By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
A better than expected US payrolls report along with renewed concerns about Ireland weighed on the euro and kept the greenback supported in Asia. EURUSD traded 1.3919-1.4085 and USDJPY traded 81.14-81.44. Friday’s headline October payrolls reading rose by +151k (cons. +60k), and private payrolls expanded by +159k (cons. +80k). The average work-week lengthened to 34.3 hours, and average hourly earnings rose by +0.2% m/m. The unemployment rate was steady at 9.6%. In a rare reference to the dollar, Bernanke said that “we’re certainly aware that the dollar does play a special role in the global economy”, and that “the best fundamentals for the dollar” will occur when the US economy is growing strongly. Treasury Secretary Geithner reaffirmed that a strong dollar is in the interests of the US, and that the US will never use its currency to gain competitive advantage. He said the flow of capital into emerging markets is fundamentally positive as it shows confidence in their growth prospects.
EUR
Initial official estimates showed Greek Prime Minister Papandreou’s ruling party ahead in local elections. As such Papandreou ruled out a snap early election, which he had threatened to call should the majority of the population not stand behind his party. After the majority seems confirmed Papandreou said that “making changes is not easy. Greek people brought us to power a year ago and today confirmed that they want this change. We will continue with our task tomorrow”.
Rising credit spreads on Irish debt have started to weigh on the euro. EU commissioner Rehn arrives in Ireland today to evaluate the country’s budget plan. The Irish government presented a plan which intends to introduce austerity measures totaling EUR6 bn.
German industrial production for September is the only notable release due today. EU Commissioner Rehn will hold a press conference together with Irish Finance Minister Lenihan.
GBP
On Friday, Producer price inflation in the UK for October was higher than anticipated as input prices rose by +2.1% m/m and +8% y/y compared to expectations of +0.8% and +7.2%. This provides further evidence that there are underlying price pressures in the UK economy, although for the moment it appears that they are being internalized by firms as relatively weak demand means price hikes are not yet being passed on to consumers.
JPY
BoJ Deputy Governor Yamaguchi said the central bank will start buying government bonds under its outlined asset purchase scheme today. He added that downside risks to the economy need to be watched carefully and that the central bank is ready to act flexibly should the economy weaken further.
Prime Minister Kan invoked the recent G20 statement to justify Japan’s Sept 15 intervention. He said the G20 agreed that rapid currency moves are not desirable and “that is why we intervened in the market once”. He added that “if we face a rapid surge in the yen again, such a step may become necessary”.
AUD
Prime Minister Gillard said that the strong AUD would reduce government revenue in general, and that it would especially affect revenue anticipated to flow from the proposed mining tax. Our Australia economics team still expects another 50bp of RBA tightening in H1 2011.
TECHNICAL OUTLOOK
EURJPY pressure on 115.68
EURUSD BULLISH Next resistance above 1.4373 lies at 1.4579. Support is at 1.3992.
USDJPY BEARISH Little support below 79.75 till 77.91. Resistance at 81.99
GBPUSD BULLISH Upside potential targets 1.6379 with scope for 1.6458 next. Support comes in at 1.6080.
USDCHF BEARISH Break below 0.9463 would open up the way towards 0.9225. Upside capped at 0.9972
AUDUSD BULLISH There is little resistance above 1.0222 till 1.1084. Support at 0.9891 ahead of 0.9542 reaction low.
USDCAD BEARISH Outlook is bearish; the pair eyes 0.9981 ahead of 0.9820. Resistance at 1.0156.
EURCHF BULLISH Resistance is at 1.3834 and support is at 1.3435
EURGBP NEUTRAL 0.8942 and 0.8652 mark the near-term directional triggers.
EURJPY BULLISH Upside pressure on 115.68; scope for 116.68 and 119.33 next. Support comes in at 112.83.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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