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US Averts Fiscal Cliff

A guest post written by DAR Wong

Currency Market Observations – 07 January 2013

Fundamental Outlook

The US President Barack Obama signs a new bill into law to avoid the increasing tax on citizens and spending cuts amounting USD600 billion. American payroll grows amid market jittery sentiment while yen continues to devalue. Eurozone economy slides as inflation surges.

The US Institute for Supply Management’s factory index rose to 50.7 in December from 49.5 a month earlier. Another back to back report on service index from the same institution climbed to 56.1 from 54.7 in November, expanding at fastest pace in 10 months.

The US jobless claims increased 10,000 to 372,000 in the week ended 29 December, above median forecast. Non-farm payrolls rose 155,000 last month following a 161,000 advance in November, amid tight budget fight in year-end season. The unemployment rate held at 7.8 percent.

FED policymakers said they will probably end their USD85 billion monthly bond purchases sometime in 2013. On the other hand, the US House of Representatives passed a bill in Washington by a vote of 257-167, cancelling income-tax increases for more than 99 percent of households. President Obama has signed the bill into law to avert the fiscal cliff of spending cuts amounting USD600 billion but market investors are worried of the delayed eruption in economic meltdown.

Japanese yen continues to devalue against greenback in expectation of new stimulus by Shinzo Abe’s cabinet. A weaker yen has boosted exports for offshore shipments and also lifted the Nikkei 225 Stock Average to its highest peak above 10,500 benchmarks since March 2011.

The Markit Economics and the Chartered Institute of Purchasing and Supply said its index of euro-area services rose to 47.8 in December from 46.7, submerging below 50 benchmarks for past 11 months. Another composite index on both services and manufacturing sectors was at 47.2, below an initial estimate of 47.3.

The euro-area consumer price remained at 2.2 percent in December, against expected drop by the European Central Bank (ECB). Core prices rose 3.1 percent compared the prior month at 3.0 percent gain. The euro-area economy has shrunk for two consecutive quarters and market expect the final quarter of 2012 may be negative as well. The central bank estimates contractions of 0.5 percent.

The U.K. manufacturing data filed by Markit showed December reading rose to 51.4 from a revised 49.2 in prior month, biggest jump in 15 months. However, the service index declined to 48.9 from 50.2 in November, making first contraction in past 2 years.

Technical Forecast

USD/JPY closed at 29-month high at 88.15 for the weekend. The market has been very bullish retrospect to better outlook to be led by the new cabinet. We reckon the support to lie at 85.50 levels while the uptrend may continue to reach up to 90.00 benchmarks.

EUR/USD fell off 1.3299 last week as we predicted. The market is seen with immediate resistance at 1.3120 areas and driving lower depth at 1.285 is possible in coming week. While the eurozone is rather dormant on debt crisis, observe the dollar strength that could drive the euro down should there be news in US deficit struggle.

GBP/USD fell in early January as we outlined in late December. The market plunged from 1.6381 and closed at 1.6067 in our expectation. This week, we foresee the market may consolidate back to 1.6200 levels for technical digestion with support still resting at 1.6000 benchmarks. Beware of breaking this major support level in the near future after the consolidation ends.

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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