By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar lost some ground to the euro during the Asia session, but was largely range-bound against the rest of its G10 peers. EURUSD traded 1.3074-1.3143, USDJPY 83.71-83.91. There were no data releases in the US, and economic data published elsewhere were second-tier. The S&P 500 closed up +0.6%, but Asian stocks are marginally weaker at the time of writing. Upcoming data for the US includes the third estimate of Q3 GDP and existing home sales. Our US economists expect Q3 GDP to be revised slightly higher to +2.8% q/q annualized from +2.5% previously. US data has generally improved since the summer, and an upward revision to GDP would reflect this. Eurozone headlines should remain the most significant FX driver into year-end, which should keep downward pressure on EURUSD. Conscious of the developing situation inside the Eurozone, the Fed authorized the extension of temporary dollar liquidity swaps to the Bank of Canada, Bank of England, ECB, Bank of Japan and SNB through to August 1, 2011. The existing facilities had been due to expire in January.
EUR
The euro remains vulnerable following the latest batch of ratings-related headlines. Moody’s placed Portugal’s sovereign rating on negative watch, citing economic growth prospects as the main justification. The ratings agency also said that approaching the EFSF for assistance would not necessarily be viewed as a negative, as it could help resolve some of the short-term uncertainties. Fitch put Greece on negative rating watch, and expects its review to be completed during January 2011.
JPY
The trade surplus contracted significantly in November, which is likely due at least in part to a stronger yen. Export growth fell short of expectations coming in at +9.1% y/y (cons. 10.3%), while imports grew by +14.2% y/y (cons. 9.0%). The government said it would take decisive steps to tackle the yen’s rise, including intervention if necessary.
GBP
Minutes from the BoE’s Dec. 9 policy meeting are due. We expect MPC member Sentance dissented in favour of a rate hike, and MPC member Posen looked to expand the size of the QE program. Sentance reaffirmed his stance overnight saying that “it is right to begin to gradually move UK interest rates up”. Posen, as recently as Thursday, warned about the risks of hiking too soon, noting it was important to resist the temptation “to demonstrate to the public or to markets how upset we are about being above target” on inflation.
TECHNICAL OUTLOOK
EURUSD BEARISH Move below 1.3061/48 support zone would expose 1.2969. Resistance at 1.3360
USDJPY BULLISH While support at 82.84 holds, expect gains to target 84.51
GBPUSD BEARISH Break below 1.5454 leaves little support till 1.5297/65. Initial resistance at 1.5568
USDCHF BEARISH Outlook is bearish; support at 0.9548 and then 0.9463 key low.
AUDUSD BULLISH Upside potential expected to target 1.0029; support lies at 0.9841/31
USDCAD BULLISH Push above 1.0287 required to confirm the bull trend; initial support at 1.0103
EURCHF BEARISH Pressure on 1.2533/00; resistance at 1.2714
EURGBP NEUTRAL Resistance at 0.8553, support at 0.8426
EURJPY BEARISH Stalled at 109.57; a break here would expose 108.35. Resistance at 110.82
Forex Daily Market Commentary provided by GCI Financial Ltd.
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