Fundamental outlook
US equity was lifted up after new stimulus measures announced European Central Bank (ECB) had lifted equity prices across the globe. ECB policymakers announced a monthly purchase of 60 billion euros until September 2016 with an intention to push up the region’s inflation. Bank of Japan (BoJ) had maintained the monetary base while Bank of England had adopted a status quo.
US building permits dropped to 1.03 million annualised rates in December after it was revised at 1.05 million in the previous month. In another report, housing showed approvals of 1.09 million annualised rates, which was higher than the revised 1.04 million annualised data recorded in November.
US jobless claims for the week ended January 17 dropped to 307,000, which was above expectations, after the previous week’s revised 317,000.
BoJ has kept its target for the monetary base. The central bank said it was committed to maintain an annual pace of 80 trillion yen (US$674 billion). Market investors are disappointed since they expected an increment from a new stimulus. Policymakers cut its inflation forecast for fiscal 2015 to one per cent from 1.7 per cent previously amid plunging oil prices.
German ZEW Economic sentiment reported that the index for investors confidence jumped to 48.4 in January compared with 34.9 in the previous month. Markit report said the German manufacturing PMI had slowed down to 51 after reporting 51.2 in December.
ECB president Mario Draghi had led his team and pledged to buy 60 billion euros every month through September next year in a once-and-for-all push to revive the economy. The central bank retained the interest rate at 0.05 per cent.
European stock prices escalated after the stimulus measures was announced and it had also lifted US and Asian equities before the weekend. Euro continued to slide against the US dollar as well as most major currencies, after the stimulus news was released on Thursday.
UK claimant for jobless benefits had declined by 29,700 in December after it was revised to 29,600 in the previous month. In a recent meeting, Bank of England policymakers had decided to mantain the current interest rates and the asset purchase programme at 375 billion pounds.
British CBI industrial order expectation slid to index four in January which was lower than the previous month’s index reading at five. Retail sales rose 0.4 per cent in December, which was better than the expectation of a negative data.
Bank of Canada cut rates by 25 basis points to 0.75 per cent, surprising markets. Policymakers claimed the act was to stimulus oil exports and revive the economic slowdown.
Technical forecast
US dollar/Japanese yen is trapped from 116 to 119 ranges and has no clear indication of its direction.
However, the dollar’s trend might lead the direction in the US dollar/Japanese yen market, depending on the ongoing strength of the greenback. We advise traders to control risks in case the prices break beyond the aforementioned range.
Euro/US dollar has dropped to on unbelievable 1.12 bottoms, a 11-year record low. The market faces very strong resistance if an upward retracement occurs. This week, we reckoned that there is a high probability of testing the first support at S1 – 1.0000 benchmarks or even to S2 – 1.0800 if the dollar continued to rise. Topside resistance will emerge at 1.155 if short-covering occurs.
British pound/US dollar broke below 1.5 before the weekend after the US dollar index (USDX) rose to an 11-year record high on Friday. This week, we foresee the market will be resisted at 1.5 to 1.505 regions but the trend is highly prone to decline. Technically, we have identified the immediate support at S1 – 1.4940 but going below here might lead to 1.48 bottoms.
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 26 years of trading experience in global Derivatives & FX markets. He can be reached at [email protected].