By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
Yesterday was a quiet NY trading session until the FOMC announcement caused a boost to risk seeking sentiment. The September FOMC statement read more dovish than the August statement. While the growth outlook was unchanged, the Fed had a downgrade to its inflation assessment. The FOMC noted that “Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.” The policy guidance sentence was changed a bit to “the Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.” The phrase “prepared to provide additional accommodation if needed” compares to the August statement language of “will employ its tools as necessary to promote economic recovery and price stability”.
EUR
Peripheral spreads tightened, following a successful Irish auction, as limited supply and domestic demand ensured it ran smoothly. The Spanish and Greek auctions were also well received. Portuguese 10y spreads fell around 6 bps, while secondary market buying in the run up to the Irish auction also helped events. The Euro reached a 2-month high versus sterling in the run-up to this, up 0.6% on the day as real-money accounts followed consensus of a solid auction. There now appears to be an emerging pattern of successful peripheral auctions and sell-offs in between.
The ECB announced that €323 mn (prev. €237 mn) in sovereign bond purchases settled last week. ECB activity in the sovereign bond space is clearly trending higher and yet bond spreads of Portugal and Ireland continue to rise steadily.
GBP
Public borrowing figures were released in the UK, sporting record numbers of £15.302bn public sector net borrowing, as higher inflation increased interest payments on index-linked gilts. Even though some of the upward EURGBP movement can be attributed to this, the bond markets were fairly unmoved by the figures, as the yearly borrowing figures seem set to fall broadly in-line.
CHF
Switzerland’s trade balance fell to CHF 0.57bn in August, as real exports declined by 1.4% m/m. However, the annualized figure was impressive at 8.6% y/y, despite the strong CHF. Money supply figures were also released, with M0 falling well below consensus at 17%, while M3 beat estimates, increasing by 6.6%. the result may raise questions about the scale of credit growth in Switzerland and whether the SNB is being too dovish.
AUD
The minutes of the RBA’s September 7 meeting echoed the hawkish sentiments expressed yesterday by RBA Governor Stevens. Our team notes that the key phrase “…higher interest rates would be required, at some point, to ensure that inflation remained consistent with the medium-term target” represents a clear escalation of hawkishness relative to the August meeting minutes. Our economists expect another 25bp hike either at the October or the November meetings, with a greater probability of a move in October.
CAD
Canada’s headline CPI came in lower than expected at -0.1%m/m and 1.7% year-on-year. The core CPI came in on expectations at +0.1%m/m and 1.6% year-on-year. Ahead tomorrow are Canada retail sales for July.
TECHNICAL OUTLOOK
EURGBP resistance at 0.8532.
EURUSD NEUTRAL Model is neutral; 1.3334 and 1.2919 mark the key near-term directional triggers.
USDJPY NEUTRAL Pullback from 85.93 has scope for 84.05.
GBPUSD BULLISH Model is bullish; while support at 1.5297 holds, expect gains to target 1.5729 ahead of 1.5999.
USDCHF BEARISH Focus is on 0.9933/18; move below this range would expose 0.9786. Near-term resistance comes in at 1.0183 ahead of 1.0392.
AUDUSD BULLISH Clearance of 0.9500 exposes 0.0.9563 and then 0.9850. Near-term support is at 0.9309 ahead of 0.9196.
USDCAD NEUTRAL Momentum is slowing; while support holds at 1.0216, resistance comes in at 1.0509 ahead of 1.0673.
EURCHF NEUTRAL Recovery found resistance at 1.3391 ahead of 1.3482 retracement level. Near-term support comes in at 1.2991.
EURGBP NEUTRAL Sustained break of 0.8532 would trigger positive trend. 0.8311 marks the near-term support ahead of 0.8142.
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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