By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar found a foothold during the Asia session but was unable to recover ground lost during yesterday’s selloff. Asian equities followed their US counterparts higher, with the Nikkei-225 up +1.5% at the time of writing. The S&P500 had earlier closed up 2.1%. Gold made a new record high of $1350/oz, as investors continue to fret over the possibility of a synchronised return to quantitative easing by the world’s largest economies. EURUSD traded 1.3823-1.3859, USDJPY 83.07-83.30. A positive data release was not enough to deter thoughts of more Fed action overnight and instead kept risk-seeking intact. The non-manufacturing ISM increased more than expected to 53.2 in September and our analysts’ all-economy ISM index, which combines the manufacturing and non-manufacturing indexes, also rose in September to 53.4, a level that is historically consistent with real GDP growth of around 2.5%. The level is also consistent with the upside risks that our economists have been emphasizing to their forecast for Q3 real GDP growth (1.5% est). A Wall Street Journal interview with Chicago Fed President Evans, a 2011 FOMC voter, stoked investor expectations of more Fed action as he said the Fed needs to do much more to aid the economy. There are no major releases due from the US today. Expectations will now likely build as the Q3 earnings season gets underway tomorrow, and the payrolls report on Friday comes into view.
EUR
Services PMI improved to 54.1 and the latest data, in general, suggest that domestic demand is improving. However, both the “incoming business” and “employment” component fell, suggesting the outlook remains uncertain. Final Q2 GDP is expected to be confirmed at 1.0% q/q but with an uncertain outlook, ECB officials will need to exercise more caution as momentum potentially slows.
ECB President Trichet said that China’s declaration of its confidence with respect to Eurozone debt is appreciated. However, he also said Chinese authorities do not share Europe’s view on the need for a faster yuan appreciation. Elsewhere, Eurogroup Chairman Juncker said the yuan remains undervalued and that more FX flexibility is in the interest of China. Currency imbalances will remain a major topic in the weeks to come.
JPY
After yesterday’s policy surprise from the BoJ there were no market-moving developments during the Asia session. USDJPY remains close to its 15-year lows after initially rising on the back of yesterday’s policy decision. The yen’s intraday recovery probably has less to do with a sense that the BoJ did not ease enough, and more to do with growing expectations that the Fed will follow suit.
GBP
At 52.8 (cons. 51.0, prev. 51.3) Services PMI for September was above expectations. As such business activity has improved. However, according to our economists the outlook remains uncertain, especially as the “new orders” component fell to the lowest level in a year. As such the BoE will likely keep a cautious stance on monetary policy.
CAD
BoC Senior Deputy Governor Macklem said that the current policy rate at 1% ensures that financial conditions remain expansionary, a setting he described as appropriate. However, he indirectly raised the possibility of further accommodation, noting that the BoC’s move away from its emergency policy stance provides some flexibility if the Fed eases further. He also said the BoC becomes concerned about the CAD if it turns volatile, but would only intervene in exceptional circumstances.
TECHNICAL OUTLOOK
EURUSD targets 1.3896.
EURUSD BULLISH Momentum is positive; the pair targets 1.3896 with scope for 1.4194 next. Near-term support holds at 1.3637 ahead of 1.3381.
USDJPY BEARISH Look for a break below 82.88 for extension of bearish trend towards 79.75. Resistance remains at 83.99 ahead of 85.40.
GBPUSD BULLISH Move above 1.5999 and 1.6069 would expose 1.6276. Support at 1.5670 ahead of 1.5503.
USDCHF BEARISH Clearance of 0.9709 exposes 0.9590 and 0.9500 next. Resistance at 0.9918 breakout low.
AUDUSD BULLISH Upside potential held at 0.9751, clearance of the level would expose 0.9850. Initial support defined at 0.9542, yesterday’s low.
USDCAD BEARISH Focus is on downside; initial support lies at 1.0108 ahead of 0.9931. Resistance comes in at 1.0380.
EURCHF BULLISH Violation of 1.3467 would pave the way for a move towards 1.3651 ahead of 1.3924 key resistance. Support at 1.3265 ahead of 1.3165.
EURGBP BULLISH Next resistance above 0.8738 lies at 0.8808. Support holds at 0.8563 ahead of 0.8510.
EURJPY BULLISH Expect gains to extend towards 116.68 and 119.33 next. Near-term support comes in at 112.98 ahead of 115.53.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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