By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
Dollar performance was mixed amid a relatively quiet session as equities were flat on the day. A disappointing US manufacturing print helped nudge USDJPY higher with no BoJ in sight but the most notable currency movers in the G10 during the US session were the Swiss franc crosses following the SNB’s surprisingly dovish comments. But otherwise, oil drifted lower and gold is $1274.13 at the time of writing. EURUSD traded 1.2976-1.3117, USDJPY 85.23-85.84. Treasury Secretary Geithner testified before Congress on China’s exchange rate policy and said China needed to allow a “significant, sustained” appreciation of its currency and said the US would continue to seek progress along with the G20 on the issue, though he stopped short of any concrete actions. Senator Dodd emphasized that unilateral intervention by “Japan, China or any other nation, represents a gap in international cooperation on exchange rate policy.” In US data, jobless claims fell to 450k and it appears that despite some Labor Day holiday-related volatility, claims are trending down after a midsummer jump. Meanwhile, the Philadelphia Fed rose less than expected to -0.7 and details of the survey were less constructive. PPI figures were in line and the current account deficit widened as expected to 3.4% of GDP, largely on imports. US data has avoided any major disappointments of late but fears of further Fed easing likely remain, though concerns elsewhere are helping mitigate dollar downside at this stage.
EUR
A relatively successful Spanish bond auction helped boost the euro into the US session and it held its gains throughout the day. The bid-cover ratio on the 2020 Spanish bonds was 2.32 compared to 1.89 at an earlier, similar auction. The bid-cover on the 2041 issue was lower but still above two times. A French auction went smoothly but sovereign concerns remain. Portugal announced it would sell bonds maturing in 2014 and 2020 on September 22.
Eurogroup Chairman Juncker again expressed displeasure with Japan’s unilateral intervention but did not think the decision will trouble relations. He said interventions are only fruitful if coordinated and the yen is not overvalued against the euro. He also said problems in Ireland remain but the Irish government is able to deal with them.
JPY
USDJPY was relatively quiet as the BoJ was not seen but several policymakers in both the US and Europe expressed displeasure with the recent intervention. BoJ Governor Shirakawa spoke, but offered no clarity on whether the injection of yen liquidity brought about by the initial intervention would be sterilized. Instead, he again repeated his misgivings about quantitative easing, saying it only had a limited effect on prices, and a limited effect in stimulating the economy. Without citing sources, Nikkei news reported that the intervention would in fact be unsterilized and that intervention was the largest single-day yen selling intervention on record.
GBP
Sterling was hit by far weaker than expected retail sales figures overnight, with August core consumption declining by 0.4% on the month, and headline sales declining by -0.5%. BoE Policymaker Posen said that inflation expectations matter greatly, although policymakers will not need to overreact to the recent elevated inflation readings as long as they can credibly persuade others that the rise in inflation is due to a shock.
Our team continues to see sterling suffering under a weaker growth environment and data has taken a material turn for the worse of late. The BoE will target inflation expectations but the growth rhetoric is clearly to the downside.
CHF
The SNB left rates unchanged with a target range around 0.25% and delivered a remarkably dovish statement. A strong consensus had looked for unchanged rates (UBS went for a hike) but most will have been surprised by the dovishness of the statement. The inflation forecast has been revised down over the entire forecast horizon and the meeting marked a sharp reversal from the June statement, when it appeared that monetary tightening was imminent. The only hawkish element left over was the admission that the expansionary monetary policy was ‘currently appropriate, although it poses long-term risks to price stability’. It seems clear that the strength of the franc has been the key factor in the decision. So if one objective of the SNB was to weaken the franc, the message will likely achieve that target. Many investors will be worried by the gloomy assessment of the SNB and reconsider their CHF longs. The one upside risk for the franc would be if markets more broadly were to become risk averse on the back of the message, in which case safe haven flows would strengthen.
For the next few days, however, it seems likely that the franc will continue to suffer from the realisation that rate hikes are unlikely for the time being. EURCHF may well rise to 1.34 before becoming heavy once again.
TECHNICAL OUTLOOK
EURUSD NEUTRAL Model is neutral; 1.3334 and 1.2588 mark the key near-term directional triggers.
USDJPY NEUTRAL Upside near 85.91 ahead of 86.70 Fibonacci resistance. Near-term support lies at 85.20.
GBPUSD BULLISH While support holds at 1.5297, expect gains towards 1.5731 with scope for 1.5999.
USDCHF BEARISH Focus on 0.9918 with next support at 0.9786. Near-term resistance comes in at 1.0278 ahead of 1.0466.
AUDUSD BULLISH Bullish pressure held at 0.9458 with next resistance at 0.9563. Near-term support is at 0.9309 ahead of 0.9196.
USDCAD BEARISH Following the break of 1.0248, model has turned bearish. Next support at 1.0108 with resistance at 1.0509 ahead of 1.0673.
EURCHF BEARISH Move above 1.3163 exposes 1.3345 next, but broader focus is on the downside with support at 1.2991 intraday low ahead of 1.2766.
EURGBP NEUTRAL 0.8532 and 0.8142 mark the key directional triggers.
EURJPY NEUTRAL Break of 114.74 would put odds in favour of positive tone. Next resistance at 116.68. Support holds at 107.73 ahead of 105.44 key low.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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