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The US Pledges QE3 Stimulus

A guest post written by DAR Wong

Currency Market Observations – 17 September 2012

Fundamental Outlook

The US FOMC meeting outcome meets the market expectation of QE3 stimulus though no limit has been mentioned. FED policymaker reiterates the concern for housing recovery and loosening job markets as priority. Japan’s government lowers the assessment for remaining part of 2012 due to rising yen that hurts exports.

The US consumer borrowing dropped USD3.28 billion in August due to slowdown in consumer spending and rising unemployment. Consumer spending in the second quarter rose at a 1.7 percent annual rate, the slowest pace in past three quarters. Due to decline in exports, trade deficit widened in July for the first time in 4 months as trade gap grew to USD42 billion from a revised $41.9 billion in June.

The US industrial production shrank 1.2 percent in August after following a revised 0.5 percent gain in the prior month. Consumer price index rose 0.6 percent while spiked by rising fuel cost. Core index, excluding food and energies, climbed a less-than- projected 0.1 percent for a second month.

On Thursday, Federal Reserve Chairman Ben Bernanke announced QE3 policy by expanding its purchase program of mortgage bonds at USD40 billion on monthly bases with no target duration mentioned. The stimulus aims to boost housing growth and reduce unemployment. Stocks and commodities rose inversely to weakening dollar.

Japan’s machinery orders climbed 4.6 percent in July after gaining 5.6 percent in June. However, the government lowers its economic assessment towards year-end due to rising yen and contracting industrial production. The Usd/Yen rate fell to 7-month low 77.13 after the US released stimulus package.

Japan’s Finance Minister Jun Azumi stresses his readiness to take necessary measures in reversing the trend though no details have been given This week, central meeting will be held on 18 and 19 September for addressing this matter.

The industrial production in euro area advanced 0.6 percent in July after it fell 0.6 percent in prior month. After the European Central Bank rolled out the unlimited bonds purchase program 2 weeks ago, there has been no taker coming forward to ask for financial aid. Spanish Prime Minister cites no urgency to seek for the bailout as the conditions may be too tough to satisfy.

The UK unemployment-benefit claims fell 15,000 to 1.57 million in August with more jobs were created amid recession. According to Acadametrics and LSL Property Services Plc (LSL), the average cost of a home in England and Wales rose 0.1 percent from July to GBP226,243 (USD364,400). Housing price increased for the first time in August over last 3 months.

Technical Forecast

USD/JPY reversed above 78.00 levels on Friday from 77.51 intraday bottoms after reacting to Azumi’s warning statement.  This week, the market will sit on 77.50 supports while aiming for 79.00 targets if the Bank of Japan takes necessary measures after mid-week in weakening yen.

EUR/USD surged last week after Thursday on U.S. stimulus release. The market reached above 1.3150 levels on Friday in short-squeeze. This week, we reckon profit-taking will occur above 1.3200 levels with resistance building up at 1.3250 areas. Downside support has shifted up to 1.2930 levels.

GBP/USD is in bullish sentiment and may attempt 1.6300 targets in coming week. Technically we expect profit-taking to occur around 1.6300- 1.6350 areas while the support will emerge at 1.6050 regions. We expect the weak dollar sentiment will last for another week that will firm up European currencies.

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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