By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
USD
On the Asian markets EUR-USD has been under slight pressure this morning trading at levels around 1.28. The currency pair seems to have been stuck in its range between 1.27 and 1.30 all week. Prices well above 1.30 seem to have felt excessive to some market participants while on the other hand the successful bond auctions in the Eurozone prevented a further depreciation of the euro. The data side is not providing any real momentum either. While no Eurozone data worth mentioning is due for publication today there is only second tier data due for publication from the US – the Philadelphia-Fed activity index as well as the Conference Board’s leading indicator. Weekly initial jobless claims are also unlikely to move markets notably.
EUR
The question remains which issues might provide stronger momentum for EUR-USD. The central banks are unlikely to provide anything much. Fed as well as ECB will leave rates unchanged well into 2011. Expected rate differentials are therefore unlikely to play a role for the FX markets. We would expect that US economic data might soon end fears of a double dip, which would eliminate one factor putting pressure on the dollar. In the Eurozone the subject of national finances might however become more virulent again. The consolidation efforts of the problem countries are considerable and in some cases even further advanced than originally expected, but the second phase of the savings efforts should begin soon. This phase is usually particularly painful. GDP data for Q2 illustrated that the economies of those countries which have to consolidate their national finances are under discernable pressure due to the savings efforts. Against this background internal pressures opposed to the savings measures are likely to rise. Increased protests and possible strikes are then going to illustrate once again that the European debt crisis is far from over. All these factors point towards lower prices in EUR-USD.
GBP
In fact the minutes of the BoE’s last meeting were rather unspectacular. As expected Andrew Sentance was once again the only member to vote in favour of a 25bp rate hike. A more expansionary monetary policy as well as a moderate tightening was discussed, but in the end the majority of members considered the current rate level to be appropriate. Sterling was nonetheless able to appreciate against euro and US dollar following the publication. Obviously some market participants had feared that the BoE might decide on further measures of quantitative easing. The minutes, however, once again confirmed that the BoE currently has a neutral monetary policy stance. Members were ready to response in either direction depending on how inflation and the economy develop. Against this background markets are likely to pay particular attention on economic data publications. July retail sales are due for publication today. Markets expect only a moderate rise in sales for July. We see potential for a positive surprise, which should support Sterling.
JPY
Japan’s Sankei newspaper reported that the BoJ is now thinking about easing monetary policy by extending its 3m fixed rate lending facility. The article suggested this could be done in one of two ways: either by raising the ceiling on the scheme from ¥20 trn to ¥30 trn, or by extending the maturity of the loans offered from 3m to 6m.
Speculation that the BoJ could call an emergency meeting today caused USDJPY to climb 25 pips, but most of the gains were relinquished when Reuters quoted unnamed sources saying that an emergency meeting was unlikely today. Finance Minister Noda repeated that he is watching FX moves.
TECHNICAL OUTLOOK
EURUSD NEUTRAL Sell-off from 1.3334 found support at 1.2734. Next support below the level lies at 1.2604. Initial resistance is at 1.2933
USDJPY BEARISH Focus is on 84.73 with next support lying at 79.75. Near-term resistance at 87.15 ahead of 88.12
GBPUSD NEUTRAL Model is neutral; while support holds at 1.5324, only a break above 1.5999 would confirm the resumption of bullish trend.
USDCHF BEARISH Sustained break of 1.0332 would open 1.0131 ahead of 0.9918 key support. Near-term resistance is defined at 1.0534 ahead of 1.0676
AUDUSD NEUTRAL Model is neutral; 0.9222 and 0.8860 mark the near-term directional triggers.
USDCAD NEUTRAL Remains constructive above 1.0108, resistance is defined at 1.0494 ahead of 1.0680
EURCHF BEARISH Clearance of 1.3272 would expose 1.3074. Near-term resistance at 1.3539 ahead of 1.3924
EURGBP BEARISH Focus is on the downside; expect loses to target 0.8167 with scope for 0.8068 next. Short-term resistance is defined at 0.8363
EURJPY BEARISH Trend is bearish; focus is on 107.32; move below the level would open 104.72. 111.57 defines the near-term resistance
Forex Daily Market Commentary provided by GCI Financial Ltd.
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