Draghi warns of risk from trade protectionism
Fundamental outlook
THE European Central Bank (ECB) president Mario Draghi warned that while there the global economy is firming up, there is a risk from trade protectionism. The annual Jackson Hole meeting ended with leaders foreseeing stability in the global financial system amid tight regulation. Germany repatriated the gold bullions from US and France for its own safekeeping. UK’s second quarter (2Q) economic growth remained flat.
The US new home sales rose 571,000 in July and declined from 630,000 in June. US existing home sales rose 5.44 million in July, missing expectation, after 5.51 million gains in June.
Flash manufacturing index rose 52.5 in August, below forecast. Weekly claims for the week ended August 19 steadied at 234,000. Order for core durable goods grew 0.5 per cent in July, matching forecast.
US President Donald Trump vowed to build a wall along the border between US and Mexico and threatened to shut down the government if the bill fund was not granted. At the annual Jackson Hole meeting for global leaders and financial ministers, Trump said he would start pushing tax reform plan to spur economic growth.
Other speakers from the symposium including Federal Reserve chair Janet Yellen cited that the financial system is safer than 10 years ago after regulators implemented necessary actions, despite the familiar risk still lingering in the market. She refrained from commenting on the monetary policy and plans for reducing US’ balance sheet.
ECB’s president Draghi commented that global economy is firming up for recovery. However, he warned of serious risk if trade protectionism rises.
German ZEW sentiment that measures the institutional investors’ confidence fell to a 10-month low at 10 versus 17.5 in July. Ifo business climate based on manufacturers and retail sentiment rose to 115.9 in August, in-line with forecast.
Eurozone flash manufacturing rose 57.4 in August while Germany climbed 59.4, both higher than last month.
Last week, the Germany Central Bank shifted 50,000 gold bars worth US$27.9 billion from New York and Paris to Frankfurt due to the fear of a cold war.
The public sector net borrowing between spending and income of the British Government fell by 800 million pounds in July, better than the previous month’s 5.7 billion pounds rise.
UK GDP for 2Q ended June grew 0.3 per cent. Prelim business investment stayed flat in 2Q after it rose 0.6 per cent in 1Q ended March. Financial mortgage approvals remained healthy at 41,600 in July.
Technical forecast
US dollar/Japanese yen is seen supported at 108.80 region. The market slowed down in the price movement and rebound before weekend. This week, we foresee the trend moving from 108.80 to 110.80 in tight range while resisted beneath the EMA200 line. Breaking below 108.80 might 108 area.
Euro/US dollar surged on Friday to 1.1925 after ECB’s Draghi comment. The trend is now sitting at a crossroad as it could climb higher in coming week or reverse downwards.
Technically, we reckoned the trend is supported at 1.18 level and needs to go beyond this point before plunging. Otherwise, scaling higher beyond 1.2 might suggest a 1.2200 target in case the market short-squeezes.
British pound/US dollar bounced off 1.2760 ground last week. The market is likely to move into consolidation from 1.28 to 1.305 this week as short-covering occurs. The trend is temporarily held tight from selling as trades wait for further development in UK’s economic performance.
Disclaimer: This article is written for general information only. No liability by the writer, publisher or any third party involved in the distribution of this work. Dar Wong is a registered fund manager in Singapore with 27 years of global trading experiences. You may reach him at dar@pwforex.com.