Fundamental outlook
DEBATES revolved around US’ policy regarding credit tightening before year-end while inflation is increasing. Fed chief Janet Yellen has reassured low benchmarks rates even after stimulus ends. Bank of Japan (BoJ) chief Kuroda has remained neutral towards the strengthening yen. In the euro area, the economy continues to wobble as European Central Bank (ECB) begins to mend its slowdown. UK has posted improvement and is gradually pulling out of recession.
The US retail sales rose 0.2 per cent in June while core data was up 0.4 per cent; both below expectation. Producer prices rose 0.4 per cent in June after an increase of 0.2 per cent in the previous month. Core data grew 0.2 per cent, in line with forecast.
In a separate report, US housing has been reported to have started declining 9.3 per cent to an 893,000 annualised rate in June, the weakest data in past nine months as construction slumped in the country’s southern states. Jobless claims declined by 3,000 to 302,000 in the week ended July 12.
St Louis Fed president James Bullard has commented that interest rates might be raised more quickly than planned as unemployment declines and inflation rises. In a Fed testimony, Yellen had warned that there are signs of asset price bubbles forming in some leveraged loans and lower-rated corporate debt. However, she hinted that equities are not overpriced yet.
Fed chief Yellen also reiterated maintaining low benchmark policy rate to a near zero even after stimulus is fully withdrawn. Central bank has planned to reduce the size of its US$4.38 trillion balance sheet to normalise its monetary policy.
The crisis in Ukraine has escalated after a Malaysian Airline System Bhd’s (MAS) passenger jet crashed with 295 people on board. The government in Kiev has blamed pro-Russian rebels for shooting down the jet, while the separatists deny the accusation.
Foreign exchange traders preempt BoJ’s chief Kuroda hint of his neutral stance towards stronger yen. Last week, Kuroda told reporters in Tokyo the yen is no longer excessively strong and the country’s economy is on its way to meet its inflation target.
German investor confidence declined for a seventh month in July after the ZEW centre index dropped to 27.1 from 29.8 in June. The progressive slowdown in Germany has made policymakers worried as Germany, being the largest country in the euro area, might drag the entire region into an economic slump.
Greece will need to top up its 240 billion euros (US$325 billion) of loans received from Europe Union (EU) and International Monetary Fund (IMF) since 2010. Economists said Greece would need a third bailout as IMF forecasts Greece would have a 12.6 billion euros financing gap next year.
European Central Bank (ECB) president Mario Draghi aimed to increase ECB’s lending programme to boost growth. Media reported that ECB policymakers would flush the market with 700 billion euros (US$950 billion) cash to stimulate growth.
UK consumer prices rose 1.9 per cent in June from a year ago after rising 1.5 per cent in May. Another data on producer prices saw numbers unexpectedly down 0.8 per cent after it was revised at 0.3 per cent growth in the previous month. Unemployment slid to 6.5 per cent in the three months through May, from 6.6 per cent in the period ending April. Claimant for jobless benefits was down by 36,300 counts, which was better than median’s expectation.
Technical forecast
US dollar/Japanese yen closed at 101.29 on Friday as it edged towards 101 benchmarks. The market is showing weakness after Kuroda did not retaliate on the rising yen. This week, we reckon that the resistance will emerge at 101.8 levels as it is prone to break below 101 levels for lower grounds. We predict 100 benchmarks could be possible but any reversals above 102 resistances requires you to abandon your short-view.
Euro/US dollar is very prone to decline further after it closed at 1.3522 for the weekend. The market is very strongly resisted at the 1.357 to 1.36 regions and it might drop into the 1.34 regions in coming week. Pay attention to the economic data in the euro area and take note of any resurging debt crisis among the 18 nations. Abandon your short-view if reversals above 1.36 levels occurs.
British pound/US dollar is showing exhaustion as it has been loitering below 1.7191 highs. The market is temporary supported at 1.705 levels and might gather strength to make another surge in coming week. Piercing above 1.72 indicates a new wave of demand. However, breaking below 1.7 benchmarks could indicate a downward reversal and this might eradicate the bullish trend!
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]