Fundamental outlook
THE US Fed chief Janet Yellen hinted that stimulus is a necessary action to ensure economic recovery. China revealed a flambuoyant economy as consumer prices declined amid rising national trade surplus. European Central Bank (ECB) retained interest rates but president Mario Draghi forewarned that stimulus injections are imminent if growth stalls.
The US Institute for Supply Management’s non-manufacturing index rose to 55.2 in April compared to the previous month at 53.1. Another report showed trade deficits narrowed in March with trade gap declining by 3.6 per cent to US$40.4 billion from the previous month’s US$41.9 billion.
The US consumer credit rose US$17.5 billion in March, exceeding the revised US$13 billion in the previous month. Non-revolving loans, including borrowing for cars and college tuition, rose by the most in six months. US jobless claims fell 26,000 to 319,000 in the week ended May 3.
Fed chief Janet Yellen commented that the US economy still needed strong stimulus even after five years since the recession ended because unemployment and inflation are well short of the Fed’s goals. Last week, Dow Jones benchmarks almost regained to a new historical high at 16,600 regions.
China reported an unexpected surge in trade balance for April. Surplus recorded was at US$18.45 billion gains from US$7.71 billion in March. Before the weekend, consumer prices moderated to an 18-month low while the decline in factory-gate prices persisted. Consumer prices rose 1.8 per cent from a year earlier in April while producer prices fell two per cent, which is the 26th straight decline, after a 2.3 per cent drop in the previous month.
Last week, ECB officials left its benchmark rate at a record low 0.25 per cent and the deposit rate at zero. The marginal lending rate was held at 0.75 per cent. Following the statement, the euro currency fell from 1.3994 highs and contracted before the weekend. ECB president Draghi hinted that stimulus action may be implemented in June as rising euro has dampened exports and economic recovery.
During middle of last week, the euro currency overnight interbank rates exceeded the ECB’s benchmark interest rate at 0.25 per cent for the first time since 2008, signaling fragility in economic confidence and fear as in pre-crisis behaviour.
Market Economics in London reported that purchasing managers’ index (PMI) has increased to 58.7 from 57.6 in March, indicating growing economic momentum. UK manufacturing production rose 0.5 per cent in March after it rose one per cent, previously. Industrial production fell 0.1 per cent, after rising to a revised 0.8 per cent in the previous month.
Last week, British pound waned after rising to a four-year record high at 1.6996 levels. NISER predicted that the British economy would grow 2.9 per cent this year, exceeding its peak in 2008.
Technical forecast
US dollar/Japanese yen has been trading sideways below 102 levels in losing interest. Market is constricted from the 101.2 to 103 range without fresh factors to pull the trend out of it. This week, we will adopt a neutral sentiment and observe the market trend till it breaks beyond either side of the aforementioned extremes.
Euro/US dollar dropped last week after ECB president Draghi commented of an imminent stimulus in June. Technically, we foresee the market might decline further in coming week to the 1.36 to 1.365 range before bargain-hunting emerges. Resistance of selling forces will develop at 1.385 levels onwards as many long traders may wish to liquidate upon technical short-covering.
British pound/US dollar has begun to decline following the sentiments on the euro. This week, we reckoned that the trend would sink further at 1.665 levels while resistance would be capped at 1.7 areas. Market is bias prone, to make technical correction after rising to four-year highs record though it failed to break above 1.7 benchmarks last week.
Disclaimer: This article was written for general information only. No liability by the writer or newspapers. Dar Wong is an approved fund manager in Singapore with 25 years of trading experience in global Derivatives & FX markets. He can be reached at dar@pwforex.com.