By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar weakened slightly during the Asia session, thanks largely to a surprise policy rate hike from the RBA. EURUSD traded 1.3874-1.3937, USDJPY 80.47-80.76. AUDUSD reached 0.9995, and looks poised for a second run to parity. However, Asian equities failed to make significant headway after US equities closed flat, suggesting investors are largely unwilling to put on fresh risk-seeking positions ahead of this week’s events. Even though investors are mostly focused on the FOMC and labour data later in the week, US manufacturing data lent some support to our economists’ forecast that real growth should pick up to +2.5% in Q4 vs. +2% in Q3, and that the FOMC announces only “QE2-lite” on Wednesday. The manufacturing ISM index jumped above expectations to 56.9 in October from 54.4 in September. Meanwhile, personal income, spending and price data for September were largely as expected. Of note, private wages and salaries managed to increase again in September which is a contributing factor to stronger growth. The US mid-term elections are due today and press reports suggest the Republicans will make strong gains in both the House of Representatives and the Senate, which could be dollar-supportive in the near term should investors expect less fiscal spending as a result.
EUR
For the third week in a row, no bond purchases settled last week under the ECB’s sovereign bond buying program. However, sovereign yields for peripheral issuers are still widening, and Irish 10y yields breached 7% again yesterday, suggesting the ECB may need to reactivate the program in the near future.
Recent sovereign risk concerns have been prompted largely by worries over budget negotiations in Portugal and Ireland. Friday’s decision by the EU Council to force bondholders to share the costs of future sovereign bailouts may have also been a contributing factor.
Final Eurozone and German PMI Manufacturing for October are expected to remain largely unchanged.
JPY
Economics Minister Kaieda said the government should intervene if FX market movements are abrupt, and he warned that the government may not be able to implement part of its stimulus plan until next year as it may be hard to pass the supplementary budget by December.
Kaeida went on to say that he is closely watching the outcome of the FOMC meeting, but that BoJ will make its own decision on monetary policy.
Finance Minister Noda said that FX moves in recent days were one-sided and that he stands ready to take decisive action if needed.
GBP
The PMI for the manufacturing sector rose to 54.9 in October, while a small decrease to 53.0 had been expected. The PMI for the service sector will be published on Wednesday. Contrary to the majority we expect to see a slight rise to 53.0. This would be further confirmation that the British economy is recovering. That means that at the central bank meeting on Thursday the Bank of England will not decide on any further measure of monetary policy easing. But it is still too early to sound the all clear. Even if the most recent publications suggest that an extension of the expansionary monetary policy is unlikely short term we will have to wait and see what effects the government’s budget consolidation measures will have. Should the UK publications disappoint over the coming weeks concerns about additional measures of quantitative easing on the part of the BoE will easily re-emerge. Moreover the BoE’s rhetoric is unlikely to change. Recently its members had increasingly referred to uncertainties regarding the economic outlook. As a result Sterling remains vulnerable to set-backs.
TECHNICAL OUTLOOK
EURUSD BULLISH Look for a break above 1.4159, which would trigger another bullish run towards 1.4373. Support holds at 1.3698
USDJPY BEARISH Outlook is bearish; next big support below 79.75 lies at 77.91. Resistance at 81.41, Monday’s high.
GBPUSD BULLISH Clearance of 1.6107 would expose 1.6276 and 1.6458 next. Support comes in at 1.5878 ahead of 1.5606
USDCHF BEARISH Bounce-off from 0.9463 pushed through resistance at 0.9929 thus exposing 1.0183. Near-term support at 0.9703.
AUDUSD BULLISH Positive momentum pressures 1.0004; a break here would expose 1.0222 measured target. Support at 0.9866 intraday low ahead of 0.9542 reaction low.
USDCAD BEARISH Clearance of 1.0154 puts odds in favor of extension of losses towards 0.9981. Upside capped at 1.0380
EURCHF BULLISH Targets 1.3924 with scope for 1.4041 next. Near-term support at 1.3540
EURGBP BULLISH While support at 0.8636 holds, view pullback as correction. Resistance at 0.8772
EURJPY BULLISH Only a break below 110.66 would hurt the positive tone. Resistance at 113.78 ahead of 115.68
Forex Daily Market Commentary provided by GCI Financial Ltd.
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