Pound expected to move above 1.55

GBP/USD pushed to as high as 1.5470 (the hisghest since April 27^th) this week week and formed a temporary top before retreating. Before surging upward, the pair broke the previous week low and tested the initial support at 1.4976(see the 4 Hr chart above). The pair went to the lower target-T2 before rebounding during London session. A double bottom formed on Monday and Tuesday signaled that the pair bearish tone has been arrested.

With a weak dollar and a solid U.K. fundamentals and signs that the European debt crisis won’t reach British shores boasted the pound. Despite the austerity measures put forward by the new PM, U.K. economy display signs of being able to sustain growth . Jobless claims declined by 20,800 in June as the claimant count rate fell for a fifth straight month to a one year low. The improving labor market and declining inflation raised the outlook for domestic growth. Indeed, consumer prices decelerated from 3.4% to 3.1% but remained above the central bank’s threshold for a fifth month. Inflation trending lower takes pressure off policy makers to raise rates which would typically be bearish for the pound, but declining from such dangerous level is a positive for the long-term health of the economy.

The surge carried the pair above the upper target of previous week swing high and low I,e,T2 and just beyond the 100% upper target. With a such overbought position, a deep correction is expected that could pushed the pair below the inner retracement of 38.2% of daily swing high and low on Friday. (see the 30 minutes chart below.

Next week, GBP/USD is expected to test the support at 1.5146 before continuation of the bullish mood. Resistance is at the previous high at 1.5515 and ability to penetrate the next resistance at 1.5670 will move the pair to much higher level.

Singapore outperformed Malaysia

With South East Asian region recovering from the American and European financial crisis, Singapore managed to registered an impressive 26 percent y.o.y GDP growth in the second quarter . Singapore’s growth for the first quarter was revised to 45.9 percent, the fastest since records began in 1975. GDP is expected to rise between 13 percent and 15 percent in 2010, compared with an earlier forecast of as much as 9 percent, the ministry said. The growth is expected the highest in the world.

China, the world’s third-largest economy, recorded an expansion of 10.3% in the second quarter, slower than 11.9% achieved in the first quarter.

Malaysia which recorded a 10.1% rise in the first quarter is expected to announce its second-quarter GDP numbers next month. Thus far, economists are expecting to see a growth rate of around 7.5% to 8.5% for the quarter.

As expected, the week saw the Singapore Dollar appreciated more than the Ringgit against the US Dollar. Refer to the chart below. The USD/SGD candles is in red and green color while the USD/MYR is in dark orchid color. The USD/SGD has moved passed previous week low while USD/MYR pair was stop dead at previous week low.

The USD/MYR pair is still on the downtrend (refer to the chart below) despite a two day upward spike in prices. There may be an effort by the authority to lessen the appreciation of the ringgit in order to make FDI more attractive especially in the local bourse (http://myfxfix.blogspot.com/).

The stochastic has moved passed the 20 level but turning back down with MACD histogram oscillating at the zero level and at negative territory . The pair sentiment is still bearish with previous week stated support at 3.18 and the second support at 3.17 is still valid. Inability to overcome the resistance level at 3.2776 still indicated the pair bearish tone.

Third Time OPR was raised……to support the stock market?

Locally, the big news this week was Bank Negara raising OPR(Overnight Policy Rate) by 25 basis point on Thursday.

Bank Negara has now raised rates three times this year by a total of 75 bps, after earlier increases in March and May.

It cut rates by 150 bps during the financial crisis, from 3.5 to 2 percent.

Bank Negara was the first central bank in emerging Asia to raise rates after the global financial crisis.

Malaysian economy grew at a blistering pace of 10.1 per cent y.o.y. in the first quarter.

On Monday, the PM indicated that economic growth might slow in the second half of the year because of external factors.

The speech marked a change of tone for the PM, who has been making fairly bullish noises about the economy. It conflicted with the government’s own full year forecast for the economy, released last month, which predicted growth of 6 per cent - up from an earlier forecast of between 4.5 and 5.5 per cent.

PM’s change of tone is political one as his economic reform program’s the New Economic Model is stalling as a result of opposition from the ultra conservatives in his party, UMNO.

While the developed countries are keeping low interest rates, any increase of policy rate make Malaysia's interest rate spread widened and may attract more hot money to flow into the country.

An interest rate hike also about the appreciation of ringgit.

This week, USD/MYR slide to our expected get support at 1.3189. The appreciation of the ringgit is more due to weakness in US Dollar as seen in the euro and the cable. The effect of Bank Negara decision to raise rate was quite muted.

