US Fed hikes rates by 25bps

Fundamental outlook  

THE US Federal Reserve raised the interest by 25 basis points (bps) for the second time this year. The Bank of Japan (BoJ) and Bank of England (BoE) retained their monetary policies. China’s growth stayed steady while in UK saw a decline in average earnings.

US producer prices stayed flat in May on a monthly comparison. Core prices, excluding food and energy, gained 0.3 per cent. Consumer prices declined 0.1 per cent in May while core prices, excluding food and energy, also rose only 0.1 per cent. Both data were below forecast.

US core retail prices, exclude automobiles, declined 0.3 per cent, the worst seen in 10 months. Weekly claims for jobless benefits dropped to 237,000 in the week ended June 10, lower than 245,000 recorded in the previous week.

Industrial production was flat in May, the lowest in three months. US building permits expanded 1.17 million in May, the lowest recorded in nine months.

Fed chairwoman Janet Yellen announced that the Fed would raise the Fed fund rate by 25bps, bringint it to one to 1.25 per cent, matching market forecast. Yellen reiterated that US’ inflation might be slow but it would likely pick up towards the end of the year.

China’s industrial production in May matched consensus expectations by gaining 6.5 per cent on an annual basis. Fixed asset investment on non-rural facilities rose 8.6 per cent from a year ago, maintaining growth.

Japan’s core machinery orders, excluding ships and utilities, dropped 3.1 per cent in April following positive gains reported in the previous month. Producer prices rose 2.1 per cent in May from a year.

BoJ retained the monetary policy while overnight deposit rates with the central bank remained at negative 0.1 per cent. The annual monetary expansion was at 80 trillion yen.

German ZEW sentiment expanded at 18.6 in June, the weakest in three months. European Central Bank president Mario Draghi said the stimulus might be extended until early 2019 in order to support recovery.

UK consumer prices rose 2.9 per cent on an annual basis in May, the highest since June 2013. Retail prices also charted a five-year high at 3.7 per cent growth in May from a year ago.

In UK, average earning index on a quarterly basis ended in April rose 2.1 per cent, the worst in 12 months. Monthly claimant counts for jobless benefits rose 7,300 in May, compared with 22,000 filings in April. Unemployment stayed at 4.6 per cent.

UK retail sales swung down to minus 1.2 per cent in May, below forecast. The BoE held the monetary policy unchanged with overnight lending rate at 0.25 per cent. The asset purchase programme was at 435 billion pound.

 

Technical forecast  

US dollar/Japanese yen bounced from 109 bottom last week and settled at around 110.60 before the weekend. Technically, the market is prone to weakness while resistance lies at the 111.50 region. This week, the trend might decline again but it could remain within the 109 to111.50 range.

Euro/US dollar revealed a toppish patter on the day-chart. The trend is currently capped under 1.1250 while prone to test the 1.1120 support. We reckoned the trend would thread sideways inside this range until it breaks into either new directions. Risk control is advised in case of adversity against your position.

British pound/US dollar remained uncertain, hovering around the 1.2800 area. The market would likely trade in the 1.2650 to 1.2850 range until a new breakout is seen. Technically, we foresee a likelihood in either direction until UK’s new government begins the Brexit negotiations with European Union before the end of June.

 

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 28 years of trading experience in global Derivatives & FX markets. He can be reached at dar@pwforex.com.

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