Fundamental outlook
US Fed chair Janet Yellen reaffirmed another rate hike before the end of this year. US building permit and housing starts revealed inflation growth in the coming months. The European Central Bank (ECB) reassured an inflation recovery could happen if it adjusted the stimulus programme. The Bank of England (BoE) negotiated a lower exit fee to the European Union (EU).
US building permit rose 1.30 million in August, the highest recorded in more than two years. Housing starts grew 1.18 million from July and remained in good growth. The current account deficits narrowed to US$123 billion in the second quarter ended June.
US existing home sales declined for the third consecutive month in August at 5.35 million. Weekly claims declined to 259,000 in the week ended September 16, the lowest recorded in three weeks.
Yellen announced a lower balance sheet of US$4.5 trillion for October. No rate hike has been implemented although Yellen had affirmed one more hike will occur before year-end. Inflation has been forecast to decline to 1.5 per cent this year from the previous 1.7 per cent.
During the United Nation general assembly, President Donald Trump warned that US would take serious action against North Korea when the need comes for it. North Korea leader Kim Jong-Un rebuked Trump’s speech by saying the retaliation of destruction will go beyond Trump’s expectation.
BoJ retained its monetary policy while the asset purchase programme has failed to drive up inflation to two per cent.
German ZEW sentiment that measures institutional investors’ confidence rose to 17 in September, which was better than forecast. German manufacturing index hit a six-year high at 60.6 in September.
The eurozone consumer prices rose 1.5 per cent in August on a yearly basis while core prices grew 1.2 per cent. ECB president Mario Draghi expressed optimism in the recovery of the region’s inflation and he is open to calibration of the stimulus programme over the year-end instead of just tapering the programme.
UK retail sales rose one per cent in August, the best recorded in four months, after previous month was revised at 0.6 per cent gains. Public sector net borrowing was down 5.1 billion pound in August, lower than a forecast improvement.
BoE Governor Mark Carney said the Brexit has pushed up UK’s inflation. Policymakers foresee the rock-bottom interest rate has ended and credit tightening will occur in the coming months. Carney is negotiating a payment of 24 billion euros to the EU for retaining a single market access to the EU after the Brexit.
Technical Forecast
US dollar/Japanese yen declined on Friday after topping 112.70 last week. The market could be moving into a consolidation phase while prone to some correction in the coming week. The range is expected to be from 110.50 to 112.50 region with more selling activity. Abandon your short-view should the trend pierce above the 112.70 level.
Euro/US dollar has been bearish above 1.2 level recently. This week, the trend might persist in a sideways direction for consolidation from 118 to 120 range as the dollar strength remains volatile. The market trend might swing in uncertain volatility due to fundamental news based on the North Korean tension and German’s election.
British pound/US dollar has been suppressed recently above 1.36 resistances. The trend will be heading into a profit-taking phase as traders wait for further impact from the Brexit. We reckoned the range will move from 1.325 to 1.36 region while prone to a bearish trend. Beware of breaking above 1.36 level again as it may reverse the market’s sentiment.
Disclaimer: This article is written for general information only. No liability by the writer, publisher or any third party involved in the distribution of this work. Dar Wong is a registered fund manager in Singapore with 28 years of global trading experiences. You may reach him at [email protected].