By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar continued to weaken in the wake of the FOMC as markets priced in the prospect of a further round of quantitative easing later this year. Lower US yields continued to weigh on USDJPY. EUR and GBP continued top rise vs. the USD as did AUD and NZD. The exception was CAD, which lost some ground to the USD today as a result of a weaker than expected Canadian retail sales result. EURUSD traded 1.3271-1.3441, while USDJPY traded 84.27-85.18. US equity markets closed lower for the second consecutive day following Tuesday’s FOMC announcement.
EUR
The Portuguese bond auction was relatively firm. Bid to cover ratios came in at 4.9x and 3.5x for the 10 year and 4 year bonds respectively, though the yields were both higher. Spread of Ireland and Portugal over bunds had already risen sharply ahead of the auction, clearly showing that even though investors are still willing to fund these economies, the challenges remain immense.
Industrial new orders were much weaker than expected at -2.4%m/m (cons. -1.4%m/m) and +11.2%y/y (cons. 16.2%). Euro-zone consumer confidence for September was unchanged from its August reading at -11. Ahead Thursday, Germany’s PMI for manufacturing and Services are released, as well as Euro-area PMI services and manufacturing. The German Ifo will be released on Friday.
JPY
BoJ Board Member Miyao said that the BoJ would continue to provided ample liquidity but has no preset idea about future policy. Miyao said that an increase in the pace of monthly JGB buying is one option. While the BoJ has traditionally been less then enthusiastic in its assessment of the benefits of past episodes of quantitative easing, intriguingly Miyao said that how the policy is assessed today could differ from how it was assessed in the past. This is the clearest sign yet that further BoJ easing could be on the cards in the near term.
On the back of the falling dollar, PM Kan reiterated Japan’s active plans for intervention in the currency markets, stating that intervention would be unavoidable” if the market pushes JPY stronger. It appears that policymakers have set a clear floor for the currency which will be habitually maintained if and when it is breached.
GBP
BoE minutes fell broadly in line with expectations, showing an 8-1 vote split, with Andrew Sentence again calling for a rate hike. Sentence effectively revealed this information in an interview last night where he stated that the UK should “gradually move interest rates up in a slow way which will not destabalise business confidence”.
CAD
Canada’s retail sales for July came in below expectations, falling 0.1% m/m at the headline and 0.4% m/m for the ex auto figure. This weighed on CAD vs. the USD during the trading session, but was not enough to break the current CADUSD trading range.
TECHNICAL OUTLOOK
EURUSD resistance at 1.3509.
EURUSD NEUTRAL Climb through 1.3334 has scope for 1.3509 and 1.3818 next. Near-term support comes in at 1.3268 ahead of 1.3159.
USDJPY NEUTRAL Pullback from 85.93 targets 84.05 ahead of 82.88.
GBPUSD BULLISH Momentum is positive; move above 1.5729 would expose 1.5999 key high. Support holds at 1.5297 holds.
USDCHF BEARISH Break through 0.9933/18 region reinstates the bearish trend. Next support lies at 0.9786 ahead of 0.9625. Resistance at 0.9983 intraday high.
AUDUSD BULLISH Move above 0.9850 would open up the way towards 1.0211 Fibonacci level. Near-term support is at 0.9442 ahead of 0.9309.
USDCAD NEUTRAL Choppy action holds between 1.0108 and 1.0509.
EURCHF NEUTRAL While resistance is at 1.3391 ahead of 1.3482, support comes in at 1.2991.
EURGBP NEUTRAL Continues to rally towards 0.8609, with scope for 0.8774 next. Support defined at 0.8459 ahead of 0.8390.
EURJPY NEUTRAL Break of 114.74 would put odds in favour of positive tone. Next resistance at 116.68. Support holds at 110.66 ahead of 107.73.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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