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US Budget Deepens Into Despair

A guest post written by DAR Wong

Currency Market Observations – 24 December 2012

Fundamental Outlook

The US budget negotiation between Obama with Republican leaders fluctuates and alarms worries on stock decline. The Japanese yen ebbs in winning confidence of new cabinet and buffers the European currencies. The UK economy stagnates amid lower growth in Q3 and widening budget deficits.

The US Federal Reserve Bank of New York’s general economic index dropped to minus 8.1 from minus 5.2 in November, shrinking for a fifth straight month in December. Building permits climbed 3.6 percent in November to an 899,000 annual rate, exceeding median forecast.

In a separate report, the US housing starts figure in October was revised down to 888,000 rates from a previously reported 894,000 pace. So far this year, they are up 27.1 percent compared with the first 11 months of 2011. Existing home sales increased 5.9 percent to 5.04 million annual rate for November, making highest record in past 3 years. The weekly jobless claims increased 17,000 to 361,000 in the week ended 15 December, slightly above forecast.

The investors are still concerned on progress on budget talk in US Congress. On Friday, Dow stocks sank after House Republican leaders canceled a vote on higher taxes for top earners. The budget talk deeper rattled the market confidence and spike dollar into rising.

Japan’s new Prime Minister, Shinzo Abe, gains power in the country’s political power and vows to reshape the ailing economy while moving into next year. Soon within a week after his takeover, Japan’s central bank increased the asset-purchase fund to JPY76 trillion (USD906 billion) from current JPY66 trillion.

The exports in November slid 4.1 percent from a year earlier. Imports rose 0.8 percent leaving a deficit of JPY953.4 billion (USD11.3 billion), the third-largest on record. However, investors are chipping in confidence to the bold stimulus of new government and attention has been put into the salvage of recession in 2013.

The UK consumer prices rose 2.7 percent in November from a year earlier, unchanged from October. Gain was probably due to rising utility and food prices. Core prices remained at 2.6 percent in November. Another report said that producer prices unexpectedly fell 0.2 percent.

British retail sales unexpectedly stagnated in November as spending slumped. Sales including fuel were unchanged from October, when they fell 0.7 percent. The budget deficit excluding government support for banks was GBP17.5 billion pounds (USD28 billion), widened from GBP16.3 billion from a year ago and also higher than median forecast.

The growth in Gross Domestic Product (GDP) rose 0.9 percent in Q3 and down from a previous estimate of 1 percent. The UK economy is still being strapped by austerity measures and recent rise in pound was mainly spiked by receding yen value.

Technical Forecast

USD/JPY remains strong with closing prices floated above 84.00 throughout past 3 days. We reckon strong support will emerge at 83.80 levels and probably trigger another rise to 85.50 areas I coming week. Abandon your long view if the trend falls beneath aforementioned support level.

EUR/USD is fizzling out in bullish trend and may turn down after X’mas. Technically, we reckon strong resistance at 1.3300 levels and the market may aim lower at 1.3100 regions. Immediate selling regions will emerge at 1.3250 – 1.3280 areas but sellers need to abandon your short-view if the 1.3300 resistances are breached.

GBP/USD dipped on Friday after worsening budget deficits and slower growth. This week, we expect the market to be soft but trading in sideways due to festive seasons. Immediate resistance may emerge at 1.6220 – 1.6260 while downside could open to 1.6070 regions. Beware of trend fall in early January as the market has been fictitiously pulled up by recent weakening yen.

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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