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US Labor Market Lags Behind Recovery

A guest post written by DAR Wong

Currency Market Observations – 25 August 2014

Fundamental Outlook

The US inflation lags in fatigue though jobless claims continues to make progress. FED Yellen comments labor market is still behind improvement goal and refrains from discussing interest rates in annual Jackson Hole meeting. Japan recovers in overseas shipment from past 2 months’ declines. UK declines in inflation and policymakers opt for unchanged policy in interest rates and stimulus program.

The US housing starts jumped 15.7 percent in July to 1.09 million annualized rates, hitting strongest record since November. Inflation remains flat after consumer price index increased 0.1 percent against up 0.3 percent in June. Core prices rose 0.1 percent and same as prior month.

American jobless claims fell 14,000 to 298,000 in the week ended 16 August. Job market is making progress in world’s largest economy with improved signs. Existing home rose in July to 10-month high at 5.15 million annualized pace.

In FOMC July meeting, Fed officials raised the possibility they might hike the target interest rate sooner than anticipated in view of recovering labor market. Weak wage growth and low inflation have given the FED policymakers a reason key to hold target rate near zero.

In Jackson Hole symposium, FED chairperson Janet Yellen commented the US labor market has recovered for past 5 years but still behind the full employment goal. She did not comment on interest rate though policymakers have begun to voice consideration in credit crunch. S&P 500 index fell from highs after her remarks.

Following the Jackson Hole meeting, St. Louis Fed President James Bullard said in an interview that interest rates may have to rise earlier than policymakers have anticipated.

Japan’s overseas shipments rose 3.9 percent in July from a year earlier, jumping back from last 2 months of straight declines. Imports rose 2.3 percent, leaving a deficit of JPY964 billion (USD9.36 billion). After the news, yen has begun to devalue against USD again to 104.00 levels last week.

German flash manufacturing PMI gained 52.0 in July versus revised 52.4 in June. In whole euro areas, the flash manufacturing PMI revealed slowdown at 50.8 against revised 51.8 in June.

UK consumer prices fell to 1.6 percent from 1.9 percent in June. Core prices also slid to 1.8 percent from previous month 2.0 percent. Another report on factory gate prices was down to 0.1 percent against median forecast of up 0.1 percent.

Another report on British retail sales for July rose 0.1 percent but down from prior month 0.2 percent gains. In central bank meeting, policymakers voted to hold rates unchanged and maintained asset purchase program at GBP375 billion in reserves. Pound traded in weaker demand last week.

Technical Forecast

USD/JPY traded higher to 104.19 highs in devaluing yen. The market closed at 103.92 on Friday in light profit-taking. This week, we forecast the trend will be resisted at 104.20 regions with high possibility to fall back at 102.70 areas. In our opinion, market needs more fundamental news to push the prices above 104.20 and reach up to 105.00 targets. Otherwise, sideways consolidation will render the market moving from 102.70 – 104.20 regions in coming week.

EUR/USD closed at 1.3240 for the weekend amid rising dollar. This week, we reckon the trend will fall further to 1.3120 regions if USDX continues to strengthen. We foresee immediate resistances sit at 1.3300 and 1.3400 levels with selling ambush to liquidate previous long positions. Trades are advised to protect their positions with risk management in case trend swings against them!

GBP/USD has become resilient from falling after it dropped below 1.6600 levels. Technically, we reckon the market might be supported at 1.6550 areas and could rebound in coming week. We are looking at 1.6550 – 1.6750 ranges once the trend begins to consolidate. Abandon your long-view if the market sinks below 1.6500 levels.

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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