved fund manager in Singapore with 25 years of global trading experiences. You may reach him at dar@pwforex.com

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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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