Dow Jones benchmark falls after IMF’s forecast comments
Fundamental outlook
THE Dow Jones Industrial Average fell from 26,400 to 25,000 last week, following official forecast comments published by the International Monetary Fund (IMF). Trade surplus persisted in China, weighed down by the tough trade war with US. Britain’s GDP slowed down as negotiations on the Brexit continues to remain in a stalemate.
US producer prices gained 0.2 per cent in September, likewise for the core producer prices. Both matched consensus’ expectations.
US consumer prices rose 0.1 per cent and core prices also gained 0.1 per cent in September, both fell short of expectations. Jobless claims climbed to 214,000 in the week ended October 6, higher than the previous week.
IMF cut its global growth forecast by revising down to 3.7 per cent gains for this year and next year, compared with the previous forecast of 3.9 per cent growth. Official comments about the global trade war might have triggered a financial crisis as investors are getting complacent on stock markets.
On Wednesday, Dow Jones benchmark fell 800 points at its closing. Global equity markets spiralled downwards before the weekend, driven by panic selling triggered by IMF’s remarks.
China’s trade surplus rose US$213 billion in September, the highest in three months, unaffected by trade war. The Chinese yuan has been holding in the range of US dollar/Chinese renminbi rate from 6.86 to 6.94. Many emerging market currencies have been dropping to a 20-year low against the dollar after the recent US rate hike and the firm greenback.
Japan’s bank lending climbed 2.3 per cent in September on a yearly basis, beating expectations. Producer prices rose three per cent, higher than forecast.
UK reported that the monthly GDP in August was on par with July, compared with 0.4 per cent gains recorded in the previous month, due to pressure on the Brexit negotiations. Manufacturing production slipped 0.2 per cent, below forecast.
Technical forecast
US dollar/Japanese yen fell last week as the yen rose in strength. The market might have topped the recent high at 114.50 area and begin to consolidate sideways. This week, we foresee the trend is likely to make a recovery and range from 111.70 to 113.20. If it goes beneath the aforementioned range, practice risk management.
Euro/US dollar made a small recovery as the dollar receded slightly. This week, we reckoned the support would stand firm at 1.1470 area while threading in a narrow range below 1.1670. Beware of the market piercing beneath the 1.1470 in case the US stock markets slide further. The next support could emerge at 1.1320 area if the market trend turns bearish.
British pound/US dollar has been resisted at 1.3260 that is confluent to the EMA200 line. This week, we forecast the trend might trade lower and range from 1.3050 to 1.3260. Fundamentally, the pound is facing a lot of selling pressure whenever the trend recovers. Risk is recommended in case the prices decline beneath 1.30 benchmark.
DAR Wong is a professional in the financial industry based in Singapore with 29 years of global trading experiences. The column is solely at his own opinion. You may reach him at dar@pwforex. com.