By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar managed to stage a mild recovery during the Asia session as economic data in Australia, New Zealand and Japan took a turn for the worse. EURUSD traded 1.3593-1.3647, USDJPY 83.48-83.82. Nevertheless, the potential for a further round of Fed quantitative easing remains a dominant influence on price action. San Francisco Fed President Yellen and nominee Ruskin were confirmed by the Senate, and will now be able to take their places on the Fed’s Board of Governors. Several Fed officials also spoke. Boston Fed President Rosengren, a 2010 FOMC voter, said the Fed should vigorously and creatively use policy options to combat a slow recovery and “undesirably low” inflation. But he also warned that benefits of unconventional policies are harder to track and more easing should depend on incoming data. Minneapolis Fed President Kocherlakota was slightly more middle-of-the road as he envisions “muted” effects from further asset purchases on Treasury yields. He remained open-minded on which tool the Fed could use next but said the US needs to get its fiscal side in order in the longer run. And Philadelphia Fed President Plosser worried about the downside effects of further easing though he would back it if deflationary expectations emerge, which he does not expect. Kocherlakota and Plosser are voting members in 2011.
The varying opinions suggest the FOMC will wait and watch data for now. But officials do seem more in agreement on labour market concerns and on the need for more fiscal moves. The second revision of Q2 GDP is due along with jobless claims and Chicago PMI. Fed Chairman Bernanke testifies on regulatory reforms.
EUR
Our analysts believe the French 2011 Financial Bill represents the first step on a long journey but they note that the proposed deficit is still far from sustainable. Sovereign deficits continue to weigh on investor sentiment and EU Commission President Barroso said Portugal needs to show it is serious about tackling its deficit issues.
The Irish central bank announced that the domestic banking system will required further government-sponsored capital injections. The Irish Finance Minister said that holders of subordinated debt of a nationalized bank would be expected to make a significant contribution to the bailout.
JPY
Key August economic data was weak with retail sales softer than expected, rising only +1.4% m/m (cons. +1.9%, prev. +0.7%). Industrial production rose by +15.4% y/y, considerably short of expectations of +16.9% y/y. The yen weakened very slightly on the numbers, demonstrating that US yields continue to be the principal driver in the pair.
CAD
Canadian Finance Minister Flaherty said the economy is on track for the year even if the upcoming July GDP print may turn out to be negative, which is in line with consensus expectations. But at this stage, the US recovery is a larger driver and has kept the CAD under pressure versus the rest of the G10. Even if the Canadian recovery remains on track, the BoC policy rate outlook could be tempered given the Fed’s potential to ease further.
AUD
The Australian Dollar came under mild selling pressure after some weak economic data. Building approvals fell -4.7% m/m (cons 0.0%, prev. 0.1%) and the annualized figure rose by less than expected at +4.4% y/y (cons. +10.8%, prev. +11.1%). Private lending growth also disappointed coming in at +0.1% m/m (cons. +0.3%, prev. +0.3%). Our analysts team believes that this is further evidence of weakness in forward-looking indicators of housing activity. They continue to expect the RBA to start the next phase of the hiking cycle this year, most likely October, but it could be November.
TECHNICAL OUTLOOK
USDCHF next support at 0.9625.
EURUSD BULLISH The gains are expected to move towards 1.3692 and 1.3896 next. Near-term support comes in at 1.3381 ahead of 1.3287.
USDJPY BEARISH The break of 84.05 brings our focus back on the downside at 82.88. Resistance remains at 84.50 ahead of 85.40.
GBPUSD BULLISH Bullish pressure held at 1.5895 ahead of 1.5999 key high; scope for 1.6253 next. Support is defined at 1.5719 ahead of 1.5503.
USDCHF BEARISH Next support below 0.9625 lies at 0.9500 psychological level. Resistance at 0.9918 breakout low.
AUDUSD BULLISH Upside potential is expected to target 0.9850 with scope for 1.000 psychological resistance next. Support is at 0.9559 ahead of 0.9463.
USDCAD NEUTRAL 1.0509 and 1.0108 mark the near-term directional triggers.
EURCHF NEUTRAL Trading in a choppy manner within 1.3391 and 1.2991 range.
EURGBP BULLISH Break through 0.8606/0.8609 resistance area exposes 0.8736 ahead of 0.8808.
EURJPY BULLISH Momentum is positive; clearance of 114.74 would expose 116.68 and 119.33. Near-term support comes in at112.67 ahead of 110.66.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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