Fundamental outlook
THE US non-farm payroll has risen better than forecast, as trade deficit narrows. Fed chief Janet Yellen has implied that monetary policy may not be good measure to lead economic recovery, hinting that rate increase is irrational to economic growth.
European Central Bank (ECB) president Mario Draghi has stressed on low interest rates to support recovering growth. UK persisted in its steadfast escalation in manufacturing sector.
US pending home sales index climbed 6.1 per cent in May, making it the largest jump since April 2010.
The Institute for Supply Management’s manufacturing index was 55.3 in June, which was a slight change from its five-month high of 55.4 in May. Another services index from the same institution was 56 after 56.3 in May, which was the highest since August.
US’ trade deficit shrank 5.6 per cent in May, the biggest drop since November. Trade gap narrowed to US$44.4 billion from the previous month’s US$47 billion. Exports climbed to US$195.5 billion versus US$193.5 billion in April.
US non-farm payrolls rose 288,000 in June, which was above consensus. Jobless rate fell to 6.1 per cent. Following the data release, Dow Jones benchmarks rose to historical highs at 17,074 amid optimism in the market. Federal Reserve chief Yellen commented that it is not necessary to change the current monetary policy for addressing financial stability. This is likely to indicate the detachment of interest rates to economic recovery.
Japan’s quarterly Tankan report showed weakening sentiments among large manufacturers to 12 from 17 in March, signaling pessimism in the outlook for coming six months. Non-manufacturing index was also down to 19 from previous quarter 24. Policymakers remained resilient to new stimulus and have kept the yen rate at an uncertain sideways range against dollar for past five months.
Eurozone inflation rose 0.5 per cent in June on an annual basis but was below the central bank’s target. Core prices unexpectedly went up 0.8 per cent annualised rate. The unemployment rate in 18 nations remained at 11.6 per cent after the April’s data was revised down from 11.7 per cent.
European Central Bank (ECB) president Draghi reiterated on keeping low interest rates. Policymakers will monitor the recovery after the rate cut to historical low at 0.15 per cent last month while making efforts to revive the ailing economy.
Markit Economics in London has reported that UK’s manufacturing purchasing managers index (PMI) rose to 57.5 in June from 57 in May, fastest in past seven months as demand surged. Another report on construction PMI hit a four-month high at 62.6 compared to 60 in May.
British pound has been surging since the data reported of a recovery in the economy and the pound stayed strong above 1.7 benchmarks.
Technical forecast
US dollar/Japanese yen bounced off 11.24 last week and closed at 102.01 for the weekend. The market is still trapped with little movements and no clear direction. We observe that the trend is constricted within 101 to 103 regions as it awaits definite fundamental influence to pull it out of the aforementioned range.
Euro/US dollar turned down from 1.37 resistances and remained weak after the non-farm payroll released on Thursday.
This week, we reckoned that the market will consolidate within 1.35 to 1.37 ranges and will probably trade sideways. Only breaking beyond the aforementioned range will extend it into new direction.
British pound/US dollar climbed up to 1.718 on strong economic sentiment last week. Fundamental strength is UK’s strong economy driven by growing demand for pound. This week, the market may continue to march up to 1.73 regions with support sitting on 1.7 benchmarks.
Pay close attention to the euro/British pound’s cross rate which might be falling further!
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 [email protected].