Credit default swap haunts global market
Fundamental outlook GLOBAL equity markets plummeted due to resurging fear of a euro debt crisis. Credit Default Swap (CDS) in Deutsche Bank climbedtoanewrecordhighsince 2011. This incident has haunted global equities in fear. Federal ReservechairJanetYellenhasaddressedconcernsthataneconomic slowdown would not be resolved through moving to negative interestrates.UK’smanufacturingand retail sales saw a decline.
US’ trade deficit widened as exports fell due to the strengthening dollar. Trade gap widened 2.7 per cent to US$43.4 billion in December while the previous month’s deficit was revised down to US$42.2 billion.
In a separate report, retail sales grew 0.2 per cent in January while coreretail,excludingautomobiles, gained 0.1 per cent. Import prices fell due to the strong dollar and lower crude prices index in January which saw a decline of 1.1 per cent.
Federal Reserve chair Yellen has addressed concerns on adopting negative interest rates that might trigger other market risks. This will dampen average investors’ sentiments and it would not likelyhelpinboostinganeconomic recovery.
Dow Jones benchmarks closed at its lowest since February 2014 withaglobalplungeseeninequity markets.
Deutsche Bank has been reported to have a credit default swap totaled at US$64 trillion, the highest since the Lemann Brothers collapsed in 2008. Investors are shunning the stock markets andmovingtothepreciousmetals market as a safe haven.
Japan’s current surplus rose to 1.64 trillion yen in December, the highest in seven months. The yen rose aggressively against the dollar last week as fund flight out of the greenback.
German industrial output fell by 1.2 per cent in December as exports dropped, the strongest decline since August 2014. Trade balance gained 19.4 billion euros, down from 19.7 billion euros from November.
US manufacturing output contracted 0.2 per cent in December after it slumped 0.3 per cent in the previousmonth.NIESRestimated that GDP growth in the quarter ended January would gain 0.4 per cent.
German prelim GDP for the final quarter grew 0.3 per cent and in-line with forecast. Final consumer prices dropped 0.8 per centonamonthlybasiscompared to in December.
Technical forecast US dollar/Japanese yen plunged from121.44highssincetwoweeks ago and closed at 113.2 on Friday. This week, we reckoned that the trend would recover at 114.5 to 115 regions for profit-taking. Breakingbelow111supportmightdrive lower to 108.5 targets if bears take charge again.
Euro/US dollar has been trading in mild bullish sentiment last week. Technically, the trend is supported at 1.113 to 1.115 regions. Traders might try to push the prices higher to 1.15 levels this week if the aforementioned support can remain unviolated. Risk control is advised on cautious trading.
British pound/US dollar has formed a flag formation on the day-chart and aimed to break out in either direction this week. We have identified the support to be at 1.44 while resistance emerges at 1.46 levels. In our opinion, there is higher probability in the bull trendoncethetrendpiercesabove 1.46. Thereafter, target could be set at 1.48 regions.
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 27 years of trading experience in global Derivatives & FX markets. He canbereachedat dar@pwforex. com.