Fundamental outlook
US consumer prices rose for second month but was capped within consensus’ expectations. China’s regulators are expected to terminate margin lending to stock purchase and put pressure on US equities.
The eurozone saw a slow down in demand and the fear of Greek default has triggered a market sell-off. The British economy remained steady.
US producer prices expanded 0.2 per cent in March after it declined 0.5 per cent in the previous month, but it still remained below forecast. Retail sales grew 0.9 per cent, which is below expectation while core retail prices advanced 0.4 per cent from February.
US jobless benefits rose 12,000 to a seasonally adjusted 294,000 for the week ended April 11. Building permit, which reflects groundbreakings, increased two per cent to a seasonally adjusted annual pace of 926,000 units, falling below expectation for a straight second month. This indicate difficulty in recovering housing demand.
US consumer prices rose 0.2 per cent in March, rising for the second consecutive months. Core prices also climbed 0.2 per cent, matching forecast.
The University of Michigan reported that the preliminary consumer sentiment in April was at 95.9, which is better than forecast, keeping optimistic for demands in markets.
On Friday, Dow Jones benchmarks tumbled 279 points after Chinese regulators said they would lead a crackdown on margin lending in Shanghai’s stock markets. European markets also led the decline due to a highly possible default in Greece.
China grew seven per cent in the first quarter (1Q) and growth was down to a six-year low. Industrial output expanded 5.6 per cent in March on annualised rates, lower than the previous month’s 6.8 per cent as well as below consensus’ expectations.
Together with a lower producer prices released in the previous week, market traders expect another rate cut in China for this coming quarter to spur growth.
Eurostat reported that the final consumer prices in the eurozone declined 0.1 per cent in March on an annualised rate while final core prices dropped 0.6 per cent, both matching the forecast. In another report, trade balance saw a decline to 26.4 billion euros in February from the previous month at 30.4 billion euros.
UK consumer inflation grew at the same pace as in March in terms of annual rates and it remained unchanged from the previous month. In another report, retail price index saw an increase by 0.9 per cent annually in March, down from the previous month’s one per cent annual growth.
UK claimant for jobless benefits dropped by 20,700 in March, which was better than forecast. This was after it was revised at 29,100 counts in February. Unemployment rate improved slightly to 5.6 per cent in February but this is the lowest since 2008.
Technical forecast
US dollar/Japanese yen has drifted slightly lower last week at 119 regions. This week, we reckoned that the market would trade in the band from 118 to 120 areas while still in remain in a consolidating phase. Beware of losses in case the trend violates beyond the aforementioned range.
Euro/US dollar has proven its strong support at 1.05 regions and has bounced back to 1.08 levels. This week, we predict that the range would be capped from 1.06 to 1.1 ranges while still in a consolidating stage. Technically speaking, the market has yet to break out of the sideways trend until we see new strength in the dollar.
British pound/US dollar pierced above 1.5 on Friday but failed to settle above this benchmark. Thus, we foresee that the trend would lose steam if the bulls fail to conquer this resistance in the earlier part of the coming week. If the uptrend can sustain above 1.5 levels, we reckoned that the bulls would reach 1.515 soon but any failure to do so, would trigger a drawdown to 1.48 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].