Monday, August 2

Fed to continue tapering in coming months

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Fundamental outlook  

 

THE US non-farm payroll declined for the second month while weekly jobless claims steadized. The Fed officials reiterated that they will continue with the tapering stimulus programme despite potential further decline in stocks. European Central Bank (ECB) and Bank of England (BoE) both retained their benchmark rates after a meeting but will continue to monitor inflation check.

The US Institute for Supply Management reported that the monthly service index went up to 54 from 53 in December. Fed Bank of Atlanta president Dennis Lockhart commented that policymakers might revise their forward guidance to refrain the interest rates from rising, in near future.

Weekly jobless claims among US citizens dropped 20,000 to 331,000 in the period ended February 1. Trade deficit narrowed down 12 per cent to US$38.7 billion in December. Dow Jones benchmarks fell in mid last week amid fear of tapering effects.

Towards the weekend, monthly payroll added pessimism after a second month of job slump. Non-farm payrolls rose only at 113,000 in January after a gain of 75,000 in the previous month.

Unemployment rate dropped to 6.6 per cent, which is only slightly better than the previous month. Fed economists claimed that the past two months’ weak payrolls would not halt the tapering programme imposed by policymakers. On the other hand, Treasury Secretary Jacob J Lew expressed that US borrowing authority might not last beyond February and urged the Congress to raise the debt ceiling as soon as possible.

German industrial output fell unexpectedly in December, signalling its vulnerability in the regional slump. The data, after adjusted for seasonal swings, decreased 0.6 per cent versus a revised 2.4 per cent gains in the previous month.

On Thursday last week, ECB kept interest rates unchanged at 0.5 per cent. President Mario Draghi commented that ECB could take further action to counter potential low inflation in March if growth remained stagnant. More economic data are needed to be monitored before policy actions can be planned.

The UK manufacturing purchasing managers index (PMI) declined to 56.7 in January from 57.2 in December, below median forecast. UK factory output rose 0.3 per cent in December, which was lesser than forecast. Another report on industrial production, which also includes utilities and mines, saw figures increasing 0.4 per cent but it was also lower than expectation.

BoE held the interest rate unchanged at 0.5 per cent on the same day as ECB’s meeting. Governor Mark Carney also favoured to keep interest rates at low levels while his team will continue to study the data forecast in coming months.

 

Technical forecast  

 

US dollar/Japanese yen might have bottomed out temporary at 100.75 levels and is set to begin consolidating in coming week. The market is prone to thread sideways from 100.5 to 103.5 ranges as it still remains volatile to dollar strength versus Japan’s policy. This week, we reckoned the trend would only extend out upon breaking beyond the aforementioned range. However, risk management is necessary in case of unexpected news breaking out.

Euro/US dollar reversed up from its 1.348 bottoms last week and closed at 1.3633 for the weekend. The market is moving into technical correction and we expect the resistance will cap at 1.37 levels in coming week. The support will emerge at 1.355 regions in case of a quick dip. Take advantage of trading in the target range, as mentioned above, from 1.355 to 1.37 regions.

British pound/US dollar met support force at 1.625 areas last week and has been moving into consolidation. This week, we predict the market will continue to thread higher as short-covering occurs. The range is expected to move from 1.625 to 1.655 areas while picking long entry on drip would be a better strategy to take up. Abandon your long-view if the trend breaks below 1.625 supports.

 

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 25 years of trading experience in global Derivatives & FX markets. He can be reached at [email protected]