Fundamental outlook
THE US consumer confidence slid while job market tightened. Non-farm payroll grew at 38,000, clouding any possible rate hike in June. Japan’s housing starts rose amid a manufacturing slowdown. European Central Bank (ECB) held its policy unchanged. The Organisation of Petroleum Exporting Countries (OPEC) agreed to not set a limit for oil production.
US personal spending climbed one per cent in May. Personal income rose 0.4 per cent, unchanged from the previous month. American Conference Board of consumer confidence dropped to 92.6 in May compared with the previous month’s 94.7.
The US Institute of Supply Management reported that the manufacturing index stood strong at 51.3 in May, above the 50 expansion benchmark. Jobless claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 267,000 for the week ended May 28, indicating tighter job markets.
US payroll grew a mere 38,000 in May compared to the median forecast of 159,000 growth. Unemployment fell to 4.7 per cent from five per cent in April.
Markit reported that China’s Caixin manufacturing PMI growth in May remained at 49.2, in line with forecast. Below 50 benchmarks is a sign of a slowdown.
Japan’s retail sales in May was down 0.8 per cent on a year-on-year comparison, a slight improvement from minus one per cent recorded in April. In another report, household spending dropped 0.4 per cent in April on a yearly basis but it is an improvement from minus 5.3 per cent annualised rates recorded in March.
Japan’s prelim industrial production rose 0.3 per cent in April, much lower than the revised 3.8 per cent recorded in March. In a separate report, housing starts advanced nine per cent on an annualised rate in April, the best recorded since June 2015.
German import prices slid 0.1 per cent in May after it rose 0.7 per cent in the previous month. Prelim report for German consumer prices rose 0.3 per cent in May, in line with forecast. The estimated consumer prices for the eurozone for May slid 0.1 per cent while core prices grew 0.8 per cent, both on an annualised comparison and in-line with median forecast.
ECB maintained its policy while raising growth forecast in 2016. Policymakers forecast growth would rise 1.6 per cent in 2016 compared to the previous estimate of 1.4 per cent, while inflation rate has been projected to grow at 0.2 per cent.
UK manufacturing index for May grew to 50.1, better than the revised 49.4 reported in April. Mortgage approvals dropped to 66,000 in April, the first drop below 70,000 benchmarks in the last seven months.
The OPEC meeting held in Vienna, Austria resulted in an agreement to not implement a ceiling to production of oil. Most ministers were quite happy as crude prices are approaching US$50 per barrel and they foresee the market is on track to a good recovery.
Technical forecast
US dollar/Japanese yen dropped after US payroll disappointed market on Friday. This week, we reckoned the trend would be countered at 106 areas while waiting for FOMC in mid-month. Resistance is identified at 108 for time being.
Euro/US dollar reversed to 1.134 tops in a short-covering after falling for the last two weeks. Technically, we predict the range would trade in mixed sentiment from 1.125 to 1.145 regions while anticipating more fundamental news in June. The trend of the dollar strength is a direct inverse factor to the euro currency based on US’ FOMC and UK’s referendum this month.
British pound/US dollar has temporary reached a bottom at 1.44 regions. Strong support is seen at 1.435 to 1.44 bottoms while range trading is expected to ascend to 1.47 tops. We expect the market would remain in this aforementioned range until the national referendum on June 23 leads a new breakthrough.
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].