By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
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The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3120 level and was supported around the $1.3035 level. There are multiple themes being focused on by traders today. First, the Federal Open Market Committee’s interest rate decision will be released tomorrow. The Fed is expected to keep monetary policy unchanged following its decision on 10 August to reinvest maturing mortgage debt back into the U.S. Treasury market. Second, many larger institutional investors are predicting U.S. market interest rates will be significatly lower in Q1 2011 with some forecasts calling for a 1.75% U.S. Treasury note yield. Third, there are renewed financial strains in the eurozone. Yields on credit default swaps for some peripheral economies like Ireland and Greece remain elevated. Some dealers are speculating the Irish government will be forced to seek bailout assistance from the International Monetary Fund or the European Union. ECB member Honohan called on the Irish government to reduce its budget deficit at a quicker pace to bolster investor confidence. Fourth, some traders are anticipating the Fed could cut its economic forecast in the short-term. Growth projections may be reduced by the central bank before the end of the year. In anticipation of a more pessimistic Fed outlook, two-year U.S. Treasury yields are near all-time lows. Bundesbank reported Germany’s economic recovery remains intact but added its growth dynamic has slowed “markedly.” European Central Bank member Nowotny said the ECB’s “exit policy is to be discussed only at a later stage.” Nowotny said concerns over sovereign debt “may be overblown.” Former Bundesbank President Poehl said voting rights at the ECB should be weighted by members’ strength. In U.S. news, data to be released today include the September NAHB housing market index and it is expected to tick higher to +14. Tomorrow’s data include August housing starts and August building permits and a marginal increase in activity is anticipated. More housing data will be released on Thursday and Friday along with capital goods orders. Euro bids are cited around the US$ 1.2995 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥85.50 level and was capped around the ¥85.75 level. The Japanese government conducted a major yen-selling intervention last week that traders have estimated as much as ¥1.86 trillion in size. Details about the size of the intervention will be released on 30 September. Finance minister Noda verbally intervened late last week and said Japan needs to explain its exchange rate policy “persistently to other nations.” Notably, the intervention has apparently remained unsterilized in the Japanese money market, signifying Bank of Japan was also utilizing the intervention as de facto monetary easing. The government will maintain pressure on the central bank to expand its monetary policy, most probably by increasing its monthly purchases of Japanese government bonds. Foreign governments including the Obama administration are unlikely to join Japan’s foray into yen-selling intervention. U.S. Congressional officials last week were critical of Japan’s actions, as were European finance and monetary officials. Bank of Korea Governor Kim Choong Soo this weekend reported Japan “cannot resolve the problem of the strong yen alone. Japan will need policy coordination with others, including the U.S. and China. The effect is limited when one country tries to handle the issue by market intervention.” Data to be released in Japan overnight include the July coincident index, July leading index, and August machine tool orders. Japanese financial markets will reopen tonight. The Nikkei 225 stock index gained 1.23% on Friday to close at ¥9,626.09. U.S. dollar bids are cited around the ¥84.60 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥112.35 level and was supported around the ¥111.70 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥133.35 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥85.40 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.7141 in the over-the-counter market down from CNY 6.7250. People’s Bank of China official Li Daokui called on China to increase domestic consumption. He added “Pressure for yuan appreciation is just starting and far from ending. China faces challenges including the housing price surge that’s impeding progress in urbanization.” A central bank survey reported more Chinese households expect increasing inflation.
£
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5570 level and was capped around the US$ 1.5685 level. Bank of England released its quarterly bulletin today and reported the pound’s appreciation may reflect improved confidence in the outlook for U.K. public finances. Monetary Policy Committee member Dale reported “doubts remain about the durability and speed of the global economic recovery going forward.” BoE Governor King spoke last week and acknowledged the bank made mistakes that led to the financial crisis, adding the economic recovery “will not be straight.” Monetary Policy Committee member Posen last week reported the central bank’s secondary plan should be private asset purchases. Data released in the U.K. tonight saw September Rightmove house prices off 1.1% m/m and up 2.6% y/y. Also, August mortgage approvals ticked lower to 45,000 and the August M4 money supply was off 0.2% m/m and up 1.8% y/y. Cable bids are cited around the US$ 1.5320 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8410 level and was supported around the £0.8330 level.
CHF
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0030 level and was capped around the CHF 1.0120 level. The KOF Institute released its September economic forecast today in which it suggested the Swiss economy will expand faster-than-expected in 2010 on account of surging export growth. KOF now sees 2010 economic growth around 2.7% and around 1.8% in 2011. Data to be released tomorrow in Switzerland include the August trade balance and August M3 money supply. Last week, Swiss National Bank kept its three-month franc Libor target rate unchanged at 0.25%. SNB Chairman Hildebrand reported the economy is expected to “slow” in the second half of the year. As expected, the Swiss government last week raised its economic growth forecast for this year and now sees GDP growth of 2.7% in 2010, up from the previous forecast of 1.8% from June. The government also sees 2011 GDP growth of 1.2%, down from the previous forecast of 1.6%. U.S. dollar offers are cited around the CHF 1.0290 level. The euro depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.3135 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.5640 level.
Technical Outlook at 1230 GMT (EDT + 0400)
(Bid Price) (Today’s Intraday Range)
EUR/ USD 1.3097 1.3120, 1.3033
USD/ JPY 85.60 85.76, 85.50
GBP/ USD 1.5599 1.5684, 1.5572
USD/ CHF 1.0044 1.0118, 1.0028
AUD/USD 0.9452 0.9468, 0.9360
USD/CAD 1.0300 1.0345, 1.0289
NZD/USD 0.7297 0.7310, 0.7250
EUR/ JPY 112.16 112.34, 111.72
EUR/ GBP 0.8395 0.8409, 0.8330
GBP/ JPY 133.54 134.43, 133.35
CHF/ JPY 85.22 85.38, 84.66
Support Resistance Support Resistance
EUR/ USD USD/ JPY
L1. 1.2925 1.3225 84.35 86.70
L2. 1.2780 1.3505 81.80 87.90
L3. 1.2575 1.3890 77.20 89.45
GBP/ USD USD/ CHF
L1. 1.5465 1.5865 0.9880 1.0345
L2. 1.5230 1.6040 0.9760 1.0600
L3. 1.5010 1.6210 0.9620 1.0820
AUD/ USD USD/ CAD
L1. 0.9135 0.9460 1.0155 1.0585
L2. 0.8970 0.9555 1.0005 1.0810
L3. 0.8645 0.9675 0.9735 1.1060
NZD/ USD EUR/ JPY
L1. 0.6910 0.7220 103.40 108.90
L2. 0.6590 0.7445 101.15 113.25
L3. 0.6265 0.7585 99.90 118.05
EUR/ GBP EUR/ CHF
L1. 0.7870 0.8320 1.2845 1.3330
L2. 0.7785 0.8535 1.2650 1.3615
L3. 0.7415 0.8745 1.2430 1.3985
GBP/ JPY CHF/ JPY
L1. 132.34 136.70 82.20 86.20
L2. 129.80 138.40 80.35 90.05
L3. 126.70 141.30 78.35 93.60
Forex Daily Market Commentary provided by GCI Financial Ltd.
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