Obama extends rate cut for two years and supports Dow Jones markets

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US President Barack Obama agreed to extend tax cuts for two years and firmed up the buying interest in Dow Jones stocks last week. Trade exports increased due to the weaker dollar and shrank trade deficits despite ballooning budget deficits in the US government.

The UK economy saw modest recovery in manufacturing sectors and a rise in inflation due to the positive effects of budget cuts and austerity plans implemented by the British government.

The US consumer credit figures climbed in October to US$3.38 billion after increasing a revised US$1.23 billion in September. The initial jobless claims fell to 421,000 in the week ended December 4, less than the median forecast and from a revised 438,000 the prior week, probably due to the coming festive seasons.

The Commerce Department reported its budget deficit for November at US$150.4 billion, a larger figure compared with the same time last year at US$120.3 billion. Another separate report on trade deficit contracted to US$38.7 billion from US$44.6 billion in September as a weaker dollar propelled overseas exports to a two-year high.

Japan machinery orders dropped 1.4 per cent in October after declining 10.3 per cent in the prior month, led by weak demands and contracting exports. The government reported that sentiment index among manufacturers with more than one billion yen (US$11.9 million) in capital was at minus eight points this quarter, compared with a reading of 13.3 three months ago. Bonds advanced and the yen declined after reacting to the news.

In the eurozone, German officials objected to increase emergency aid funds on top of the recent euros 750 billion bailout package. The rich nations showed concern of being dragged into contagion spread in sovereign debts while investors are worried of entailing bonds delinquencies in Greece and Spain.

The UK retail sales figures increased 0.7 per cent in November from a year earlier compared with a 0.8 per cent gain in the prior month. Manufacturing numbers rose twice the forecast in October when output was up 0.6 per cent; the highest levels in seven months.

Another UK research company – Acadametrics Ltd said the home prices in England and Wales climbed for a seventh month in November, gaining 0.2 per cent to £224,758 (US$354,200) and the highest in last two years.

Another report in the factory producer prices was up for a second month in November due to higher food and gasoline prices. Cost of manufacturing materials rose 0.3 per cent compared with 0.6 per cent in October. Economists said the British economy for final quarter will be fuelled by exports and a rebound in property investment.

Technical Forecast

US dollar/JP yen basically moved in the range 83.30 to 84.50 last week. The market will continue to thread in this regions while being led by uncertainties of fundamental changes.

We reckon it may move both ways which breaking below the support will attempt 81.50 levels and violating the top will likely challenge 86.00 benchmarks.

The euro/US dollar is narrowing its range and moving into dilemmatic sentiments. Although the trend is still biased to downside potential, it has to drill below 1.3150 regions in order to confirm another bear emergence. Otherwise, jumping above 1.3450 levels may reverse the trend to head north again while reacting to new fundamental news.

The UK pound sterling/US dollar has met the effective resistance 1.5800 to 1.5850 region and is biased to turn down. Another strong resistance has been identified at 1.6000 if the market persists to attempt here.

However, we prefer to adopt a short view in coming week with tightened risk management with higher likelihood to see the exit target at 1.5500 regions.

Disclaimer: This article was written for general information only. No liability by the writer or newspapers.

Dar Wong is the founder of PWFOREX.com with 21 years of trading experience in global Derivatives & FX markets. He can be reached at [email protected].