The yen weakens while ECB expects rate hike

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Fundamental Outlook

The US economy added more jobs that brought down unemployment surprisingly in March.

The one-day Group of 20 (G20) meeting in Nanjing did not emphasise much on ‘Quantitative Easing’ (QE) policy of US that caused the global inflation, but highlighted on the probable Eurozone rate hike in coming week and undermine yen’s weakness to aid Japan’s crisis.

On Friday, American non-farm payrolls created 216,000 jobs in March after a revised 194,000 gain in prior month, while unemployment rate unexpectedly dropped to 8.8 per cent. Another report showed building construction declined 1.4 per cent in February, indicating sluggish recovery in housing markets.

Japan’s unemployment rate unexpectedly declined to 4.6 per cent in February from prior 4.9 per cent. The sentiment among small companies rose to 49.5 in March, almost at four-years high. However, manufacturing shrank and fell to 46.4 from 52.9 in February.

Japan’s quarterly Tankan index of sentiment among large manufacturers climbed to ‘six’ in March from ‘five’ in December, showing industrial confidence in the first quarter before the earthquake. Another separate report on auto-sales shed 37 per cent in March from a year earlier to 279,389 vehicles, affected by earthquake and tsunami crisis.

Last week, Ministry of Finance said 692.5 billion yen (US$8.4 billion) was sold in open market after the nature’s crisis to help lowering yen’’s values.

The G7 committee of rich countries intervened to suppress yen’s weakness to expand exports in coming months.

European confidence in the economic outlook worsened in March, after surging energy costs and Japan’s earthquake. An index of executive and consumer sentiment slid to 107.3 from a revised 107.9 in February, slightly below median forecast. A gauge of manufacturing in the Eurozone fell to 57.5 from 59 in February.

Rapid surge in consumer prices have been threatening the Eurozone with undervalued euro. Despite the sovereign debts in Greece and Portugal are still worrisome, they have been offset by necessity to set higher interest rates for fighting global inflation. Market analysts expect the policymakers will probably raise 25 basis points in coming week’s meeting.

Technical Forecast

US dollar/Japanese yen surged after G7 intervened to sell down yen. Market crossed major resistance 84.50 on Friday evening, but receded to settle below this benchmark. We foresee strong selling pressure is going to act unto 84.50 levels and bring the prices back to 82.00 regions for technical digestion.

Alternatively, buying interest is expected to emerge at 80.70 regions should the trend goes lower.

Euro/US dollar had a big swing on Friday when market plunged to 1.4060 then soared to close at 1.4232. In coming week, we will observe the support levels at 1.4150 regions that breaking below this benchmark will indicate new selling interest. However, the market may be capped at 1.4250 but violating above 1.4282 could trigger many buy stops in market.

UK pound sterling/US dollar will likely re-track its up trend to 1.6250 regions this week. The market reversed from the bottoms 1.5972 on Friday and closed at 1.6108 for weekend.

We reckon good support and buy-in at 1.6050 regions while breaking above 1.6150 benchmarks indicate bullish sentiment. Abandon your long-view if the market breaks below 1.5950 levels.

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 22 years of trading experience in global derivatives and foreign exchange markets. He can be reached at [email protected].