By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
USD
The rotation from the dollar into the other safe-havens continued as uncertainty on the economic outlook persists following several data releases and the latest FOMC minutes while the dollar performance was mixed against the rest of the G10. Equities closed flat and Treasury yields and old prices were lower at the time of writing. EURUSD traded 1.2625-1.2743, USDJPY 83.83-84.67. The FOMC minutes from August 10 more downside risk to the recovery than before, which most investors had expected, and saw the MBS policy change as an effort to avoid passive tightening rather than a move toward easing. Although the minutes backed away from earlier deflation fears, the overall tone was dovish and cautious as, “members generally saw both employment and inflation as likely to fall short of levels consistent with the [Fed’s] dual mandate….” Prior to the minutes, the latest data was modestly positive. Conference Board consumer confidence rose above expectations in August and most of the improvement came from the expectations component. The S&P/Case-Shiller Index y/y figure increased more than anticipated but the index does lag changes in price trends. The Chicago and Milwaukee regional manufacturing indexes weakened though they remained above 50 and investor focus now shifts to the August ISM Manufacturing release.
EUR
Among Eurozone data releases, German unemployment fell by 17k, slightly less than expected and the unemployment rate was unchanged at 7.6%. Eurozone CPI was weaker at 1.6% and unemployment steady 10.0%. Several final manufacturing PMIs are due and little change is expected.
With concerns on financial institutions and sovereign financing persisting in Europe, some extension of ECB unconventional measures could be expected at this week’s ECB decision. But US data will likely remain the driver for EURUSD this week depending on if data divergences between the US and the Eurozone continue.
CAD
The Q2 GDP figure was lower than expected at 2.0% annualized, which helped push USDCAD higher during the session. The Q1 figure was revised slightly lower but was still strong at 5.8%. Officials have cautioned the economy could slow down relative to Q1 but they believe the economy is on the right track. While USDCAD could remain range-bound in the near-term, medium-term fundamentals remain favourable to the Canadian dollar.
AUD
The current account narrowed as the trade balance recorded the highest surplus since the early 1970s. Our Australian economics leave their Q2 GDP forecast at 1% with downside risk. The stronger public demand data largely offset the lower than expected net exports contribution. While the ‘expenditure’ side of the GDP accounts continue to point to a circa ¾% rise for Q2, the strong gains in real household incomes and corporate profits suggest ‘income’ GDP – along with real ‘production’ GDP – should average up to a near 1% GDP print. There also appears compelling evidence that Q1 GDP’s print of 0.5% will be revised higher, to at least 0.8%.
TECHNICAL OUTLOOK
EURUSD BEARISH Trend is bearish with focus on 1.2588 ahead of 1.2434 Fibonacci support. Short-term resistance is defined at 1.2933.
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 Move below 1.5324 would put odds in favor of bearish trend. Near-term resistance lies at 1.5713 ahead of 1.5999.
USDCHF BEARISH The pair eyes 1.0131; a break here 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 Bullish pressure is mounting on 1.0680; break of the level would open 1.0853. Initial support is defined at 1.0473 ahead of 1.0248.
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 Bearish pressure holds at 0.8142 ahead of 0.8068 key support; break of the level would expose 0.7974. Short-term resistance tested at 0.8282 with 0.8383 retracement level next.
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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