US records slight inflation, payroll climbs higher than forecast

Fundamental outlook THE US economy recorded a slight inflation as home sales increased and firm payroll consolidate. China maintained a good growing pace. The Bank of England (BoE) retained its monetary policy but it expected two more rate hikes in the coming three years.

US pending home sales rose 1.5 per cent in June, a surge from minus 0.7 per cent revised in May. The Institute of Supply Management reported that the manufacturing index for July grew to 56.3, maintaining a growth pace. Services index grew to 54.7.

US personal spending rose 0.1 per cent in June, after a revised 0.2 per cent growth in May. Jobless claims dropped slightly to 240,000 in the week ended July 29 compared with 245,000 recorded in the previous week.

Factory orders rose three per cent in June, the best recorded in three years. US payrolls grew 209,000 in July, beating forecast. Unemployment dipped 4.3 per cent.

China’s government reported that the manufacturing index was at 51.4 in July, matching forecast. Services index also retained its pace at 54.5.

On external side, the independent body on Caixin reported that China’s manufacturing index rose to 51.1 in July, above forecast. The Caixin services index grew 51.5 in July.

German retail sales rose 1.1 per cent in July, increasing for two consecutive months. In the eurozone, consumer prices rose 1.3 per cent while core prices were up 1.2 per cent on a yearly basis.

Spain’s manufacturing grew at 54 while German manufacturing rose to 58.1 in July. The eurozone prelim 2Q GDP grew 0.6 per cent, in line with forecast.

Markit in reported UK’s manufacturing index grew to 55.1 in July, better than the revised 54.2 recorded in the previous month. Construction index dropped to 51.9 in July from 54.8 in June, showing signs of a slowdown in housing demand. Services index rose 53.8 in July, matching forecast.

The BoE held the interest rates unchanged at 0.25 per cent. Policymakers forecast two possible rate hikes in the coming three years. The asset purchase programme was retained at 435 billion pounds for government bonds and 10 billion pounds in corporate bonds. Technical forecast US dollar/Japanese yen recovered on Friday. The market held well at 109.50 to 109.80 with firm support. It could consolidate this week. We forecast the trend would trade higher at 112.50 as uncertainties remain. Practise risk control in case of extension beneath 109.50 level.

Euro/US dollar was countered by selling forces on Friday as we expected last week. The trend has fizzled from 1.1870 tops and it would probably begin profittaking this week. We reckoned the trend would go lower but it could be supported at 1.155 to 1.16 area. A sideways trend is also be expected after that due to the mixed sentiments seen in the market.

British pound/US dollar failed to conquer the 1.325 level last week as it fell short of expectations. This week, we predict the trend would re-test the 1.2850 bottom in confluence with the EMA200 support. Range trading is expected unless the movement reverses and goes above the 1.3250 level due to unforeseen circumstances. Practice risk management.

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.