Fundamental outlook
US new home sales surprised the market with strong gains and surging consumer confidence. Fed policymakers has stressed steady growth in the US economy with imminent hikes in rates. Japan saw improvements in its export growth but household spending shrunk due to higher sales tax. German saw steady job growth while the UK slipped into hawkish outlook for home loans.
US new homes sales grew 481,000 in December from a year ago, which was stronger than forecast and higher than the previous month. The Conference Board of consumer confidence jumped to 102.9 in January which was far better than forecast, and this was probably pulled up by the recent rise in dollar.
US orders for core durable goods, excluding transportation and equipment, records at minus 0.8 per cent in January against a positive forecast. US unemployment claims for the week ended January 24 fell to 265,000 after it was revised at 308,000 in the previous week.
US final GDP for the final quarter slipped to 2.6 per cent after a revised five per cent gains in the previous quarter.
According to FOMC’s statement, policymakers reassured of steady growth and retained its target of achieving two per cent inflation, but interest rate hike may come faster than expected. Gold prices slid to US$1,260.00 per ounce after the remarks.
Japan’s trade deficits narrowed to 710 billion yen in December compared to a revised 830 billion yen in the previous month, underscoring better exports due to weaker yen. Core consumer prices rose 2.5 per cent in January from a year ago after it reported a 2.7 per cent gain last month.
Japan’s jobless rate stayed healthy at 3.4 per cent in January. In a separate report, household spending contracted to minus 3.4 per cent in January on annualised rates versus minus 2.5 per cent in December, probably due to higher sales tax.
German Ifo business climate report showed that the January index was at 106.7, moving in line with moderate growth.
The prelim estimate for German consumer prices in January contracted at minus 0.1 per cent after it was reported on par with December’s numbers. However, in another report, jobless change in December was better off at minus 9,000 versus minus 25,000 reported in the previous month.
Eurozone’s consumer prices fell to minus 0.6 per cent annualised rates in January and below forecast. Core prices remained at 0.6 per cent from a year ago, which was lower than 0.7 per cent annualised rates recorded in December.
UK prelim GDP for final quarter was at 0.5 per cent after it rose 0.7 per cent during the previous three months through September. British Bankers’ Association said the mortgage for January dropped to 35,700 from the previous month at 36,700 applications.
Technical forecast
US dollar/Japanese yen has been trading in very tight range from 117.25 to 118.66 regions. The market is waiting for a breakout in the coming week while still uncertain of its direction. Technically, we reckoned it is more prone to see decline at 115 targets. Beware of piercing above 118.66 resistances as this may return to 120 regions.
Euro/US dollar has shown a reversal bar on the weekly chart as it closed at 1.1282 for the weekend. This week, we foresee the market will be supported at 1.11 areas in case of drawdown occurs again.
However, failure to break down below this support will yield high probability of a short-covering. Market may return to 1.16 regions if short traders take cover for profits.
British pound/US dollar has been consolidating sideways but the decline had slowed down. This week, we predict that the market might pull up for retracement from 1.5 to 1.525 ranges if the dollar begins to correct downward against major currencies. Abandon your long-view if it breaks below 1.495 supports.
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].