Fundamental outlook
US housing recovery still stayed sluggish even though forecast for economic confidence has been lifted higher. Gross domestic product (GDP) showed improvements and inflation has reached policymakers’ expectation at two per cent. Dow Jones benchmarks has begun to correct after Greenspan’s comments. Japan’s retail and industrial output have slowed down while the European region’s manufacturing slipped into decline.
The US pending home sales declined 1.1 per cent in June after rising six per cent in May, signaling a struggle in housing demand. The Conference Board’s index for forecasting economic confidence in coming six months advanced to 90.9, the highest since October 2007 and a seven-year record high, amid increasing job market.
The national growth in US GDP rose four per cent annualised rate from April through June, exceeding forecast. In a separate report, data on annualised GDP inflation reached two per cent in the second quarter (2Q) which satisfied US Fed’s benchmark. Last Wednesday, policymakers tapered monthly bond buying to US$25 billion in their sixth consecutive stimulus cut which is expected to end all withdrawals by October.
The US jobless claims for the week ended July 26, climbed to 302,000, in line with the median forecast and better from the revised 279,000 in the previous week. Non-farm payroll in July advanced 209,000 following a revised 298,000 increase in the previous month.
US unemployment rate climbed to 6.2 per cent versus the previous month’s 6.1 per cent. In a separate report, Institute for Supply Management’s index increased to 57.1, the highest since April 2011, from 55.3 a month earlier.
Dow Jones benchmarks slumped 463 points throughout the week following comments from ex-Fed chief Greenspan who commented that stocks have long surpassed correction phase.
Fear of selling was also partly caused by pressure from US and the European Union on Russia’s sanction which targets a restriction in banking, energy and defense industries.
Japan retail sales dropped 0.6 per cent in June from a year ago, indicating the effect of sales tax rise which has begun to weigh down on the market’s spending. However, household spending on annual basis was minus three per cent in June and performed better than minus eight per cent in the previous month.
Another report on Japan’s unemployment showed 3.7 per cent in June which was worst than expectations. Industrial output fell the most since the March 2011 earthquake by 3.3 per cent in June; more than twice the forecast.
German inflation slowed to 0.8 per cent in July from one per cent in June. German retail sale rose 1.3 per cent in June, which was better than expected.
In the euro region, consumer prices gained 0.4 per cent in July on an annual basis while core consumer prices were in line with expectations at 0.8 per cent from a year ago.
GfK consumer confidence in Britain was unexpectedly down at minus two in July versus positive one in June. Nationwide Building Society also reported that the HPI was at 0.1 per cent gains for July; an increase of one per cent compared with the previous month’s. Both data showed stagnation.
Amid declines of manufacturing purchasing managers index (PMI) in Europe, British factory index also slipped to 55.4 from a revised 57.2 in June. Manufacturing has begun to lose momentum in July for the European countries.
Technical forecast
US dollar/Japanese yen showed no new development in price movements. The market has been threading from 101 to 103 ranges for months. Last week, the trend rose to 103 resistances and closed at 102.61 levels. This week, we reckoned the prices will wind down and settle at 102 areas for consolidation. Abandon your short-view in case it pierces above 103 resistances.
Euro/US dollar bottomed out at 1.3367 last week after sliding for one month. This week, we expect the market will make short-covering and test 1.355 resistances. The support area at 1.335 regions should hold the market well because we predict bargain-hunting is heavily grounded from 1.33 levels upwards!
British pound/US dollar closed at 1.6818 on Friday and might have ended the bullish trend. This week, we forecast the selling pressure will be resilient at 1.7 areas in case consolidation emerges. However, breaking below 1.68 supports will continue to drive lower at 1.673 levels where we believe bargain-hunting will arise. Trade cautiously as the market may be tricky in coming weeks.
Disclaimer: This article was written for general information only. No liability by the writer or newspapers. Dar Wong is an approved fund manager in Singapore with 25 years of trading experience in global Derivatives & FX markets. He can be reached at [email protected].