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The U.S. Shuts Down in Political Impasse

A guest post written by DAR Wong

Currency Market Observations – 7 October 2013

Fundamental Outlook

The U.S. government shuts down due to deadlock of discussion in raising budget debt limit. Japan announces tax raise plan and new stimulus at the same time but fails to perk up investors’ confidence. Yen still rises despite Tankan’s report showed confidence in large manufacturers. European Central Bank remains key interest rates unchanged but will prepare to act further if needed to ensure smooth recovery.

The U.S. Institute for Supply Management reports its factory index rose to 56.2 in September, the strongest since April 2011. Another service index from the same institution declined to a 3-month low 54.4 from August 58.6. Jobless claims rose by 1,000 to 308,000 in the week ended 28 September with lesser filings.

On 1 October, The U.S. Congress hit political impasse that shut down its partial government after 17 years, laying odd about 800,000 federal employees. DJIA stocks shrugged off the fear and traded in normal sentiment initially but declined towards weekend as data weakened.

The monthly non-farm payroll was not released on Friday due to government shut down. Federal Reserve Bank of Boston President Eric Rosengren comments that the reluctance to taper stimulus last month was due to undermining growth and fiscal policy has posed a risk to the outlook.

The quarterly Japan’s Tankan index for big manufacturers rose to 12 in September from 4 in June, showing a boost in confidence among large manufacturers. Last week, Prime Minister Shinzo Abe announced a sales-tax increase from current 5 percent to 8 percent which will be implemented in next April. He has also confirmed a new stimulus to be injected before year-end worth JPY5 trillion (USD51 billion) as he tries to steer out from 2 decade-long recession.

The unemployment in Eurozone remains at record high of 12.1 percent in August. Another report on consumer prices rose at annual 1.1 percent after followed 1.3 percent gains in July. Core inflation rate for August was 1 percent.

Market Economies reports its index on Euro-area manufacturing for September at 51.1 compared to prior month 51.4. The European Central Bank President Mario Draghi states his willingness to adopt necessary measures in checking money-market rates to ensure continual recovery. Last Thursday, policymakers maintained re-finance rate at 0.5 percent during the central bank meeting.

U.K. Halifax Plc says the September home values increased 0.3 percent to an average GBP170,733 (USD276,600). From a year earlier, values increased 6.6 percent.

Technical Forecast

USD/JPY edged lower throughout the week even after stimulus was announced. However, market closed at 97.45 for the weekend as some buying supports emerged. This week, we reckon the market will be supported at 96.50 while making a potential to recover at 99.50 regions. The trend may begin to consolidate as buyers prepare to devalue yen if more favorable news emerges in Japan. Abandon your long-view if it penetrates below 96.50 supports.

EUR/USD reversed down from 1.3646 tops and closed at 1.3555 on Friday. This could be the beginning for drawdown correction in coming week if the aforementioned cannot be pierced again. Technically speaking, the market may tend to move from 1.3450 – 1.3650 ranges in coming week. However, beware of breaking above 1.3650 resistances as this may elevate to 1.3720 regions.

GBP/USD fell rapidly on last 2 days before the weekend and closed at 1.6008 for the weekend. This week, we forecast some bargain-hunting will emerge at 1.5920 – 1.5950 regions while technical recovery may begin to take place. In broad view, the trend might move from 1.5920 – 1.6170 ranges while picking long-trade after mid-week stands better chance for profiting.

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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1 Comment to The U.S. Shuts Down in Political Impasse

  • Smita's Gravatar Smita
    October 23, 2013 at 6:18 PM | Permalink

    For some reason I decided to buy gold AND us dollars in roughly equal amounts. I figured my commodity currency would go down relative to gold AND the usd. Now that was 24 months ago or so. The gold did OK and is now starting to do great but the USD trade went really badly. Not on margin at least. NOW I’m thinking perhaps another month or two and the USD trade might start to look better. I guess on a long enough time line any lame arse trade will come right if you can wait. Trouble is for my trade to work out REAL doom is pretty much required and betting on THAT can’t be right. Can it?

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