Wednesday, June 3

ECB calls for economic reform


Fundamental outlook


THE US budget deficit has shrunk as core retail sales steadied. The Japanese yen had weakens due to the strengthening dollar despite Bank of Japan’s effort to refrain from injecting more stimulus. German remained resilient in trade surplus while European Central Bank (ECB) urged for an economic reform.

US jobless claims had increased to 315,000 for the week ended September 6, which was above median forecast. In a separate report, budget deficit narrowed 22 per cent in first 11 months of fiscal year as economy showed recovery. Shortfall was at US$589.2 billion from October through August compared with US$755.3 billion gap seen in the same period, last year.

The US core retail sales excluding auto sales rose 0.3 per cent in August, which is the same as the revised data in previous month. Dollar has strengthened against European currencies in-lieu of fear in interest rate increment as stimulus will be fully withdrawn before November.

China exports rose in August by 9.4 per cent from a year ago, leaving trade surplus at US$49.8 billion. The consumer prices slid to two per cent on an annual basis from July at 2.3 per cent. Market investors are still watching China’s economy closely as contracting inflation and manufacturing might continue to drive funds into US assets.

Japan’s Prime Minister Shinzo Abe said the weakened yen, which reached a six-year low, would help Japan to recove from the impact of the recently implemented sales-tax increase that has caused the largest contraction in five years. Final gross domestic product (GDP) in second quarter (2Q) contracted 1.8 per cent and in-line with median forecast, showing stagnation in growth.

German trade balance gained the most in more than two years, climbing 4.7 per cent from June to 101 billion euros. The trade surplus widened to 22.2 billion euros from 16.4 billion euros in June. In a separate report, German’s final inflation measured by consumer prices showed unchanged growth in August.

The industrial output in euro area rose one per cent in July, which is better than median forecast. ECB president Mario Draghi pointed out that the euro area’s economy would only return to pre-crisis levels if governments work with the ECB to achieve reforms and stimulate growth.


Technical forecast


US dollar/Japanese yen has been bullish last week as it closed above 107 for the weekend. This week, we reckon the support will emerge at 105.5 regions while the trend might climb higher to reach 110 levels. Strong dollar is the cause for market ascension that will expedite Japan’s exports.

Euro/US dollar traded sideways while it closed in small recovery on Friday. Market is expected to be capped beneath 1.305 resistances and might continue to fall again. Technically, we foresee the bears might drive lower at 1.275 areas this week if the trend could not close above 1.3 benchmarks.

British dollar/US dollar recoiled last week from 1.6052 lows.

The market will be prone to perform consolidation this week from 1.605 to 1.643 ranges if the trend continues to recover. However, be cautious of any decline again as breaking below 1.605 supports could be a sign of further decline at 1.585 targets.


Disclaimer: This article was written for general information only. No liability by the writer or newspapers. Dar Wong is a licensed fund manager in Singapore with 25 years of trading experience in global Derivatives & FX markets. He can be reached at [email protected]