Fed increases interest rates
Fundamental outlook US Federal Reserve hiked interest rates while the Bank of Japan (BoJ) and the Bank of England (BoE) maintained their policies. Dutch Prime Minister Mark Rutte won the election, resuming his reign on government. The euro currency recovered following the result of the election in Netherlands.
US producer prices rose 0.3 per cent in February, beating forecast. Core prices, excluding food and energy, gained 0.3 per cent. Consumer prices rose 0.1 per cent in February compared with 0.6 per cent gains recorded in the previous month. Core prices, excluding food and energy, expanded 0.2 per cent, matching forecast.
US Federal Reserve increased the overnight Fed fund rate by 25 basis points, bringing the borrowing cost to 0.75 to one per cent. Precious metals and Dow Jones markets rose after the announcement as investors interpreted the prices have been built into the hike based on the decline seen over the past two weeks.
US unemployment claims for the week ended March 11 steadied at 241,000. Building permits expanded 1.21 million in February, lower than the 1.29 million recorded in the previous month. Housing starts jumped to 1.29 million, the highest in four months.
China industrial production for January to February kicked off on a high note by rising 6.3 per cent on an annual basis. Retail sales expanded 9.5 per cent compared with 10.9 per cent gains in December.
Japan’s core machinery orders declined 3.2 per cent in January after it gained 6.7 per cent in the previous month. Producer prices rose one per cent from a year ago in February, matching forecast.
BoJ maintained its monetary policy after US Fed hiked interest rates. Policymakers retained the annual 80 trillion yen bonds holding to maintain a relaxed monetary liquidity in the market.
German ZEW economic sentiment on institutional businesses saw a 12.8 per cent growth in March, higher than 10.4 per cent gains recorded last month. Industrial production in the eurozone, including mines and utilities, rose 0.9 per cent in January.
Netherland’s center- right Prime Minister Rutte chalked a glorious victory over anti-Islam and anti-European Union (EU) Geert Wilders in the recent national election.
With a turnout of 81 per cent voters, the highest in 30 years, the result of the election affirmed the nation’s favour towards liberalism and their refusal in accepting the proposal of an anti-immigrant path picketed by Wilders as well as his promise to “de-Islamicise” the Netherlands and quit the European Union.
UK claimant counts for jobless benefits improved in February, dropping 11,300 against positive expectations. The average earnings over the last three months ending January, gained 2.2 per cent, lower than the previous month.
Unemployment rate recorded better numbers at 4.7 per cent in January. Crude inventories declined 200,000 barrels last week, beating expectations of a probable increment.
The BoE retained interest rates at the record low level of 0.25 per cent and maintained asset purchases at 435 billion pounds. However, the imminent trigger of Article 50, to be executed in line with UK’s exit from the EU, as well as the break away of Scotland from UK, would likely impact the nation’s economy. Technical forecast US dollar/Japanese yen dipped after the rate hike. The market trend fell from 115 to 112.50 region before the weekend. This week, we reckoned the trend would be supported at 111.80 bottom but demand might be weak. The topside is temporarily resisted at 114 level.
Euro/US dollar advanced from 1.062 to 1.078 region after the Fed hike. Technically, we forecast the trend would trade form 1.067 to 1.08 range while moving in sideways consolidation. If the market moves above the aforementioned resistance, this could indicate an unexpected bullish demand. Risk control is advised.
British pound/US dollar recovered due to the weaker sentiments on dollar last week. However, the market is still in an uncertain range of sideways movements, trapped inside the 1.215 to 1.255 region. Trade well and stay cautious any surge. Observe Brexit news that might lead to a new breakthrough in either direction.
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.