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UK Plunges In Economic Deterioration

A guest post written by DAR Wong

Currency Market Observations – 18 June 2012

Fundamental Outlook

Both US and UK economy deteriorate by economic expansion cooling down in industrial production, consumer demands and exports. Yen rises unfavorably as safe haven that has deterred Japan’s recovery amid the Euro debt crisis. Investors remain cautious while waiting for the outcome of Greek election that will decide the fate of euro.

The US retail sales for May shed 0.2 percent from April and reversed down this previous gain. Jobless claims unexpectedly climbed by 6,000 to 386,000 in the week ended June 9 showing contracting job markets in weakness. Another separate report on consumer prices slid 0.3 percent in May, undermined by recent falling oil prices while the core prices, excluding food and energies, rose 0.2 percent from April.

The US industrial production decreased 0.1 percent in May after a revised 1 percent gain in April, affected by slowdown in demands and debt crisis growing in Eurozone. The 2-day FOMC will be held from coming Tuesday for addressing weak employment, cooling in economic expansion and euro crisis.

Japan posted a smaller-than-expected current-account surplus in April in excess of the nation’s trade at JPY333.8 billion yen (USD4.2 billion). International Monetary Fund (IMF) said Japanese yen is overvalued and the central bank should consider further monetary stimulus.

The Eurozone industrial output for 17-nations was down 0.8 percent in April from prior month, led by drop in Germany. Moody’s rating agency cut Spain’s rating three steps to Baa3 from A3 and also lowered Cyprus’s bond rating to Ba3 from Ba1, citing nervousness in the deepening crisis.

The London RICS reported the housing price index stays at negative when the gauge rose to minus 16 in May from prior month minus 19. The factory output reduced 0.7 percent while led by dropping demands in pharmaceuticals, aircraft maintenance and consumer food production.  

The UK exports plunged 8.6 percent in April, hitting highest decline for past 6 years and pushed the trade deficit to GBP10.1 billion (USD15.7 billion) from GBP8.73 billion. Another separate report on construction output dropped 13.2 percent, both declining rapidly in deepening rout.

Bank of England (BOE) Governor Mervyn King warns of sharp deterioration in economic downfall while preparing to cushion against probable worst crisis from Europe’s sovereign debts. His team of policymakers will be ready for more stimulus if needed despite the assets purchase program has been held at GBP325 billion in last meeting.

Technical Forecast

USD/JPY falls again after worrisome sentiment has risen from euro debt crisis. Yen strengthens against dollar while investors will monitor closely on the outcome of Greek election on last weekend. Technically, we reckon the market will be range bound from 78.00 – 79.50 levels while prone to weakness. The trend is caught between rising yen as hedge instrument and fear of sudden intervention to be weakened by BOJ.

EUR/USD dawdled at 1.2650 regions before it closed at this top region on Friday. The market is sitting on fence while preparing to skip higher to 1.2850 areas or reverse down to 1.2400 regions in coming week. The eventual trend will depend on the formation of Greek government for checking its status to be valid as a continual member nation in Eurozone.

GBP/USD headed up above 1.5600 levels and settled on 1.5696 on Friday. This week, we expect the trend to climb higher till 1.5850 before liquidation occurs. Markets are expecting stimulus funds to be injected after hearing the remarks from BOE Governor. Immediate support lies at 1.5600 that will decide the trend reversal should this level be broken.

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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