By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
FX markets trod water during the Asia session as investors looked to the opening of the Eurozone sovereign debt markets to provide some direction. EURUSD traded 1.3654-1.3751, and USDJPY 82.40-82.78. Speculation continues in the press that a bailout of Ireland could come as soon as this week, although Irish government officials have strenuously denied this, and IMF Managing Director Strauss-Kahn also dismissed the suggestions. The S&P500 finished down -1.2% on Friday, after global equities succumbed to the general risk-off mood. The University of Michigan consumer sentiment index rose to 69.3 in early November (cons. 69.0) from 67.7 in October. Our US economists note that the rise reflected improvement in both current conditions and expectations. Long-term inflation expectations in the survey were unchanged at 2.8% – right in the middle of their longer-term range. The New York Fed began its first purchases of US Treasury securities under the Fed’s latest round of quantitative easing. Purchases worth $7.2 bn were concentrated in the 4-6 year segment of the curve, but yields still managed to rise on the day. Richmond Fed President Lacker said it is “unfair” to claim that the Fed’s decision to return to quantitative easing was designed to weaken the dollar. Today, retail sales and manufacturing data are due.
EUR
Although the spread of Irish and Portuguese sovereign bonds over bunds tightened significantly on Friday, concern over Eurozone sovereign risk continues to be a focal point for financial markets. Several Irish lawmakers, including Prime Minister Cowen and Finance Minister Lenihan, dismissed speculation that a bailout package for Ireland was being prepared. Justice Minister Ahern described the bailout talk as “fiction”. IMF Managing Director Strauss-Kahn said “so far I have not had a request, and I think Ireland can manage well”.
EU, IMF and ECB officials are scheduled to begin a visit to Greece today to assess progress on fiscal matters. If satisfactory, Greece could receive a further €9 bn in cash as part of the bailout plan agreed in May. Greece’s Prime Minister Papandreou said the term over which Greece repays the bailout loan may be extended.
Press speculation suggests that Eurostat could today revise up Greece’s 2009 budget deficit to 15.3%. On Friday, German GDP growth slowed to +0.7% q/q for Q3, broadly in line with consensus, thanks in part to the uncertain global outlook and the stronger euro. However, the recovery remains on a stable footing and the outlook for Europe’s largest economy is far superior to that of its peers. The Eurozone growth reading was also down slightly, falling to +0.4% q/q compared to +1% q/q for the previous quarter.
JPY
GDP for Q3 came in much stronger than expected at +0.9% (cons. 0.6%), and +3.9% y/y (cons. 2.5%). Despite the positive surprise, Economy Minister Kaieda offered a sombre assessment, saying the Q3 GDP expansion was due to a temporary rise in consumption, and that the Japanese economy is still at a standstill. He added that the yen’s rise may weigh on the economy further.
CHF
Our team of analysts is expecting an escalation of sovereign risk concerns within the Eurozone.
TECHNICAL OUTLOOK
EURUSD 1.3235 support.
EURUSD BEARISH Violation of 1.3635 has triggered the negative tone. Next support at 1.3235.
USDJPY BULLISH Recovery through 82.80 exposes 83.99. Only a break above 85.93 would confirm a bull trend. Initial support at 81.66 reaction low.
GBPUSD BULLISH Focus is maintained on 1.6379 ahead of 1.6458. Support holds at 1.5952.
USDCHF BULLISH Break of 1.9972 would expose 1.0183. Support at 0.9463.
AUDUSD NEUTRAL Pullback from 1.0183 has support at 0.9652 ahead of 0.9542 reaction low.
USDCAD BEARISH Stalled in front of 0.9931, push through the level would expose 0.9820 with scope for 0.9712 next. Resistance at 1.0156.
EURCHF BEARISH Violation of 1.3265 has exposed 1.3072. Sustained break of 1.3834 required for resumption of bull trend.
EURGBP BEARISH Momentum is negative; move below 0.8390 would expose 0.8311. Resistance at 0.8638.
EURJPY NEUTRAL 115.68 and 111.05 reaction low mark the key near-term directional triggers.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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