THE long awaited result of stress test shows only seven out of 91 European banks failed but stirred concerns in market of compromised standard in the stringency. The US housing data continued to fall amid the expiry of government incentive that spiked the Japanese yen as a hedge tool. European stocks jumped for another week with the pound and euro lifted by the positive outcome of stress test.
In US, National Association of Home Builders/Wells Fargo confidence index dropped to 14 in July, making lowest record in past 16 months triggered by pessimism after the government tax credit ended.
Housing starts fell in June to the lowest level in eight months with 549,000 houses broke ground at an annual rate and down five per cent from May. Existing home sales also slid 5.1 per cent to a 5.37 million annual rate from May.
Another separate report showed Conference Board+fs index of leading indicators fell 0.2 per cent in June, signaling gloomy outlook for economy after the second decline out of last three months. Initial jobless claims jumped by 37,000 to 464,000 in the week ended July 17, exceeding the highest estimate of economists’ forecast.
Japanese yen rose to new year-high against the dollar at near 86.00 as the US economy waned. Investors were worried of the slow down in the US manufacturing and housing slump. Bank of Japan (BOJ) warned of intervention to currency should yen continue to stay high that might affect the exports.
The German Ifo institute said its business climate index jumped to 106.2 in July from prior month 101.8, the highest level since July 2007. The stress test showed seven of the 91 European Union (EU) banks failed with a combined capital shortfall of euros 3.5 billion (US$4.5 billion). Investors remained doubtful to the results as the guideline was set to ignore banks+f holding in sovereign debt instruments that could turn into toxic assets.
UK retail sales showed gain in June when purchases climbed 0.7 per cent and higher than forecast. Data rose 1.3 per cent from a year earlier. Another separate report posted the strongest economic growth in four years when Gross Domestic Product (GDP) increased 1.1 per cent in the second quarter, compared with 0.3 per cent gain in the first three months of the year.
Technical Forecast US$/Japanese yen recovered from recent low 86.26 and has been staying neutral. The market is subject to influences of fundamental weakness in US and observations of BOJ policymakers that may initiate a new directional trend. While we observe the tight range from 86.30 to 87.50, traders are advised to enter from the extreme ends with the aforementioned prices as risk controlled levels.
euro/US$ remained toppish after it spiked to 1.2950 regions again on Friday. We reckon the market still bias to bearish sentiment with resistance capped at 1.3000 to 1.3050. This week, we foresee a potential to reach bottom in 1.2700 regions if the topside can suppress the market from breaking above 1.3050.
+’/US$ has possibly formed a top at 1.5450 regions and may turn bearish soon. If the market can be well resisted at 1.5470, we expect the whole week to be weak with potential bottom aimed at 1.5100 regions. Traders are advised to safeguard your short view with uncompromised risk management while target at an initial turn down.
Disclaimer: This article was written for general information only. No liability by the writer or newspapers.
DAR Wong is the founder of PWFOREX.com with 20 years of trading experience in global Derivatives & FX markets. You may reach him through www.pwforex.com
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