This week the local stock market was quite bullish from Tuesday onward while the USD/MYR only registered a meaning full push downward on Thursday.

The recent bullish move of the local burse was not accompanied by increase in volume indicative of less participation by foreigners.

The MPC (Monetary Policy Committee) decision to raise the OPR could also be seen to invite hot money to park in the share market and drive share prices upward, creating a scenario of prosperity in the share market and the economy as a whole. Giving PM changing view on the economy, a bullish stock market at least politically give him a breathing space.

For next week, USD/MYR is still under the descending channel and MACD in the negative territory, the pair has a bearish tone. Stochastic is below 20 but showing no signed of penetrating that level yet.

Support is at 3.18 and penetration of that level the next support is at 3.172. Resistance at 3.218 with the pair inability to overcome that level the bearish trend is still intact. The next resistance is at 3.252.

FBM KLCI

USD/MYR Daily

Weak US Dollar

GBP/USD 4HR TF

This week UK’s fundamental news is mostly negative. The UK Services PMI was a disappointment with a drop to 54.4 points, worse than expected. Halifax HPI, which shows the change in house prices, fell by 0.6% instead of rising by the same scale. Manufacturing Production fell short of expectations as it rose by only 0.3%, and last month’s drop was revised – 0.8% instead of 0.8% – double.

On the interest rate decision, It was a big disappointment that came last week. First, the Bank of England didn’t raise the rates. While this was the consensus, this came after we saw that one member voted to raise the rates last month – Andrew Sentance’s vote came on rising inflation that missed the government’s target month by month.

The decision not to raise the rates was later backed with the PPI figures – producer prices dropped last month by 0.2% when expectations stood on a rise of 0.1%. So, maybe the inflationary pressures aren’t too strong as we expected?

With all the bad news, we were `expecting the cable to depreciate but last week GBP/USD were moving sideway between previous week high of 1.5226 and the 38.2% retracement of 1.5092. The cable sentiment was neutral as compared to EUR/USD which is quite bullish. With the euro zone did not showed any improvement in its economic data, it seem that the GBP and EUR strength is more due to US dollar’s weakness rather than its own strength.

On Friday, by Frankfurt open EUR/USD went toppish and started sliding down and the cable was tracking the move. The reversal in EUR/USD could be attributed to an unwinding of some long positions and the pair recovered slightly towards the end of the week while cable kept sliding down.

Technically, GBP/USD after penetrating the ascending trend line, all indicators indicating a bearish bias (see the 30 MTF chart below) with support at 38.2% of weekly high and low. A break of the above support triggered a target support at 38.2% below previous day low at 1.5050. At this level it is also 50% retracement of previous week’s high and low and the mid-point of Pivot point and S1.

The intraday bias is now bearish with GBP/USD testing the uptrend line in place since the beginning of June(see the 4 Hr TF chart). Resistance level was seen first at 1.5166 with the next resistance this week high at 1.5239. Support is at 1.4976.

GBP/USD 30 MTF

Ringgit strengthened on falling equity market.

The previous week, USD/MYR has a high correlation with USD/SGD but early of last week USD/SGD showed more strength than USD/MYR. By the end of the week with US dollar moving downward, both pairs have moved in tandem. US dollar depreciation could be as resulted of an impasse state of US dolar as when the recent downturn in equity markets should boost the safe-haven Greenback against other currency instead the markets seem all too willing to sell US Dollars at any sign of trouble in US domestic economy.

USD/MYR has been moving within the descending channel. Overall weakness in US dollar against other curries has pushed the pair below the 38.2% retracement.

For the coming week, I expect the pair to move downward testing support at 1.3189. Resistance is at 3.248.

GBP/USD still on the uptrend

Cable hit the upper limit of the upward channel on Monday and reversed direction after staging a evening star doji candle pattern. The downward move was stopped by the lower limit of the channel, 50% retracement of previous week swing high and low and 365 EMA.

The unexpected simultaneous selloff in US Dollar and equity market on Thursday carried cable on the way up breaching the previous high and by the end of the week it met the target resistance at 38.2% above previous week’s high at 1.5225.

Last week, after managing to penetrate the 1.50 level cable encountered little resistance to touch 1.52 level.

For the upcoming week, cable is expected to move upward with the upper limit of the ascending channel act as a barrier. Support is at 1.50 and the previous low at 1.4873. On the upside resistance is at 1.536 with the next resistance at 1.544.