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Yen Jumps, Nikkei Tumbles

A guest post written by DAR Wong

Currency Market Observations – 17 June 2013

Fundamental Outlook

The U.S. budget deficits widened while job creations continued to improve in optimism. Japan’s equities weakened, in retrospect to the rapid rise of the Yen after Bank of Japan (BOJ) held its monetary policy unchanged. The U.K. housing demand recovered to a three year record high and market analysts believed the Bank of England (BOE) will follow suit to U.S. policy in adding more stimulus.

The U.S. budget deficit widened in May after government’s spending increased 10 percent from a year ago. Outlay exceeded revenue by USD138.7 billion, compared to USD124.6 billion shortfall in May 2012. Jobless claims fell 12,000 to 334,000 in the week ended 8 June, better than median forecast.

The May U.S. producer-price index which measures wholesale prices rose 0.5 percent after falling 0.7 percent in April, while core prices was up 0.1 percent, inline with expectation. Industrial production climbed 0.1 percent after dropping 0.4 percent in April and 0.3 percent in March, boosting growth for the first time in past three times.

The Dow Jones markets fell back from early session of gains as the International Monetary Fund (IMF) cut its 2014 outlook for America and urged the central bank to carefully manage its exit from stimulus plans. The Standard & Poor’s rating agency upgraded the U.S. credit rating outlook to AA+ from negative, based on the receding fiscal risks and improvement in the job markets.

Japan’s Gross Domestic Product (GDP) expanded an annualized 4.1 percent in Q1, compared with a preliminary calculation of 3.5 percent. Another report showed current-account surplus for April was JPY750 billion yen (USD7.6 billion) that was more than double the median estimate.

Japan government announced the plan to sell inflation-linked bonds in October, after it was terminated since 2008. The new issuance will come with guarantee of minimal price protection against benchmark and deflation decline.

Last Tuesday, the central bank policymakers kept its monetary policy unchanged, a debacle which ignited a jump in Yen prices and bludgeoned Japan’s stocks. Japan’s Nikkei fell from intra-week top at 13,584 and drove down almost 1,200 points before settling at 12,686 on Friday. The USD/JPY also declined from above 99.00 level to briefly touch below the 94.00 level, one of the heaviest and biggest loss for the USD/JPY equated to 5 Yen losses.

Euro-areas industrial production rose 0.4 percent in April vs. revised 0.9 percent gain in March. The expectation was a decline while central banks forecast of the GDP for Q2 will continue to stagnate. In overall, debt crisis remains as major concern to policymakers as they observe the rising yield of bonds issued by indebted nations.

The U.K. Royal Institution of Chartered Surveyors reported the housing price index rose to 5 in May from prior month reading at 1 clocking a three year high record, although experts said it is still far from full-scale recovery. British jobless claims fell in May by 8,600 to 1.51 million while unemployment was recorded at 7.8 percent.

The former U.K. policymaker Adam Posen says Bank of England (BOE) will soon start add stimulus to economic solution that is similar to the U.S. Federal Reserve in order to stay buoyant. This statement supported the Pound to be floating on strong sentiment sometime middle last week.

Technical Forecast

USD/JPY has been dipping one way down and settled at 94.07 for the weekend. This week, we foresee the market trend may reverse up following the news of issuance of Japanese government bonds with stop-protection in October. The support will emerge at 92.50 levels while topside could rise to 97.00 areas. The range may be good for speculators who trade on short-term.

EUR/USD topped 1.3390 last week and has been staying afloat near here on Friday. This week, the market trend may begin to turn down to 1.3150 as profit-taking arises. The trend must not break above 1.3400 resistances in order to maintain this downside projection otherwise short traders need to abandon their trades.

GBP/USD also begins to fizzle out at 1.5740 regions. This week, we reckon the range will weaken gradually and the prices are expected to move down from 1.5750 – 1.5550 levels. Profit-taking may emerge soon if no more positive fundamental news pushes the market above 1.5750 resistances. Same as Euro, short-traders need to cap their unexpected losses if the bulls return and march above 1.5750 levels.

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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