Fundamental Outlook
THE US claims for unemployment benefits dropped while inflation rate increased again. Tapering of stimulus rekindled in the markets as traders sold off stocks and bonds. Yields continued to float higher as evidence that has triggered shaving of US treasuries by China. The eurozone and Britain both indicated recovery in demand for exports and retail.
The US retail sale rose for a fourth month on 0.2 per cent in July, after it gained 0.6 per cent the previous month. Producer prices remained at par and below median forecast, after a 0.8 per cent gain in June. Core prices rose 0.1 per cent last month. The president of FED of Atlanta, Dennis Lockhart, who has supported the monthly US$85 billion stimuli in bond purchases, hinted that tapering may begin soon.
Weekly jobless claims among American workers slid 15,000 to 320,000 as of August 10, clocking its lowest record since October 2007.
Another report on consumer prices shows an increase of 0.2 per cent after making a 0.5 per cent gain in June. However, industrial production for July was unchanged after rising 0.2 per cent the prior month.
The National Association of Home Builders/Wells Fargo index of builder confidence climbed to 59 from a revised 56 in July, the highest since 2005 as demand for new homes rose. Housing starts climbed 5.9 per cent to an annualised rate of 896,000 from a revised 846,000 pace in June that was higher than previously reported.
DJIA and bonds declined last week as fears of tapering stimulus grew due to improving job data. Bond yields rose to 2.80 per cent as of closing last Friday.
According to the US Treasury Department, China has begun to reduce the holdings in US treasuries by shaving US$21.5 billion in June (estimate 1.7 per cent) to US$1.276 trillion. Recent bond prices plunged amid rising yields and wide speculation of cutting back in bond purchases placed investors on the alert mode.
The eurozone reported its gross domestic product growth at 0.3 per cent in the second quarter season after 0.3 per cent contraction in the previous quarter. Exports increased for the first time in three months while being led by a rebound in Germany.
Overseas shipment from the 17-nations rose a seasonally adjusted 3 per cent in June from May, when they dropped 2.6 per cent. Another report shows inflation rate among the 17 nations remained at 1.6 per cent in July.
The UK unemployment remained at 7.8 per cent in 2Q data amid signs of recovery in labor markets and jobs creation. London-based RICS says UK housing index rose to 36 from 21 in June, the highest reading since November 2006.
Another separate report indicated British retail sales rising1.1 per cent in July. Pound rose to new intra-month high record as it surpassed 1.5600 levels on Friday.
Technical Forecast
US dollar/Japan yen is trading inside downward channel in day-chart. The market is prone to fall further in coming week if the trend is capped under 98.50 resistances. We reckon the support will be tested at 95.00 areas before some bargain-hunting will emerge.
Th euro/US dollar is still trading under 1.3400 resistances as it reversed up from 1.3203 bottoms last week. Technically, we reckon that the market will continue to consolidate inside 1.3200 to 1.3400 ranges in coming week.
Breaking above 1.3400 levels needs to abandon your short-view as this could go higher due to fundamental strength. However, moving sideways as stated in first hypothesis indicate prone bias to eventual weakness.
The pound/US dollar has been trading very close to our prediction last week from 1.5420 to 1.5657 ranges. The market is bullish and might continue to climb higher in coming week to 1.5750 regions. The support will be acting strong at 1.5420 to 1.5450 areas from now. Breaking above 1.5750 resistances may test 1.5850 targets.
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 24 years of trading experience in global derivatives and forex markets. He can be reached at [email protected].