Fundamental outlook
US economy showed inflation on rising in producer prices and consumer prices was above expectation. Japan surprised the market with an economic contraction that spurred Prime Minister Shinzo Abe to call for a snap election. European Central Bank (ECB) stressed on immediate action if necessary to revive the ailing economy for fear of new debt crisis. The Bank of England’s meeting gets vote of 2-0-7 for holding the rates steady.
US industrial production unexpectedly dropped 0.1 per cent, reflecting the vehicle pullback and weakening demand at utilities and mining companies. Producer prices advanced two per cent unexpectedly following a 0.1 per cent drop the previous month. Core prices rose 0.4 per cent.
US house building permits rose 1.08 million annualised rates in October, which was better than the previous month at a revised 1.03 million. Housing starts were down 2.8 per cent to 1.01 million pace but in-line with median forecast.
US jobless claims rose to 291,000 for the week ended November 15 and higher than median forecast.
In a separate report, consumer prices stagnated after rising 0.1 per cent in September. However, core prices rose 0.2 per cent in October and above median forecast.
Japan’s gross domestic product (GDP) shrank 1.6 per cent on an annualised basis in the third quarter (3Q), following a 7.3 per cent contraction in previous quarter ended June.
Prime Minister Abe had postponed a proposed sales-tax increase and has dissolved the Parliament on Friday. He called for a snap election in December and had ordered his ministers to start preparing a stimulus package.
Japan’s overseas shipment rose 9.6 per cent from a year earlier to the highest level since October 2008. October imports grew 2.7 per cent and left a trade deficit of 710 billion yen (US$6 billion). Yen weakend to a seven-year low against the dollar at 1,180 regions.
In the eurozone, German ZEW Center for European Economic Research’s index of investor and analyst expectations increased to 11.5 in November from a minus 3.6 in October.
German manufacturing index grew at 50 in November versus 51.4 in the previous month. French manufacturing index was also down at 47.6 after it expanded at 48.5 in October. Both largest economy in the eurozone posted a slowdown and this had renewed worries of a recession.
European Central Bank (ECB) president Mario Draghi had reiterated that the region’s policymakers will inject more stimuli if necessary to steer away from deflation. Analysts forecast central bank may likely expand its balance sheet to three trillion euros in 2015.
The British consumer prices rose 1.3 per cent in October from a year ago, compared with 1.2 per cent in the previous month. UK retails sales gained 0.8 per cent in October, which was better than the previous month at minus 0.4 per cent.
In a separate report, Confederation of British Industry reported that reading was at three, which is a jump from minus six in October.
In the central bank meeting, policymakers opted to hold interest rates unchanged while supported by seven votes against two that favour credit tightening.
Technical forecast
US dollar/Japanese yen reached almost 119 highs last week but hovered at 118 regions during the weekend closing. Investors were jittery in profit-taking after Abe cabinet dissolved the Parliament.
This week, we reckoned the market might trade sideways from 116.5 to 119 regions while sentiment will begin to be mixed. Be cautious in case of further fall due to long unwinding.
Euro/US dollar traded in bearish trend on Friday as traders lost confidence in eurozone recovery. Despite Draghi has been stressing on new stimulus, we reckon the trend will drop further while staying inside 1.2350 to 1.2570 ranges.
Beware of breaking below 1.2350 supports as this might lead to new year-low at 1.2200 levels.
British pound/US dollar has slowed down in the slide after revealing better economic recovery. This week, we presume the market will initially range from 1.5550 to 1.5750 regions but may be slightly prone to bullish sentiment as sign of short-covering has occurred. Technically, resistances lie at R1 – 1.5750 and R2 – 1.5950 levels.
Disclaimer: This article was written for general information only. No liability by the writer or newspapers. Dar Wong is a registered fund manager in Singapore with 25 years of trading experience in global Derivatives & FX markets. He can be reached at [email protected].