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UK May Raise Interest Rates by Year-End

A guest post written by DAR Wong

Currency Market Observations – 26 May 2014

Fundamental Outlook

The US home markets show recovery strength while Dollar strengthens. Japan refrains from stimulus injection as policymakers stress confidence in further recovery. Britain may be seen as first central bank to raise interest rates by year-end due to growing housing bubbles.

The US existing home sales for April increased to a 4.65 million annualized rates. Weekly jobless claims rose 28,000 to 326,000 in the week ended May 17 from a 7-year low in the prior period. On Friday, new home sales gained 6.4 percent increase to a 433,000 annualized rate in April, the biggest in 6 months and followed a 6.9 percent March decline.

Japan’s trade deficit shrank in April after imports rose 3.4 percent from a year earlier, least in past 16 months. Exports jumped 5.1 percent, leaving a deficit of JPY808.9 billion (USD8 billion), down 7.8 percent from a year ago.

Bank of Japan (BOJ) policymakers say they will refrain from boosting stimulus since economy shows stability in weathering the impact of first sales-tax hike since 1997. However, central bank will continue to expand monetary base at JPY60-70 trillion per year.

German service growth measured by PMI rose to highest record in almost 3 years at 56.4 in May. Manufacturing index was at 52.9 and below expectation, but has not affected the robust growth in German economy. On Friday, another repot filed by Ifo institute’s gauge on German business confidence fell to 110.4 in April. Europe currency dropped to 3-month low.

The rating agency S&P lifts Spain’s long-term rating one level to BBB, the second-lowest investment grade. Fitch boosts Greece’s long-term rank one step to B. Investors have reckoned this may help to reverse sovereign debt from deepening but may not necessarily resolve the debt crisis.

UK consumer prices rose 1.8 percent in April from a year ago and above expectation. Excluding fresh food and energy, core consumer prices rose 2.0 percent on annualized data and triggered some buying interest in pound.

Bank of England (BOE) comments the favor of the first interest-rate increase since 2007 in Monetary Policy Committee (MPC) meeting has been growing stronger as housing bubbles grow. Market analysts expect BOE to be first central bank to raise interest rate by year end.

UK consumer spending rose 0.8 percent in the first quarter, a 10th straight monthly increment. The Gross Domestic Product (GDP) grew 0.8 percent in the period, up from 0.7 percent in the fourth quarter of 2013.

Technical Forecast

USD/JPY dropped to 100.82 lows after BOJ Kuroda refrained from stimulus last week. However, market rebound fast to 102.00 regions again before weekend closing. Technically, we reckon the market may reverse up to test 103.00 resistances in coming week if it could not break the 101.00 supports again. Range is constricted from 101.00 – 103.00 levels while waiting for Dollar movement.

EUR/USD has been receding from gradual profit-taking and also softening data from Germany. This week, we expect the support to emerge at 1.3600 regions while reversal correction to 1.3750 levels is possible. The market is waiting for June month as ECB President Draghi has expressed willingness to introduce policy action. For the time being, we foresee short-term trading will be ranged from 1.3600 – 1.3800 regions in coming weeks.

GBP/USD made 1.6921 highs last week and fell to 1.6800 regions. The market may begin to decline this week if resistance could stay resilient at 1.6900 levels. Technically, we foresee the bears will drawdown at 1.6650 supports as our first target in coming week. Abandon your short-view if the trend pierces above 1.6900 resistances.

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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