Friday, August 12

Scotland votes for non-independence

0

Fundamental outlook

The US Fed has maintained its effort to cut another US$10 billion stimulus while Yellen had vowed to keep interest rates low. Japan trade balance showed improvements, while its national household asset net worth increased through the efforts for economic reforms. UK had celebrated the reunion with Scotland after it voted for non-independence and ended the worries of economic breakup with UK.

The US industrial production shrank 0.1 per cent in August against positive forecast. Producer prices grew on par in August after rising 0.1 per cent in July. Core producer prices stayed stagnant at 0.1 gains in-line with the previous month.

In a separate report, US inflation measure through consumer prices unexpectedly declined 0.2 per cent in August and core prices remained the same as previously. The National Association of Home Builders/Wells Fargo sentiment climbed to 59; exceeding the highest estimate, from 55 in August.

US jobless claims decreased by 36,000 to 280,000 in the period ended September 13, at a two-month low record and which spiked Dow Jones benchmarks to record highs last week. Housing had started dropping to a 956,000 annualised rate in August compared to revised 1.12 million last month.

In the FOMC meeting, Federal Reserve officials raised their median estimate for the federal funds rate at the end of 2015 to 1.375 per cent, compared with 1.125 per cent in June. Fed called for another US$10 billion stimulus cut in coming month and Fed chief Janet Yellen had stressed on keeping rates low for a while even after the removal of all the financial aid by year-end.

Japan’s trade deficit fell slightly to 948.5 billion yen (US$8.75 billion) in August, from a year ago at revised 971.4 billion yen; which was better than the forecast 1.028 trillion yen.

Under reforms of Abenomics, household assets increased to 1,645 trillion yen (US$15 trillion) at the end of June, up 2.7 per cent from a year earlier. Holdings in investment trusts climbed 15 per cent to an all-time high of 82 trillion yen.

In the euro area, trade balance grew to a seasonally adjusted 12.2 billion euros in July , contracting from the 13.8 billion euros surplus seen in the previous month. Inflation in the 18 euro countries were higher in August after consumer prices presented 0.4 per cent gains from a year ago. Core inflation was up 0.9 per cent.

German ZEW economic sentiment reported that the index for investors’ confidence rose 6.9 in September and above median forecast. Investors are waiting for new stimulus worth 700 billion euros before year-end as promised by European Central Bank president Draghi to alleviate the slow growth.

UK claimant counts in August contracted by 37,200 compared to revised data 37,400 in the previous month. Unemployment rate was at 6.2 per cent which was lower than forecast. Consumer prices grew at 1.5 per cent in August from a year ago but remained stagnant.

After the national referendum in Scotland, the people have voted to stay in the UK, reinforcing the 307-year-old union. Prime Minister David Cameron promises more financial power to aid Scotland’s economic growth.

 

Technical forecast

US dollar/Japanese yen climbed above 108 before the weekend as predicted last week. This week, the market will be prone to rise further, reaching 110.5 targets. In case of a drawdown, support could emerge at 107 regions. We reckoned the bullish sentiment will remain in market until the end of month.

Euro/US dollar showed an ‘engulfed pattern’ on its day-chart during Friday’s closing. The market’s resistance is now strong at 1.292 levels. Nevertheless, it could decline again this week at 1.27 areas. Sentiments in market are still weak although short sellers have begun to cover for profits. Observe the US dollar trend that will directly affect the Euro direction now.

British pound/US dollar also showed a strong ‘engulfed pattern’ on Friday after Scotland voted for reunion with UK. Long traders took profit and resumed the strong market sentiment for US dollar against European currencies. This week, we foresee the pound falling back to 1.605 bottoms while resistance could emerge at 1.64 areas.

 

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

DAR Wong is a registered fund manager in Singapore with 25 years of trading experience in global Derivatives & FX markets. He can be reached at dar@pwforex.com.