By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The People’s Bank of China today interrupted a previously quiet European session with another increase in required reserve ratios, the sixth such move this year. Risk appetite has so far held up though, as markets took the announcement as less severe than a hike in China’s benchmark interest rates, which some had anticipated. In fact, the Australian and New Zealand dollars strengthend, with AUDSD and NZDUSD trading ranges of 0.9812-.9897 and 0.7462-.7529, respectively. US releases today include the trade balance, University of Michigan confidence and monthly budget statement.
The PBoC announcement came after strong trade data – both imports and exports expanded much more than expectations – and significant loan growth data, which points towards a high CPI print tomorrow. As price pressures continue to rise, the RRR hikes do seem like a case of postponing the inevitable, and a more orthodox rate hike is still likely before year-end.
Ongoing uncertainty in the Eurozone should keep the dollar supported and ECB policymakers, including Trichet himself, will be on the wires. EURUSD traded 1.3217-1.3283, USDJPY 83.52-83.87.
EUR
ECB Governing Council member Draghi said that the euro “is not in question” due to the sovereign debt crisis, adding that it is “one of the pillars of European economic integration”. He said that “sooner or later” the ECB is likely to return to the pre-crisis system of auctioning liquidity and that the ECB is discussing “concrete proposals” over how to handle banks that are currently dependent on ECB cash.
The Irish government announced yesterday that it will put the EU/IMF aid package to a parliamentary vote on December 15. Shortly afterwards, the opposition Labour party said it would vote against the deal while an independent member of parliament (MP) said that he and a fellow independent MP would vote in favour. We retain our bearish euro view.
GBP
UK producer price inflation rose by 0.3% m/m and 3.9% y/y against market expectations of 0.4% and 4.1%.
TECHNICAL OUTLOOK
EURUSD BEARISH Break of 1.3180 exposes 1.3149 ahead of 1.2969. Resistance at 1.3442.
USDJPY BULLISH Outlook is positive; recovery stalled below 84.41. Support at 83.46.
GBPUSD NEUTRAL 1.5892 and 1.5669 mark the near-term directional triggers.
USDCHF BEARISH Move below 0.9726 would expose 0.9670. Only a break through 0.9463 would confirm the bear trend. Resistance at 0.9916.
AUDUSD NEUTRAL Model is neutral; initial resistance at 0.9965, support at 0.9739/00.
USDCAD BEARISH Look for a break below 0.9978/31 support zone for confirmation of bear trend. Resistance at 1.0141.
EURCHF BEARISH Focus is on 1.2933; breach of the level would expose1.2766. Resistance at 1.3229.
EURGBP BEARISH Move below 0.8390 has exposed next support lying at 0.8335. Initial resistance defined at 0.8429.
EURJPY BEARISH Remains heavy below 111.98; initial support defined at 109.57 ahead of 108.35.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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