By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
USD
The dollar was a touch higher overnight as figures released in the US were generally considered acceptable, especially in light of the recent downturn in expectations. However, the focus will be on the Fed in the coming months as investors remain concerned about the prospect of a double-dip. Equity markets are still trading on a soft note as Asian markets followed the US weaker. Yesterday’s data included personal income and spending and PCE figures. Consumption was a tad stronger than consensus while income rose a little less than consensus estimates. But the report did show a stronger gain in private wages and salaries, which is an important support for a sustainable recovery. Core PCE prices were inline with expectations. That said, there are several headline releases this week and the next round includes the S&P/CaseShiller data, the Conference Board consumer confidence index, Chicago PMI and the FOMC minutes. Housing has been a very weak point as of late but the S&P/CaseShiller index lags changes in price trends. FOMC minutes will not likely be surprising as Fed Chairman Bernanke and other Fed officials have already explained the rationale for the latest policy adjustments. And the Conference Board figure could reflect the recent weakening trend in claims data. EURUSD traded 1.2633-1.2672, USDJPY 84.13-85.67.
EUR
The Eurozone sentiment surveys were largely in line with expectations. Consumer confidence was slightly better on the month (-11 vs. -12 cons.) and the business climate indicator dipped to 0.61 (cons. 0.70).
Following Trichet’s unsurprising comments at Jackson Hole last week, we, along with consensus, expect an unchanged policy rate and do not expect officials to announce any new measures. While we will get some final PMI readings in the Eurozone along with retail sales and CPI estimates, data in the US will be the main driver for EURUSD.
JPY
Data released overnight was better than expected for Japan, industrial production increased by 0.3% in July (cons. -0.2%) while retail sales also strengthened by 0.7% on the month. Nevertheless the market remains focused on the potential course of action to stem the JPY’s strength from the BoJ/MoF, due to be announced this week.
USDJPY dipped during the New York session though at a slower pace than the overnight session. Investors remain sceptical on the latest BoJ easing measures and US data will likely remain a key driver for USDJPY. PM Kan is still expected to announce some steps for fiscal stimulus but investors are likely to keep USDJPY heavy until they get further clarity as to what exactly “decisive action” on FX actually constitutes.
CAD
The Q2 current account deficit was slightly larger than expected at -C$11.0bn, with lower exports to the US a key drive and the data could dampen expectations for the upcoming Q2 GDP figure. While Q2 GDPis expected to be less robust than Q1, consensus estimate is still +2.5% annualized. The near-term outlook will likely be more rangebound as investors try and gauge the US economic outlook given the significant trade ties between the US and Canada but Canada’s relatively less expansionary policies, improving fiscal deficit and sounder financial sector should mitigate some of the overhang from concerns on the global growth backdrop.
AUD
Figures released overnight in Australia showed stronger retail sailes (+0.7%m/m) and building approvals (2.3%m/m). Net exports also came in stronger than expected at 0.4% of GDPq/q. Our team notes that the figures released today suggest a decent start to Q3. Though home prices have stalled and credit growth subdued, ‘real growth’ looks to be proceeding.
TECHNICAL OUTLOOK
EURUSD BEARISH While resistance holds at 1.2933, expect loses to target 1.2588 with scope for 1.2434 Fibonacci retracement level.
USDJPY BEARISH Approaches 83.60 trend low, move below the level would expose 79.75 key support. Short-term resistance is defined at 85.91 intraday high.
GBPUSD NEUTRAL Motion is sideways; while 1.5713 and 1.5324 mark the key near-term directional triggers, a move above 1.5999 is required to resume the bull trend.
USDCHF BEARISH Clearance of 1.0131 would open up the way towards 0.9918. On the upside resistance holds at 1.0466 ahead of 1.0676.
AUDUSD NEUTRAL Model has turned neutral; 0.9222 and 0.8771 act as the next bull and bear triggers respectively.
USDCAD BULLISH As long as support at 1.0248 holds, expect the gains to target 1.0680 with scope for 1.0853 next.
EURCHF BEARISH The cross continues to define fresh trend lows. Next support lies at 1.2742 ahead of 1.2403. Near-term resistance comes in at 1.3146.
EURGBP BEARISH Focus is on 0.8068; break of the level would expose 0.7974. Short-term resistance is defined at 0.8247 ahead of 0.8363.
EURJPY BEARISH Momentum is negative; the pair targets 105.44 with scope for 100.00 next. Near-term resistance is defined at 111.11 ahead of 114.74.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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