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The U.S. Payrolls Tumbles Below Consensus

A guest post written by DAR Wong

Currency Market Observations – 28 July 2013

Fundamental Outlook

The U.S. payrolls fall short under expectation despite unemployment declines. FED policymakers reiterate on further observation of economic growth before tapering the stimulus. Japan’s market sentiment swings in uncertainty as Prime Minister Abe says will reveal plan before year-end on rising sales tax. European Central Bank Governor Draghi remarks recession may be bottoming out in Europe.

The U.S. Conference Board’s index slid to 80.3 in July from a 5-year high record, which reported at revised 82.1 in prior month. The Institute for Supply Management’s factory index jumped to 55.4 from June data 50.9, surpassing the forecast and highest in 2-year record.

Weekly Jobless claims filed by American workers dropped 19,000 to 326,000 in the week ended 27 July, from a revised 345,000 in prior week. Job market has been on continual improvement over past weeks.

On Friday, the U.S. payrolls unexpectedly rose below consensus at only 162,000 gains for July month. However, jobless rate dropped to 7.4 percent from previous 7.6 percent. The Federal Reserve Bank of St. Louis – President James Bullard says central bank officials should wait for evidence of gains in labor market and economy before tapering the bond purchase.

In a separate statement made in early last week, an un-named official from U.S. Federal Reserve said persistent low inflation is not encourage as it could hamper the economic expansion. Thus, it is necessary to maintain USD85 billion monthly purchases in bonds.

The Japan’s industrial production slid 3.3 percent in June from the previous month, doubled the forecast decline. Prime Minister Shinzo Abe is going to announce plan on increasing sales tax before year-end. The proposal is to increase sales tax to 8 percent in next April and subsequently to 10 percent in 2015. However, fear and dissatisfaction among Japanese citizens worry of stagnate growth and rising household burden.

Another government official in Japan’s upper parliament house – Takeshi Fujimaki, who formerly advised billionaire investor George Soros, says a delay in increasing the sales tax and tapering of U.S. stimulus could prick the bubble in Japanese Government Bonds (JGB).

German inflation rose 1.9 percent in July from a year ago, highest in past 5 months. The separate report on inflation measure among 17 nations in Eurozone accelerated to 1.6 percent in June from prior month 1.4 percent.

On Thursday, both European Central Bank (ECB) and Bank of England (BOE) held their key interest rates unchanged. ECB President Mario Draghi reiterates on low interest rate to stimulate economic recovery while expresses confidence that the Eurozone could be emerging from the longest-ever recession.

Nevertheless, International Monetary Fund (IMF) official comments that more bailout funds may be needed to relieve the debt issues in European countries. Though the declines in 17 nations has stabilizes, gains have been slow and not strong enough to pull through the weak market demands.

Technical Forecast

USD/JPY traded down on Friday from 99.95 tops and closed at about 100 pips lower. This week, we foresee the resistance will stay resilient at 100.00 benchmarks and prone to move lower as confidence in Japan may wane. Technically, we expect the bears to take the trend down to S1 – 97.00 and S2 – 95.00 targets depending on fundamental weakness. Abandon your short-view if the trend pierces above 100.00 levels.

EUR/USD pulled up on Friday and closed at 1.3278 levels for the weekend. The market is rather uncertain and has been supported from recovering economic data. This week, we reckon the market will trade initially from 1.3150 – 1.3350 ranges with possibility to move beyond either extreme. Breaking down below 1.3150 may reach 1.3050 bottoms while piercing above 1.3300 could test 1.3450 highs.

GBP/USD reversed up from 1.5100 on Friday and closed at 1.5284 levels. This week, the market may be consolidating and trade from 1.5200 – 1.5400 ranges. Be patient to wait for pull-up correction to complete before picking new short entry. However, protruding above 1.5450 resistances could be a sign of northern trend.

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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