By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar stabilized during the Asia session, after higher US Treasury yields earlier sparked a wave of dollar buying. EURUSD traded 1.3736-1.3864, USDJPY 81.08-81.97. Asian equities were mixed after the S&P 500 closed down -0.8%. US wholesale inventories rose +1.5% in September against expectations of +0.7% m/m. Our US economists note that the September print and the upward revision to August (+1.2% instead of +0.8%) imply an upward revision to Q3 real GDP growth of about +0.2 percentage points, which would take Q3 real GDP growth to a +2.2% annual rate. With the dollar so sensitive to US yields, tonight’s 30-year Treasury auction will be watched with great interest.
The NY Fed is also due to release the schedule for Treasury purchases that are to be carried out under the Fed’s new round of quantitative easing, and the Treasury curve is likely to be very sensitive to any surprises. Initial jobless claims, are also due for release a day early due to the US holiday on Thursday. A faster than expected decline in claims would also likely be dollar-supportive, especially after the strong payrolls report on Friday.
EUR
Our team expect Ireland-related stress to continue at least until the budget address in December and perhaps beyond as political instability remains. EU Commissioner Rehn said the Irish budget plan should have a real effect on markets and that the market has not yet assessed it.
Portuguese credit spreads widened to record euro-lifetime highs overnight as debt concerns spread to other areas in the periphery and put further downward pressure on the euro. A slight snapback did occur when a Greek auction passed successfully, but the overriding concern is over peripheral credit spread widening in the Eurozone.
Final figures for German CPI were released for October, falling in line with consensus at +1.3% y/y.
GBP
The BoE’s quarterly Inflation Report is due to be released. Our UK economist expects to see a relatively optimistic outlook for GDP growth, as was also communicated in previous reports. However, this time he expects the MPC to be more open to the view that there is something more pernicious about inflation. As a result, we would not be surprised if the central projection for CPI inflation is raised, and the overall tone may be less dovish than it was three months ago.
AUD
Consumer confidence fell -5.3% m/m in November, a decline our Australian economists attribute to the surprise RBA hike. Meanwhile, home loans rose +1.3% in September, ahead of the +1.0% consensus estimate. Our economists expect the RBA to hike again in March.
TECHNICAL OUTLOOK
USDCAD pressure on 0.9981.
EURUSD NEUTRAL Large trading band between 1.3698 and 1.4282 has big-picture technicals in a neutral state.
USDJPY BEARISH Stalled above 79.75; little support below this till 77.91. Resistance at 81.99.
GBPUSD BULLISH As long as support at 1.5651 holds, focus on 1.6379.
USDCHF BEARISH Focus is on 0.9463; a break here would trigger another bearish run towards 0.9225. Upside capped at 0.9972.
AUDUSD BULLISH Upside pressure found resistance at 1.0183 ahead of 1.0222. Little resistance beyond that till 1.1084. Support at 0.9891 ahead of 0.9542 reaction low.
USDCAD BEARISH Bearish pressure pressures 0.9981; a sustained break here would expose 0.9820 next. Resistance at 1.0156.
EURCHF NEUTRAL Pullback from 1.3834 eyes 1.3265; next support below that lies at 1.3072. Initial resistance at 1.3452.
EURGBP BEARISH Next support below 0.8542 lies at 0.8463. Resistance at 0.8692 ahead of 0.8818.
EURJPY NEUTRAL Pressure on 111.53; only a break below 105.44 would confirm the resumption of bear trend. Resistance at 115.68.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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