By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
Yesterday was a quiet NY trading session. The EURUSD continued to experience downward pressure from both disappointing data and sovereign risk concerns. The Euro Area PMIs came in weaker than expected today. In addition, Q2 Ireland GDP was disappointing, driving the 10 year government bond yield spread between Ireland and Germany wider. Thus, the markets moved into slightly risk-averse territory. On the US data front, initial jobless claims bounced up to 465k from 450k for their latest weekly read. August existing home sales came in very close to the consensus estimate at 7.6% m/m and, as a result, did not prompt much of a USD reaction. Headlines reported that President Obama stressed to China’s Premier Wen the “need for China to do more” on the currency issue. Ahead today, President Obama will meet with Prime Minister Kan. USDJPY traded 84.26-84.67. EURUSD traded in a range 1.3303-1.3413. The S&P 500 finished down 0.83% and the DJIA was down 0.72%.
EUR
Mixed news from Ireland as two T-Bill auctions came in with strong demand, while GDP data was disappointing. Bid-Cover ratios on the Feb 2011 and April 2011 auctions were 4.08 and 11.7, respectively. This again follows the trend of bond and CDS spread widening in between auctions, while the auctions themselves show relatively strong demand. The Irish 10y-Bund spread reached an historical high overnight, widening 21 bps on the back of comments from the Director of Ireland’s National Asset Management Agency that the subordinated debt of a prominent Irish commercial lender lacked guarantees.
Ireland Q2 GDP figures were well below consensus of +0.5%, registering a quarterly decline of (-)1.2% and casting further doubt on Irish policymakers. Q1 growth was revised down on the back of this from 2.7% to 2.2%. Portuguese spreads followed Irish spread movements, also posting record highs of 400 bps.
The PMIs for the Euro Area came in under expectations. The September PMI composite came in at 53.8 vs. expectations of 55.7 and down from 56.2 in August. Euro Area PMI in the manufacturing sector came in at 53.6 after 55.1 previously — a significant decline. Euro Area PMI in the service sector came in at 53.6 after 55.9. Again, the result was lower than expected and a significant decline. Ahead Friday is the German Ifo.
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JPY
USDJPY suddenly spiked 80 pips at 04:15 GMT. Vice Finance Minister for International Affairs Tamaki said he had no comment on whether Japan had intervened. Finance Minister Noda also declined to comment. Earlier, Japan Prime Minister Kan met with US President Obama. Although no official announcement was made after the meeting, that in itself was significant. Clearly, we have yet to hear any official condemnation of Japanese intervention from the fiscal or monetary authorities in the US, silence which could be interpreted as an implicit green light for further intervention.
TECHNICAL OUTLOOK
USDJPY rebounds towards 85.93.
EURUSD NEUTRAL There is scope for move towards 1.3509 and 1.3818 next. Near-term support comes in at 1.3268 ahead of 1.3159.
USDJPY NEUTRAL The pair rebounds towards 85.93 with scope for 86.70 next. Support holds at 84.05 ahead of 82.88.
GBPUSD BULLISH Following the break of 1.5729, expect gains to extend towards 1.5999 key high. Support is defined at 1.5503 ahead of 1.5297.
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 Bounce-off from 0.8771 found resistance at 0.9600, psychological level, ahead of 0.9850 key high. Near-term support is at 0.9442 ahead of 0.9309.
USDCAD NEUTRAL Choppy action holds between 1.0108 and 1.0509.
EURCHF NEUTRAL 1.3391 and 1.2991 mark the key near-term directional triggers.
EURGBP NEUTRAL Upside potential held below 0.8609 ahead of 0.8774. Support defined at 0.8463 ahead of 0.8390.
EURJPY NEUTRAL Eyes 114.74 with scope for 116.68 next. Support holds at 110.66 ahead of 107.73.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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