By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar started the session significantly weaker before investors pared back positions ahead of Friday’s payrolls report. The ECB and BoE decisions provided no surprises and Fed easing expectations remained a weight on the dollar as EURUSD breached 1.40. But then it sharply dropped back and the dollar made up a lot of lost ground and then some versus most of the G10. Gold set an all-time high around $1365 before settling back to $1334.75 at the time of writing and equities finished flat. EURUSD traded 1.3857-1.4027, USDJPY 82.12-83.03.
Kansas City Fed President Hoenig, the lone FOMC dissenter in 2010, reiterated his opposition to further easing measures as he is concerned on long-term implications of current policy. Dallas Fed President Fisher said investors should not assume the Fed is on the path for further easing and he is doubtful on the effectiveness of additional asset purchases. Fisher will be a FOMC voter in 2011. Comments aside, the upcoming payrolls print will be significant for the Fed outlook. Our analysts expect +100k on private payrolls and -20 on headline with no change in the unemployment rate. If the payroll report comes in broadly in line with consensus, then investors’s pricing in of further Fed easing is unlikely to change dramatically and the dollar will remain under pressure. But a strong positive surprise could boost Treasury yields and benefit the dollar and dollar-bloc currencies, given their correlation with US equities. A negative surprise will further weaken the dollar versus the yen and the Swiss franc via lower Treasury yields.
EUR
ECB President Trichet did not offer any new insights in the press conference following the unchanged policy rate. His comments largely echoed his September remarks and he continued to sound cautious as uncertainty persists. Trichet said improvement in liquidity conditions and Euriobr rates was a sign of normalization, rather than any policy signal, which our economists had anticipated he would say. The only comment Trichet offered on FX was that he opposed excess volatility and disorderly moves. His lack of opinion on current euro levels gave an implicit signal that the ECB is not at the point yet where currency levels are concerning to them.
The IMF’s Strauss-Kahn said that a sluggish European recovery is a concern and their base case does not call for a double-dip in the US.
GBP
The BoE decision was a non-event as expected and investor focus now shifts to the release of the MPC minutes on October 20 to see how the votes panned out. That same day the Chancellor of the Exchequer will provide details of the government spending plans. We remain cautious on sterling ahead of then.
At 0.3% m/m and 6.0% y/y, manufacturing output was better than expected and industrial production was inline with consensus at 0.3% m/m and 4.2% y/y. Our economists note PMI and CBI point to continued growth in manufacturing. Halifax house prices declined more than expected on a monthly basis in September at -3.6%.
CAD
Labour data is due in Canada. The net change in employment is expected to dip to 10.0k from 35.8k and the unemployment rate is forecast to remain at 8.1%. Even though nonfarm payrolls in the US will dictate USDCAD movements, the Canadian data will influence relative value via the non-USD crosses as the disappointing building permits did at -9.2% m/m versus consensus -2.0% m/m.
TECHNICAL OUTLOOK
EURUSD 1.3799 Support.
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 1.6069 would expose 1.6276. Support at 1.5670 ahead of 1.5503.
USDCHF BEARISH Next support below 0.9500 lies at 0.9078. Resistance at 0.9739 ahead of 0.9918 breakout low.
AUDUSD BULLISH Sharp rise through 0.9850 and 0.9905 exposes 1.000 psychological resistance. Support comes in at 0.9773.
USDCAD BEARISH Recovery has resistance at 1.0380. Violation of 1.0108 shifts focus to 0.9931 with scope for 0.9820 next.
EURCHF NEUTRAL Pressure on 1.3482 Fibonacci resistance, with scope for 1.3697 measured objective. Support at 1.3265.
EURGBP BULLISH Pressure on 0.8808 with next resistance at 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 113.89 ahead of 111.47.
Forex Daily Market Commentary provided by GCI Financial Ltd.
GCI Financial Ltd (”GCI”) is a regulated securities and commodities trading firm, specializing in online Foreign Exchange (”Forex”) brokerage. GCI executes billions of dollars per month in foreign exchange transactions alone. In addition to Forex, GCI is a primary market maker in Contracts for Difference (”CFDs”) on shares, indices and futures, and offers one of the fastest growing online CFD trading services. GCI has over 10,000 clients worldwide, including individual traders, institutions, and money managers. GCI provides an advanced, secure, and comprehensive online trading system. Client funds are insured and held in a separate customer account. In addition, GCI Financial Ltd maintains Net Capital in excess of minimum regulatory requirements.
DISCLAIMER: GCI’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be U.S.ed as investment advice. GCI assumes no responsibility or liability from gains or losses incurred by the information herein contained.