UK Conservative Party fails to secure government

Fundamental Outlook THE US is facing an ordeal as President Donald Trump faces the investigation on his supposed collusion to Russians. European Central Bank is ready to extend stimulus as the package will end in December. UK election resulted in hung parliament after the Conservatives failed to secure majority seats.

The US ISM services index for May expanded to 56.9 and matched forecast. Markit reported the services index rose to 53.8 in May and lower than previous month 54.0. American jobless claims reduced to 245,000 in the week ended June 3 and lower than revised 255,000 in previous week.

The testimony given by ex-FBI director James Comey in the investigation against President Trump might pinpoint Trump’s obstruction to justice. According to Comey, he was asked to halt investigation on Flynn that might be linked to collusion with the Russian operatives during the election seasons.

China’s trade surplus grew US$40.8 billion in May, under expectation but still higher than the previous month. Consumer prices matched the expectation by expanded 1.5 per cent in May from a year ago. Another report on producer prices eased to 5.5 per cent gains on annual basis and lowest in past 5 months.

Japan’s leading indicators grew 104.5 per cent in April and matched forecast.

Another report on final GDP in 1Q grew 0.3 per cent, under consensus and lower than 0.5 per cent in the previous quarter. The current account surplus expanded 1.81 trillion yen in April and better than prior month.

Eurozone’s GDP growth for 1Q ended March was revised at 0.6 percent and matched forecast. German trade surplus grew 19.8 billion euros in April.

European Central Bank holds the monetary policy unchanged. President Mario Draghi says rate cut for future is not in consideration but policymakers are ready to extend the stimulus. Central Bank has made inflation forecast at 1.5 percent growth in 2017, falling short from the two per cent benchmark.

UK manufacturing production rose 0.2 per cent in April and below forecast, after it showed minus 0.6 per cent contraction in March. Trade deficits from import /export activities narrowed to GBP10.4 billion and better than expectation.

UK General Election has completed with a hung-parliament. Conservative Party fails to secure more than 50 per cent of the 650 seats that would deter it to form a new government. The Conservative Party led by Theresa May wins 318 seats while Labor Party secures 261 seats among other minority winners. Instead of electing a new Prime Minister after forming a new coalition parliament, Theresa May is seeking permission from the Queen to lead the government by continuing her existing role. Technical Forecast US dollar/ Japanese yen has gained supported at 109.00 and closed at 110.30 region for the weekend. The trend will continue to behave resilient in short-covering for the coming week. Range is expected to escalate higher from 109.50 to 112.00 region in near future. Abandon your long-view in case the trend plunges below 109.00 level.

Euro/ US dollar topped off recent high at 1.1280 after countering strong resisting force. We expect the trend to begin consolidation by threading sideways from 1.1080 to 1.1280 range in coming week. Probability of bearish sentiment is higher as market favors a weaker Euro for economic recovery.

Pound/US dollar has fallen for two days before weekend as UK election shows jittery. Technically, we reckon the range will be constricted from 1.2600 to 1.3000 region this week for consolidation while investors observe the progress in post-election. Breaking in either direction is possible but unpredictable at the moment.

Hence, risk control is recommended to safeguard your position.

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.