Tuesday, May 24

Yen reaches 30-month low against dollar

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Fundamental Outlook

THE US showed a recovery in housing starts and improving job market. However, investors are worried the debt limit will be hit soon if nothing is resolved by the US Congress.

Japan is reversing from recession with rapid weakening of yen while policymakers will meet this week to discuss further easing measures. Europe loses steam in the currency bullish sentiment as bad debt weigh on recovery.

The US retail sales climbed 0.5 per cent in December, making its biggest jump in past three months. Industrial production advanced 0.8 per cent from November. Another report on housing starts climbed 12.1 per cent in December to a 954,000 annual rate, exceeding forecast.

Weekly jobless claims decreased 37,000 to 335,000 in the week ended January 12, the lowest since January 2008 and signalling better job markets. Building permits climbed 0.3 per cent in December to a 903,000 annual rate, the most since July 2008, from a 900,000 pace in November.

The US Treasury Secretary Geithner warned the recent budget talks would only last till sometime in March and severe economic hardship might emerge if no further solution was imposed on raising debt ceiling.

Treasury bills maturing around the time when US government ran out of money to pay its obligations were higher than those on longer-maturity securities.

Japan’s machinery orders, an indicator of capital spending, climbed 3.9 per cent in November. The yen traded to near 2.5-year low at 90 benchmarks as traders speculated the Bank of Japan (BOJ) would announce open-ended asset buying in the two day policy meeting starting January 21.

International Monetary Fund (IMF) agreed to disburse 3.2 billion euros (US$4.3 billion) to Greece after the country made new budget cuts. As the euro has been climbing after ECB President made recent optimistic remarks on regional recovery in 2013, it fell from almost 1.3400 highs last Friday against the greenback after reports showed Italian industrial orders dropped and Spanish bad loans increased.

The UK consumer prices for December rose 2.7 per cent from a year earlier, but unchanged from prior month. Core prices slowed to 2.4 per cent. A separate ONS data showed UK factory output prices fell 0.1 per cent from November while core prices unchanged on monthly basis. Retail sales including fuel declined 0.1 per cent in December despite the holiday seasons.

Technical forecast

US dollar/Japanese yen closed higher on weekly basis at 90.09 in lieu of central bank meeting. This week, wide speculation of trend is expected from 87.50 – 93.00 regions depending on the decision of policymakers. Traders will wait for the confirmation of more asset purchase to spike up the market.

Euro/US dollar is heavily resisted at 1.3400 as we predicted last week. The bulls have fizzled out but supported at 1.3250 for the time being. This week, the technical chart suggests down trend once the 1.3250 neckline is violated and moving back to 1.3100 areas is possible. However, beware of piercing above 1.3400 resistances again as this will lead to 1.3500 regions.

Pound/US dollar broke below 1.6000 benchmark supports and settled at 1.5864 on Friday. The market has shown weakness with existing resistance building up at 1.5950 – 1.6000 areas now. This week, we forecast the trend will move lower to 1.5650 regions if the aforementioned resistance is intact.

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 24 years of trading experience in global derivatives and forex markets. He can be reached at dar@pwforex.com.