Fundamental outlook
THE US general economic data showed strong signs in the housing and job markets but gross domestic growth (GDP) growth in the first quarter (1Q) was weak. The G7 meeting ended with no new agreement made between the finance ministers. Germany retained its manufacturing growth while UK showed flat economic performance.
US new home sales rose 619,000 in April, the best in nine years, after March showed 513,000 growth. In another report, weekly jobless claims dropped to 268,000 in the week ended May 21.
Orders for US core durable goods, excluding transport equipment, rose 0.4 per cent compared with a revised 0.1 per cent recorded in March. The prelim GDP for 1Q rose just 0.8 per cent, the weakest since 1Q15. However, Federal Reserve chair Janet Yellen hinted that a rate hike could be appropriate in the coming months.
Japan’s trade balance recorded a surplus of 430 billion yen in April and higher than 300 billion yen recorded in the previous month. Nationwide core consumer prices fell 0.3 per cent in April from a year earlier, the second straight month of declines, pushing Bank of Japan (BoJ) to take action for a new stimulus to revive slowdown.
Last week, G7 countries’ finance ministers ended their two-day meeting in Sendai, Japan. Leaders did not reach an agreement on any economic policy issues, including the debate on the recent sharp appreciation of the yen. Analysts predicted that Japan’s Prime Minister Shinzo Abe might delay a tax hike in April 2017 to two years later.
German flash manufacturing index reported by Markit was at 52.4 in May while the eurozone met expectations with a 51.5 reading in manufacturing index as well.
In another report, German ZEW economic sentiment that measures institutional investors’ sentiment surprised the market as the May reading was reported at 6.4, almost half of median forecast and lower than 11.2 in April. Monthly data on Ifo business climate that measures business and manufacturing sentiment was reported at 107.7, the best in the past five month, after April’s 106.7 revised data.
UK public sector net borrowing rose 6.6 billion pounds after the data was reported at 6.1 billion pounds in March. The second estimate for GDP growth in 1Q saw an increase of 0.4 per cent, in line with median forecast. Prelim business investment for three months ending March slid 0.5 per cent against positive expectations of an increase.
Technical forecast
US dollar/Japanese yen has been hovering around 110 regions in a sideways trend. Technically, we see no directional trend in market and this might remain until mid-June. The range is expected to swing from 109.2 to 110.5 regions in the coming week.
Euro/US dollar traded in a small range and it was prone to mild bearish trend last week. We foresee the trend will recover and trade from 1.11 to 1.13 ranges in the coming week. However, beware of piercing beneath 1.106 supports as this might indicate a danger of new selling pressure in market.
British pound/US dollar topped off 1.47 areas and turned down from EMA200 resistances. This week, we reckoned the trend would continue to slide and it would probably reach 1.45 bottoms. The range is prone to bear sentiment as the pound begins its initial correction. However, we do not foresee huge movements before the country’s referendum before June 23.
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 27 years of trading experience in global Derivatives & FX markets. He can be reached at [email protected].