Fundamental Outlook
The European Central Bank (ECB) and People’s Bank of China (PBoC) both raised rate last week to contain rapid inflation. The US non-farm payroll disappointed the market on Friday with least growth over past nine months. Greece was still in procedure of being bailed out while Portugal faced downgrade by Moody’s agency last week. Japan saw a recovery after data showed rebound after March crisis.
The US factory orders rose 0.8 per cent in May and less than forecast, but still indicating recovery though small. The Institute for Supply Management’s index of services index decreased to 53.3 in June, less than forecast and down from prior month 54.6. Another data showed jobless claims fell by 14,000 to 418,000 in the week ended July 2 with more job openings.
On Friday, the US non-farm payroll added only 18,000 jobs in June and far lesser than forecast. Unemployment rate increased to 9.2 per cent and brought down energies prices. The US stock slumped on the bad data while investors were waiting for the announcement from Fed governors on August 2 in deciding the new budget ceiling above US$14.3 trillion deficits.
Japan’s current account surplus narrowed down in May. The gap shrank 51.7 per cent from a year ago to Japanese yen 590.7 billion (US$7.3 billion), lesser than median forecast. Analysts presumed the ailing economy should start to turn around after the national crisis as the recession has come to worst levels.
During mid week, China’s central bank raised interest rates by quarter point to lending and deposit rates then followed by Portugal downgraded by Moody’s Investors Service. Crude oil prices plunged while reacting to probable slowdown in these two huge economies. However, Chinese Prime Minister Wen Jiabao mentioned that there might be no more rate hike till year-end as thr government was confident in containing flaring inflation.
On Thursday evening, ECB raised 25 basis points in its benchmark rate to 1.5 per cent and lifted the euros against US greenback. ECB president Trichet said policymakers would hike rate further in coming months if inflation persists. Despite that, euros were unsteady in fluctuations due to low investors’ confidence in Greek bailout. Though the rescue aid has been approved in principle, ECB claimed unwillingness to accept any default-rated Greek bonds as collateral and roll-over of these debt instruments may be delayed.
Lloyds Banking Group Plc (Lloyds) in London said UK housing prices increased 1.2 per cent in June, when they gained a revised 0.4 per cent. From a year ago, prices dropped 1.6 percent to an average £163,049 (US$261,107). Housing data was still mixed from different sources.
UK factory output increased 1.8 per cent in May, the most since March last year. In overall, British economy is still in slow recovery due to government’s budget cuts, soaring prices hit consumer confidence and global demand weakens. On Thursday, the Bank of England kept its benchmark interest rate at a record low.
Technical Forecast
US dollar/Japanese yen declined almost 100 pips on Friday but supported at 80.50 regions. We have identified the next strong support at 80.00 levels while topside capped at 81.50 resistances. The market will trade sideways within new range with probably no new direction in coming week. Abandon your view if the trend reverses against you and moves beyond the extremes.
Euro/US dollar traded low at 1.4205 last Friday after US major figure and swung up to 1.4350. We reckon the market will consolidate this week and bias to bullish sentiment. If the existing 1.4200 supports can hold well, the bulls may find its way back up to 1.4450 regions. Abandon your long-view if 1.4200 is violated.
UK pound sterling/US dollar is temporarily well supported in the 1.5900 – 1.5900 regions. This week, we expect the trend to be consolidating upward to 1.6250 regions. As UK is recovering from short-term technical strength, we favor to establish long trades unless the aforementioned supports broken.
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].
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