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The US Will Replenish Stimulus from January Onwards

A guest post written by DAR Wong

Currency Market Observations – 17 December 2012

Fundamental Outlook

The US FED policymakers say they will continue monthly stimulus of USD45 billion from January after the current Operation Twist expires in December. American products shipped overseas slump amid widening trade deficit. Investors are still worried on January’s fiscal cliff as outlook remains gloomy. Eurozone struggles in debt crisis as European Union leaders have not finalized on solid resolution in Brussels meeting.

The US trade deficit widened in October as trade gap grew 4.9 percent to USD42.2 billion from a revised USD40.3 billion in September. Exports slumped due to demands from European territories dropped. Another report on retail sales climbed 0.3 percent in November after following a 0.3 percent decrease in prior month.

Unemployment claims fell 29,000 to a 9-week low at 343,000 in the week ended 8 December. The industrial production increased 1.1 percent last month after a revised 0.7 percent drop in October. Towards weekend, the US Commerce Department reported the consumer-price index declined 0.3 percent in November, the first decrease in 6 months due to weakening energy costs. Core prices were up 0.1 percent but below expectation.

Last week, US policymakers announced the injection of new stimulus USD45 billion monthly from January onwards for purchasing mortgage-debts after the Operation Twist program expires in December. Interest rates are expected to remain at low side without rising through 2015.

Japan’s machinery orders rose 2.6 percent in October from the prior month which indicates capital spending of companies. However, the quarterly Tankan index for large manufacturers fell to minus 12 in December from minus 3 in September. Large manufacturers are pessimistic on economic outlook based on export contraction and austerity measures in Europe that dragged down demands.

The Gross Domestic Product in Japan has shrunken 2 consecutive quarters through September and stoking fear of recession. Beside the tension of facing a national election in mid this month, policymakers are meeting in coming week to decide whether to increase its JPY66 trillion asset-purchase program.

A composite index used to measure the manufacturing and services index in Eurozone rose to 47.3 from 46.5 in November. A separate report showed European car sales fell 10 percent in November, bringing registrations so far this year to a 19-year low.

In Germany, the largest economy unexpectedly grew in exports as October’s adjusted data improved 0.3 percent from September. The investor confidence in December reported by ZEW Center recorded the index at 7-month high after it jumped to 6.9 from minus prior 15.7.

In the summit held in Brussels, European Union leaders have not arrived at a solution to stub out the debt crisis. However, they agreed that the burden should not be imposed on taxpayers to bear the cost of bank failures. Greece has been awarded with the issuance of EUR34.4 billion last week and the market rupture is temporarily quelled.

Technical Forecast

USD/JPY broke above 82.80 resistances last week and marched towards 84.00 benchmarks as Japan prepares new stimulus for coming election. Technically, we reckon strong selling pressure will ambush at 84.20 – 84.50 regions while the market is well supported at 82.80 levels now. Observe for Japan’s fundamental influence in mid-month after the election outcome.

EUR/USD consolidates but has been trading stronger above our expectation while it tested 1.3100 resistances again. The market will face resilient selling pressures at 1.3150 – 1.3180 regions while downturn could be possible once it slides beneath 1.2860 supports. However, the fundamental factors in Eurozone have been lifted by the Brussels meeting last week but might wane very soon with bearish sentiment.

GBP/USD went up above the previous resistance at 1.6060 levels following the EU summit last week. However, the market failed to settle above 1.6150 and might drive down again in coming week to 1.6000 benchmarks. Technically, the trend is still weak and fundamental strength is also unfavorable in-line with austerity measures. Abandon your short-view if the market pierces above 1.6150 and settles above here.

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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