By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
Dollar performance was somewhat mixed during the Asia session. Modest gains were made against the euro, but the yen continued to strengthen with USDJPY breaking below the Sept 15 pre-intervention low to new 15-year lows without a response from the BoJ. The AUD stole the show after a stellar employment report that sent AUDUSD much higher until it bounced off the July 2008 high. Friday’s payrolls report is already coming into focus after a disappointing ADP data print encouraged investors to continue to price in easing expectations. Gold made another new high at $1355.85/oz. EURUSD traded 1.3898-1.3940, USDJPY 82.82-83.07. The ADP estimate of private payrolls was -39k versus consensus +20k and the report suggests some downside risk to September payrolls. However, ADP has recently been running much lower than the official Bureau of Labor Statistics (BLS) estimates and our economists do not see a particularly precise signal of the monthly change in the official BLS data on private payrolls. They maintain their forecast of +100k for private payrolls and -20k for overall payrolls, which will be depressed by government layoffs (mainly temporary Census workers). Upcoming releases include initial jobless claims and Fed presidents Hoenig and Fisher speak.
EUR
Positive German data and Fed QE fears helped the euro despite new warning signs for sovereigns. The European Commission cautioned that 2006-09 Greek debt and deficit figures might be revised upwards. Eurostat had already made this clear months ago, but yesterday’s timely reminder seemed to catch the market off guard.
Fitch downgraded Ireland’s credit rating to A+, the lowest among the three major agencies. Fitch has Ireland on a negative outlook due to economic and political concerns and it cited “exceptional” costs of the government bank aid as part of the move.
We are with consensus in expecting the ECB rate decision to be a non-event. We do not expect surprises during the press conference. The tone could continue to change slightly from dovish towards neutral, but would still be far too small to suggest any monetary policy change soon. It will be interesting if ECB President Trichet comments on euro levels. He has not said much on it but EURUSD was 1.2825 at the last ECB meeting
JPY
USDJPY hit 82.76 during the US session, breaching the pre-intervention Sept 15 low. But there was no sign of any official action. Prime Minister Kan says Japan will take decisive steps on FX as needed, and that he wants to cooperate appropriately with the G7 on FX. Then, intriguingly, Vice Finance Minister Igarashi said Japan will not join a “currency devaluation race” but could conduct “smoothing operations”. This comment does suggest a change in strategy could be in the offing, especially given the approach of Friday’s G7 meeting.
The IMF said the euro and yen were in line with medium-term fundamentals in its World Economic Outlook.
GBP
We expect the BoE decision to be a non-event, as policy should be unchanged. But the prospect of further QE has certainly reopened with increasing commentary by both Fed and BoE officials. Our UK economist notes the MPC is now almost certain to be split three ways at this meeting but that split will only be known two weeks later when the minutes are published on Oct 20, the same day the Chancellor sets forth the government spending plans. We are cautious on sterling in the medium-term as we think fiscal austerity will keep BoE policy accommodative.
CAD
The Ivey PMI surprisingly increased in September to 70.3, the highest since 2006. The gain was unexpected as officials had cautioned that the Canadian recovery might be tempered over the remainder of the year. USDCAD pushed down to a session low of 1.0063, according to Bloomberg, before coming back to the 1.01 area, as QE fears in the US and the accompanying risk-seeking sentiment seem to have renewed investor interest in the CAD.
AUD
The AUD climbed quickly after yet another stellar employment report. The headline employment figure for September was very strong, rising by +49.5k (cons. +20k). The August figure was also revised up slightly to +31.6k from +30.9k. However, our Australian economics team notes the leading indicators of jobs have peaked, which points to a moderation in jobs growth ahead. Nevertheless they continue to expect a +25bp hike to the cash rate in November.
TECHNICAL OUTLOOK
EURUSD next resistance at 1.4194.
EURUSD BULLISH Break of 1.3896 favours the extension of bull trend towards 1.4194. Near-term support holds at 1.3799 ahead of 1.3637.
USDJPY BEARISH Bearish trend remains intact; break of 82.88 exposes 79.75. Resistance remains at 83.99 ahead of 85.40.
GBPUSD BULLISH Sustained break of 1.5999 and 1.6069 would expose 1.6276. Support at 1.5670 ahead of 1.5503.
USDCHF BEARISH Pressure on 0.9590 with scope for 0.9500 next. Resistance at 0.9739 ahead of 0.9918 breakout low.
AUDUSD BULLISH Recovery today pressures 0.9850 key resistance; break of the level would expose 0.9905. Initial support defined at 0.9694 ahead of 0.9542.
USDCAD BEARISH Move below 1.0108 opens up the way towards 0.9931 with scope for 0.9820 next. Resistance comes in at 1.0167 ahead of 1.0380.
EURCHF NEUTRAL Motion is sideways; while resistance is at 1.3467, support is defined at 1.3265 ahead of 1.3165.
EURGBP BULLISH After breaching 0.8738 upside potential targets 0.8808 ahead of 0.8894. Support holds at 0.8689 ahead of 0.8563.
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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