By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar’s rebound paused during the Asia session as holiday conditions prevailed across much of Southeast Asia and the Middle East. EURUSD traded 1.3448-1.3516, and USDJPY 83.24-83.59. Asian equities were generally weaker after the S&P 500 fell -1.6%. Fed speakers continued to defend the recent FOMC decision with Atlanta Fed President Lockhart saying it was not designed to engineer a depreciation of the dollar. Opinions were also offered on whether the target of $600 bn would be reached or even exceeded. Chicago Fed President Evans said that the figure of $600 bn was “a good place to start” and Boston Fed President Rosengren said that he expects the $600 bn target to be reached. Both said bond purchases could be extended further, if the economic conditions called for it. However, St. Louis Fed President Bullard was less sure. He said he was not in favour of setting the $600bn goal in the first place as “there is no sense in prejudging” how much the Fed will ultimately purchase. He added that a premature end to the bond buying program is a “possibility” but that “the economy would have to improve a fair amount” for this to happen. Ahead, US October CPI is due for release.
EUR
Ireland’s Prime Minister Cowen said that the government has not asked for a sovereign bailout, but conceded that “we are prepared to work with our counterparts in the euro area to see in what way we can&normalise market conditions”. Cowen added that Ireland was pre-funded until mid-2011 and said the 4-year plan for deficit reduction would be released next week. Finance Minister Lenihan later said that “any assistance in relation to resolving the problem of the Irish banking system will be most welcome”, although he added that financial assistance is not inevitable.
While Ireland has not asked for aid, consultations with the IMF, the ECB, and the European Commission are due to begin later this week. EU Commissioner Rehn said that these talks can be regarded as preparation for a potential aid program for Ireland, should it be necessary.
Separately, the Eurogroup’s Junker said the Eurogroup would support Ireland if it asked for aid. He also welcomed Portugal’s commitment to cut the budget deficit to 4.5% of GDP and called on Greece to be more specific regarding its 2011 austerity measures.
JPY
Japan’s Finance Minister Noda brought back intervention speculation when he reiterated his commitment to take decisive steps on forex including intervention when necessary. He also said September’s intervention was driven by the need to control excessive currency flows, and was therefore not the start of a policy of competitive devaluation.
GBP
UK consumer price inflation slightly surprised to the upside, and BoE Governor King wrote another letter to Chancellor Osborne to explain. In line with the recent change in forecast, CPI increased to 3.2% y/y and seems set to stay in excess of 3% through Q1. In his letter, King said the rise in inflation has been driven by temporary factors such as the VAT rate hike, but the general trend should fall back in line with target in the medium term, as the effects of fiscal austerity feed through. Speaking later in the day, King said that the BoE could do further QE if it wanted to.
The minutes are due today from the BoE’s Nov. 4 policy meeting, where no change was made to policy. At the October meeting, MPC member Posen voted for ?50 bn in fresh QE, while MPC member Sentance wanted a rate hike. Sterling is likely to be highly sensitive to any change in the voting arithmetic.
AUD
The Q3 wage price index rose by +1.1% q/q, the fastest pace in almost 2 years. Our Australian economists note that the annualized rate of growth in skilled vacancies moderated somewhat, signaling a slower pace of jobs growth ahead. Our economists conclude that today’s data is consistent with the RBA’s central case, meaning that higher interest rates will likely be needed next year.
TECHNICAL OUTLOOK
AUDUSD eyes 0.9652 support
EURUSD BEARISH Breach of 1.3574 has exposed 1.3363. Resistance at 1.3777 ahead of 1.4282
USDJPY BULLISH Focus on 83.99, only a break above 85.93 would confirm a bull trend. Initial support at 82.40 ahead of 81.66 reaction low
GBPUSD NEUTRAL Resistance at 1.6379 but support at 1.5804 is in view.
USDCHF BULLISH Rise above 0.9972 has exposed 1.0183. Near-term support at 0.9829
AUDUSD BEARISH Pullback from 1.0183 eyes 0.9652; next support at 0.9542 reaction low
USDCAD NEUTRAL Break of 1.0380 would put odds in favor of bull trend. Downside risks no more than 0.9931
EURCHF BEARISH Push through 1.3229 and 1.3072 would expose 1.2766. Sustained break of 1.3834 required for resumption of bull trend.
EURGBP BEARISH Sell-off from 0.8942 held at 0.8449. Next support at 0.8390
EURJPY BEARISH Remains heavy below 115.68; break of 111.05 reaction low would expose 107.73.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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