Flat inflation may obstruct rate hike
Fundamental outlook US consumer prices stayed flat, raising questions about the Federal Reserves’ (Fed) case for continued interest rate increase. China saw steady growth, backed by an inflation increase and trade surplus. UK’s claimant count expanded while unemployment rate also rose.
US weekly claims expanded 247,000 in the week ended July 6, matching forecast. Producer prices rose 0.1 per cent in June, beating forecast. Core producer prices, excluding food and energy, also rose 0.1 per cent. However, it was below expectations.
US consumer prices was flat in June while core prices rose 0.1 per cent, both were below forecast. Retail sales and core retails declined 0.2 per cent, below consensus’ forecast.
Fed chairwoman Janet Yellen clarified her remarks made few weeks ago about the subprime crisis which has made the financial system stronger, but could not discount the possibility of another strike. Before the weekend, she also expressed concern on the low inflation as this would deviate from Fed’s planned change in policy. Policymakers initially predicted the low inflation could be temporary and would not hamper growth.
China’s consumer prices rose 1.5 per cent in June compared with a year ago. Producer prices expanded 5.5 per cent in the same month on a yearly basis. Both data remained steady, matching forecast. Trade surplus rose 294,000 yuan approximately at US$42.8 billion, in June and the highest recorded in five months.
Japan’s core machinery orders contracted 3.6 per cent in May, worse than the previous month, against a positive consensus. Revised industrial production shrank 3.6 per cent in May, worse than consensus’ expectations.
British average earnings over the three months ended May rose 1.8 per cent, matching forecast. Claimant count for jobless benefits rose 6,000 in June but was lower than expectation and compared to a revised 7,500 in May. Unemployment rate dropped to 4.5 per cent in May. Technical forecast US dollar/Japanese yen began dropping after hitting a 114.50 top recently. This week, we predict the trend will continue to decline to 111.50 region before moving sideways. Range is expected to be constricted in mixed sentiment for the next one to two weeks if the aforementioned support could hold at the 111 to 111.50 region.
Euro/US dollar spiked on Friday and closed at 1.1460 level. The market will be very tricky this week as the bull might charge above 1.15 resistance and climb higher to 1.16 target. Alternatively, reversing below 1.138 support will trigger a new selling force and drive the trend into a correction.
British pound/US dollar shot up above 1.305 resistance on Friday and settled at 1.309 level. This week, the trend might ascend higher with the possibility of reaching 1.3350 if the market faces a short-squeeze. The sudden spike in the pound could come from rumours of another election as UK Prime Minister Theresa May’s led Government might collapse. Support could be at 1.30 to 1.305 for bargainhunting. Breaking beneath this region could reverse the market sentiments rapidly.
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 28 years of trading experience in global Derivatives & FX markets. He can be reached at dar@pwforex.com.