By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
Fed Chairman Bernanke’s CBS interview provided no further dollar negative remarks and this allowed the greenback to claw back some of last week’s losses during the Asia session. EURUSD traded 1.3334-1.3442, USDJPY 82.57-82.99. Spot gold remains near all-time highs, and is changing hands for $1414.18/oz at the time of writing. The dollar came under some severe selling pressure on Friday, mainly due to a much weaker than expected payrolls report. Comments attributed to Fed Chairman Bernanke also encouraged the selling to continue when he said he would not rule out UST purchases beyond the $600bn currently ear-marked for QE2. Meanwhile, intra-Eurozone sovereign bond spreads continued to tighten throughout the day, which led to a partial unwind of the safe-haven flows that had previously supported the dollar. November payrolls only rose +39k (cons. +150k), and private payrolls were equally unspectacular, climbing only +50k (cons. +160k). The unemployment rate also jumped unexpectedly to 9.8% (cons. 9.6%). The November non-manufacturing ISM printed a better than expected 55.0 (cons. 54.8), but this was not enough to turn the tide on the dollar selling on Friday. Our analysts note that better news on the employment front could lie ahead given that the latest manufacturing and non-manufacturing ISMs now imply payrolls growth of a little under +200k per month.
EUR
Sovereign bond spreads continued to tighten sharply on Friday amid newswire reports of intense ECB activity. ECB Governing Council member Nowotny later declared that the ECB had “energetically” used its sovereign bond purchase program during the week. Today, the ECB are due to release the value of ECB bond purchases which settled last week, but this will only include purchases undertaken before the close on Tuesday evening.
Eurozone finance ministers are due to meet today for a scheduled monthly meeting, and newswires suggest that IMF Managing Director Strauss-Kahn and ECB President Trichet are due to join in the discussions.
Writing in The Financial Times, Eurogroup Chairman Juncker and Italian Finance Minister Tremonti proposed that a new European debt agency should be set up in the coming months with the intention of issuing European sovereign bonds. German Finance Minister Schaeuble dismissed the idea saying that a treaty change would be required, and pointing out that individual countries must continue to be incentivised to exercise discipline over national finances.
Belgium’s Finance Minister Reynders suggested that the size of the Eurozone’s financial rescue fund could be increased over the “next weeks or months”. Earlier, Trichet appeared to recommend such a course of action. Referring to the stabilisation fund, Trichet said it is important that “everything is commensurate to the dimension of the challenges”. However, Spain’s Economy Minister Salgado said that the question of whether to increase the size of the EFSF fund is “not the question for the moment. Today, we need to show clarity, determination and coordination”.
ECB Governing Council member Nowotny said that the euro remains a fully functioning currency, and that a hypothetical breakup of the Eurozone would have “massive disadvantages for both sides”. He added that “the only thing that would profit from this would be the dollar, and Europe would lose”.
GBP
The headline services PMI was in-line with consensus at 53.2, but the forward-looking new business balance rose by the fastest amount since June. Our UK economist still expects no policy change from this week’s MPC meeting.
CAD
Employment rose in November by +15.k (cons. +19.8k), falling well short of consensus expectations. The unemployment rate unexpectedly fell to 7.6% (prev. 7.9%), but this was partly due to a sharp fall in the participation rate.
TECHNICAL OUTLOOK
EURCHF 1.3229 resistance.
EURUSD BEARISH Recovery pressures 1.3448; as long as the level holds, expect decline towards 1.3193 and 1.2969 next.
USDJPY NEUTRAL Sell-off on Friday found support at 82.53. Resistance at 83.90.
GBPUSD BEARISH Break of 1.5773 exposes 1.5840 previous low. While the level holds expect losses to target 1.5581.
USDCHF NEUTRAL Abrupt decline through 0.9849 found support at 0.9727. Resistance at 0.9951.
AUDUSD NEUTRAL Recovery eyes 0.9954, support comes in at 0.9864.
USDCAD BEARISH Focus is on the 0.9978/31 support zone. Resistance at 1.0190.
EURCHF BEARISH As long as resistance at 1.3229 breakout low holds, expect losses to target 1.2933 and 1.2766 next.
EURGBP BEARISH Push through 0.8329 would expose 0.8202. Resistance at 0.8564.
EURJPY BEARISH Decline through 108.35 and 107.73 would open up the way towards 105.44 key low. Near-term resistance at 111.98.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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