Stocks plunge amid renewed Greek debt crisis

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Fundamental Outlook

The US President Obama reveals a US$447-billion proposal that would raise gross domestic product (GDP) in 2012 and add jobs. Commodities and stocks plunged on Friday after Greek debt emerged and implicated selling fear. Japan slowed down in econ­omy but would be waiting for another intervention stimulus with the Group of Seven (G7) nations.

The US Institute for Sup­ply Management’s index of services increased to 53.3 in August from 52.7 in July, making unexpected jump against forecast of decline. Another report showed trade deficit nar­rowed in July as exports climbed to a record. Trade gap shrank 13.1 per cent, the most since February 2009, to US$44.8 billion from a revised US$51.6-billion shortfall in June. Jobless claims climbed by 2,000 to 414,000 in the week ended September 3.

The US Commerce De­partment said whole inven­tory rose 0.8 per cent in inventories after followed a 0.6-per cent rise in June. On Friday, President Obama revealed a US$447-billion stimulus proposal, aiming to increase infrastructure spending and tax cuts to raise next year’s GDP by two percentage points and add 1.9 million jobs.

Japan’s factory orders dropped 8.2 per cent in July versus 7.7 per cent gain in June. Blames on decline growth were put on rising yen for causing slowdown in demands and exports. Japan’s GDP shrank at an annualised 2.1 per cent rate in the three months ended June 30, more than the 1.3 per cent contraction reported last month.

Inflation rate in Germa­ny fell to 2.5 per cent from 2.6 per cent in July. Euro­pean stocks dived towards weekend amid concern of re-emergence of ballooning eurozone sovereign debt crisis. Germany assures of commitment to bailout plan, should Greece fails in repayment.

The UK producer prices rose 0.1 per cent in August against revised 0.3 per cent gain in prior month, making least gain in a year due to energy prices drop. UK retail sales fell 0.6 per cent from a year earlier in August, causing slide in pound. The average price of a home in England and Wales gained 0.3 per cent in August to £219,078 (US$352,000), reported by Acadametrics Ltd and LSL Property Services Plc.

Technical Forecast

The US dollar/Japan yen still hovers in neutral 77.50 regions. However, lifting above 76.50 levels indicates sign of staying firm, oth­erwise breaking beneath may gather new bearish strength. From technical outlook, we reckon that the market may climb gradu­ally back to 80.00 regions in near future amid expecta­tion of another stimulus.

The euro/US dollar has declined sharply on Friday while reacting to news of probable defaults in Greece again. The market has dropped beneath the ultimate 1.4830 supports. Only turning above this benchmark will effectively constitute new bulls and drive up to 1.4100 as cor­rections. However, we foresee possibility to test lower at 1.3550 in coming week before the rebound begins.

The UK pound sterling/US dollar has fallen on Friday below 1.5910 and reached strong supports at 1.5844 regions. We foresee the coming week will stage a rebound and reverse up to 1.6100 as our first target. Further meltdown may hit the 1.5780 supports if the market cannot be held at 1.5844 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].