UK records stronger growth
Fundamental outlook THE US manufacturing and services grew despite the decline in payroll. China remained firm while the yuan rebounded. UK indicated growth in manufacturing and services after Brexit vote but traders remained alert for the coming execution of the Brexit.
US Institute of Supply Management reported that manufacturing index rose to 54.1 in December, gaining for the fourth month and the best recorded the last two years. Services index expanded 57.2, the same level as in November.
US weekly claims for jobless benefits dropped to 235,000 for the week ended December 31, probably due to the holiday seasons. FOMC minutes revealed further rate hike is possible in 2017 while market traders expect two more credit tightening under President- elect Donald Trump.
US monthly payroll fell to 156,000 in December. Unemployment rate remained at 4.7 per cent. Trade deficits widened to US$ 45.2 billion in November from revised US$42.4 billion in the previous month.
China’s Caixin manufacturing index gained to 51.9, better than 50.9 in November, and rising above 50.0 benchmark. Caixin’s services index gained 53.4 in December, matching forecast. The US dollar to yuan declined from 6.98 to below 6.78 level due to the recovery in yuan currency.
Flash estimate for consumer prices in the eurozone climbed 1.1 per cent in December from a year ago, beating expectations. Core prices estimate, rose 0.9 per cent, the best in five months. Eurozone retail sales contracted 0.4 per cent in November from 1.4 per cent gains in October.
Markit reported that the UK manufacturing index rose to 56.1 in December, the best four years. Services index also climbed to 56.2, the best recorded in more than a year. Both indicate stronger growth after the Brexit vote.
Markit reported that UK construction index advanced to 54.2 in December, the best recorded since the Brexit vote in June. Traders are cautiously watching the first quarter (1Q) performance as Theresa May’s government gets ready to execute the Brexit policy. Technical forecast US dollar/Japanese yen traded in correction last week with support emerging at 115.50 region. This week, we reckoned the movement would trade from 115.5 to 118.5 range while breaking beyond either direction would lead to new headways. Observe the fundamentals in Europe which could lead an inverse direction to the dollar trend.
Euro/US dollar is struggling to reverse or break lower as long as the market trades below 1.066 level. This week, we range the movement from 1.035 to 1.065 area and observe for a breakout. Technically, recovering above the 1.065 level would progress into a correction while plunging below 1.035 support would lead to new bearish sentiment.
British pound/US dollar trend were mixed as it hovered around 1.23 region. Likewise, we would remain cautious and observe range trading from 1.22 to 1.255 region before trading for breakout direction. Risk control is advised in case the market moves in adversity to 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.