ECB may begin tapering in September
Fundamental outlook THE European Central Bank (ECB) holds monetary policy unchanged and it may begin tapering in September. US revealed growth in housing construction while jobless claims fell. China maintained steady growth in two quarters (2Q) as the yuan advances.
US housing permit for June grew 1.25 million while housing permit also rose by 1.22 million, both above forecast and the highest in past three months’. US weekly claims for jobless benefits ended July 15 dropped to nine-month low at 233,000, which is an improvement. Philadelphia manufacturing index unexpectedly declined to 19.5 index in July, a eight-month lowest record.
China expanded 6.9 per cent in the 2Q ended June and growth remained consistent as in 1Q. Industrial production including mines and utilities rose 7.6 per cent on a yearly basis in June, the highest the past three months. Yuan advances recently against dollar while US Donald Trump’s reputation wanes.
The Bank of Japan (BoJ) retained its monetary policy and cuts forecast of inflation to 1.1 per cent in fiscal year. This is the sixth time since 2013, that policymakers have been pushing the timeline to achieve the two per cent inflation target. German ZEW sentiment on institutional investors grew to 17.5, the lowest in four months. The final consumer prices in the eurozone for June rose 1.3 per cent on a yearly basis, matching forecast.
ECB president Mario Draghi said the growth is recovering and the tapering of stimulus may come earlier before December. Market traders the euro currency would appreciate once the stimulus is withdrawn. Last Thursday, ECB held interest rates unchanged.
UK consumer prices expanded 2.6 per cent in June on year basis and lower than expectations. Producer prices on a monthly comparison contracted 0.4 per cent after the May data was revised at minus 0.7 per cent.
Retail price index grew 3.5 per cent on as annualised rate and stayed flat from past months. Retail sales grew 0.6 per cent in June, better than revised data of minus 1.1 per cent recorded in previous month. Technical forecast US dollar/Japanese yen dropped throughout last week and settled at 111.15 on Friday. This week, we reckoned the trend would be supported at 110.50 area and tend to rebound for a sideways swing. The movement is likely to move from 110.50 to 112.50 range in mixed trading.
Euro/US dollar climbed higher amid the weaker dollar. The week-chart shows the arrival at resistance 1.1650 region in confluence with EMA200 line. In our opinion, there could be a strong selling forces at 1.1680 area that will likely to throw the trend downward this week. The downside support is laid at 1.1450 that will counter the bears if trend falls.
British pound/US dollar has been trading in small range as traders are focusing at the euro currency. Traders are also waiting for the Brexit negotiation before deciding the new directional trend in the pound. This week, we forecast the range will move from 1.2850 to 1.31 prone to a downward force. Risk control is advised in case of piercing above 1.31 due to unexpected circumstances.
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.