Fundamental outlook
US recovery on housing markets has proven feeble while inflation remained weak due to the slump in oil prices. Fed governor Janet Yellen has promised to keep rates low as well as to revive bullish sentiments in the stock markets. Japan is ready for the next phase of recovery after Shinzo Abe re-won his seat as Prime Minister. UK job market has improved from its lowest unemployment rate since 2008.
US’ industrial production grew 1.3 per cent in November, which was higher than expected, after rising at a revised 0.1 per cent in October.
US housing has started to decline by 1.6 per cent, the first drop since August, to 1.03 million annualised rate from a revised 1.05 million pace in October. Building permits also dropped to 1.04 million annualised rates from 1.09 million in October.
US inflation measured by consumer prices contracted 0.3 per cent in November due to the recent oil slump. Core prices grew 0.1 per cent, matching forecast. After the FOMC meeting, Fed chairwoman Yellen said the Fed is committed to keep interest rates at low levels for at least the next few meetings. Analysts expect this will last until April 2015.
US jobless claims decreased by 6,000 to 289,000 in the week ended December 13, the lower since early November. Fed Philadephia manufacturing index for December expanded at 24.5, which was lower than forecast, after rising 40.8 in the previous month.
In Japan, newly re-elected Prime Minister Shinzo Abe has won two-thirds majority in the Parliament’s Lower House, grabbing 326 out of 475 seats. Abe will have another four-year term to revive Japan’s economy by flooding the market with cash, encouraging corporations to create more jobs, and increasing government spending.
Japan’s quarterly Tankan reports showed that big manufacturer index slipped to 12 in December from 13 in September. Non-manufacturing index had risen to 16 in the same period from the previous quarter at 13 index. In a separate report, exports were reported as rising less than forecast in November, lifting 4.9 per cent from a year earlier. Imports slid 1.7 per cent, leaving a trade deficit of 892 billion yen (US$7.6 billion).
During last Friday’s meeting, the Bank of Japan’s policymakers said they would continue to expand the monetary base at an annual pace of 80 trillion yen to support recovery. Analysts expect yen to remain weak in January.
German ZEW Center for European Economic Research in Mannheim, said its index for measuring investors’ confidence climbed to 34.9 in December from 11.5 in November. The Ifo institute’s business climate index advanced to 105.5 in December from 104.7 in November.
UK inflation slowed down to 1.7 per cent in November from a year ago after rising 1.3 per cent annualised rates in the previous month. Claimant counts for jobless citizens fell for the 25th month in a row in November and declined by 26,900. Jobless rate stood at six per cent, the lowest since 2008.
UK retail sales including auto fuel increased 1.6 per cent in November and rose 6.4 per cent from a year ago. The government budget deficit narrowed from April and November at 75.8 billion pounds, compared with 76.2 billion pounds in the same period in 2013.
Technical forecast
US dollar/Japanese yen regained its footing to above 119 levels after a recent correction from below 116 benchmarks. This week, we reckoned a narrow volume trading in the market and it will probably trade sideways from 118 to 120 regions. Activity is expected to return only in January.
Euro/US dollar revisited below 1.23 levels on Friday after the dollar strengthened again. This week, we reckoned the resistance would emerge at 1.235 regions while the trend might be subjected bearish sentiments again once it breaks below 1.22 major levels. Target might drive down at 1.21 levels.
British pound/US dollar is hovering at 1.56 to 1.565 regions with a high possibility of testing 1.555 supports in the coming week. The range is expected to trade from 1.555 to 1.575 regions but penetrating below 1.555 supports might drive down trade to 1.545 targets.
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].