By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
USD
Dollar performance was mixed during the Asia session as modest gains against the euro and the AUD were counterbalanced by further losses against the yen. Asian equities were softer after US equities finished in negative territory. The US pending home sales index disappointed, falling -2.6% m/m in June vs. the consensus estimate of a +4.0% gain. US yields continue to push lower as fears over a US deflation scenario continue to make headlines in the financial press. Our US economists think deflation is unlikely. Nevertheless, US 2y Treasury yields closed at a record low, partly due to press speculation that the Fed will consider re-investing the cash from maturing mortgage-bond holdings at next week’s FOMC meeting.
Only 8 out of 24 analysts who have made EUR-USD forecasts for the end of 2011 expect the EUR-USD exchange rate to rise by then. And only one of them forecasts an appreciation by more than 2.2% during this period. All in all, even most dollar bears expect the EUR-USD exchange rate to move sideways at best in the long term. These forecasts might have to be adjusted considerably. Before that has happened, there is not much reason fort he upward trend in EUR-USD to end.
EUR
Eurozone PPI was slightly weaker than expected at 0.3% m/m and 3.0% y/y. Tame inflation numbers should prevent the ECB from shifting expectations too quickly despite better growth figures. Eurozone retail sales for June are due later today.
JPY
Japanese Finance Minister Noda warned that he would closely watch foreign exchange movements but declined to comment on whether Japan will intervene. He reiterated that excessive currency moves are bad for the economy and a stronger yen erodes corporate profits. The comments are clearly a step forward but we do not believe volatility or headline rates have moved towards worrying levels yet.
Chief Cabinet Secretary Sengoku said that domestic demand is not picking up yet, likely implying that a weaker yen is still needed to support exporters. Sengoku also noted that money is flowing into government bonds globally.
GBP
UK construction PMI was much lower than expectations at 54.1 (cons. 58.0). The figures support expectations of a slowing in the real estate sector and would prove worrying for the BoE. Services PMI is up next, ahead of the BoE meeting, where we do not expect any change in policy.
TECHNICAL OUTLOOK
EURUSD 1.3416 next
EURUSD BULLISH Upside potential toward 1.3416 with next resistance lying at 1.3692. Near-term support comes in at 1.2981 ahead of 1.2733
USDJPY BEARISH As long as resistance at 88.12 holds, expect the negative momentum to move market towards 84.83 ahead of 81.85.
GBPUSD BULLISH Upside potential targets 1.6069 with scope for 1.6458 next. Near-term support comes in at 1.5696 ahead of 1.5400
USDCHF BEARISH Focus is on 1.0131; break of the level would expose 0.9918. Near-term resistance is defined at 1.0480 ahead of 1.0676
AUDUSD BULLISH Momentum is positive; expect the gains to target 0.9389 ahead of 0.9850. On the downside, initial support lies at 0.8896 ahead of 0.8634
USDCAD BEARISH Violation of 1.0139 would open up the way to next support lying at 0.9931 key low. Initial resistance is defined at 1.0396 ahead of 1.0587.
EURCHF NEUTRAL Model is bullish with focus on 1.3819 ahead of 1.4041 key high, initial support lies at 1.3511 ahead of 1.3342
EURGBP BEARISH Focus is on 0.8252 break of which would expose further weakness towards 0.8068 ahead of 0.7809. Near-term resistance lies at 0.8416 ahead of 0.8532
EURJPY NEUTRAL Remains heavy below 115.49 with next resistance defined at 117.50. Near-term support comes in at 110.02 ahead of 107.32 key low.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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