By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The rating agency Moody’s lowered its rating for Ireland from Aa2 to Baa1. It should have been obvious to everyone that Aa2 was no longer sustainable, but a step of this magnitude is nonetheless surprising. The timid attempts of a EUR-USD uptrend were thus stopped in their tracks this morning. We do not expect to see a further attempt of an upwards correction prior to the publication of the Ifo index. Even a moderately positive surprise for the Ifo index is unlikely to create any new momentum – after all it is not concerns about the German economy that are putting pressure on the euro, but other factors.
The summit of the EU heads of government and state in Brussels did not bring any surprises yesterday. As expected the main elements of the permanent crisis mechanism, which had been drawn up by the Finance Ministers two weeks ago, were confirmed. The EU treaty was adjusted with the help of a “small amendment” so that it endorses the stability mechanism. This approach towards a change of the treaty entails only limited implementation risks. As expected the President of the Council Herman van Rompuy’s press release does not contain any further details on the extension of the crisis mechanism (EMU bond or extension of the EFSF guarantees). Should the risk premiums for bonds of the peripheral countries rise again following the period of low liquidity over the holidays attention would no doubt return to these possibilities.
For EUR-USD the result of the Brussels summit means above all that event risk was reduced. Fears of the summit which were probably responsible for a good part of the slide on Wednesday turned out to be unfounded. So there is no need for any major reallocations during the period of low liquidity over the holidays. Market participants can hope for a quiet Christmas period.
Medium term the New Year might provide new momentum for EUR-USD. Despite the new round of the EMU debt crisis speculative market participants are only moderately exposed in EUR shorts in our view. Tonight will bring the publication of the latest CFTC statistics on the positioning of speculative IMM traders, which is unlikely to change this fact. This reservation is probably partially due to the nearing year-end. It will then be decisive whether markets have already got used to corner stones of the crisis mechanism. If that wasn’t to be the case EUR-USD might come under pressure.
EUR
European Union President Van Rompuy said that EU leaders have agreed to conduct new stress tests in the banking sector and that they stand ready to do whatever is needed to ensure the stability of the Eurozone. European Commission President Barroso said the euro is very stable despite current difficulties.
Ahead today, the Ifo business climate survey for December will be released. Investors’ expectations are high given the latest improvement in manufacturing activity as suggested by yesterday’s PMI release. Nevertheless, our economists expect the survey to fall slightly short of expectations.
GBP
The Bank of England’s half-yearly Financial Stability Report said the domestic financial system has strengthened, but threats have risen since June. It noted that banks are more worried about an economic downturn and property prices than in May.
Yesterday, retail sales were stronger than expected at 1.8% y/y, though the m/m print was in line with expectations. Retail sales are likely to strengthen in December and then plunge in Jan because of the VAT hike in Jan. However, the BoE’s MPC is likely to be unmoved by this data.
The BoE released its inflation expectations survey and year-ahead expectations is now at 3.9% vs. 3.4% previously.
TECHNICAL OUTLOOK
EURUSD BEARISH Focus is on 1.3181/65; move below the support zone would expose 1.3060. Resistance at 1.3382
USDJPY BULLISH Currently holds resistance at 84.51 ahead of 85.40. Support at 83.60
GBPUSD BEARISH Abrupt decline found support at 1.5531 ahead of 1.5485. Initial resistance at 1.5676
USDCHF BEARISH Momentum is negative; expect losses to target 0.9562 and 0.9463 key low.
AUDUSD BULLISH Decline through 0.9841/33 exposes 0.9725 and 0.9625. Resistance at 1.0029
USDCAD BEARISH Pressure building on 0.9978/31 support zone; initial resistance defined at 1.0141
EURCHF BEARISH Bear trend extends; next support at 1.2676 ahead of 1.2649. Resistance at 1.2871
EURGBP NEUTRAL Move above 0.8598 would trigger bull trend. Support at 0.8451
EURJPY NEUTRAL 113.67 and 110.49 mark the near-term directional triggers
Forex Daily Market Commentary provided by GCI Financial Ltd.
GCI Financial Ltd (”GCI”) is a regulated securities and commodities trading firm, specializing in online Foreign Exchange (”Forex”) brokerage. GCI executes billions of dollars per month in foreign exchange transactions alone. In addition to Forex, GCI is a primary market maker in Contracts for Difference (”CFDs”) on shares, indices and futures, and offers one of the fastest growing online CFD trading services. GCI has over 10,000 clients worldwide, including individual traders, institutions, and money managers. GCI provides an advanced, secure, and comprehensive online trading system. Client funds are insured and held in a separate customer account. In addition, GCI Financial Ltd maintains Net Capital in excess of minimum regulatory requirements.
DISCLAIMER: GCI’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be U.S.ed as investment advice. GCI assumes no responsibility or liability from gains or losses incurred by the information herein contained.
