By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar weakened against the JPY, the AUD, the EUR and the NZD after unconfirmed reports in the Chinese media suggested that the PBoC might approve a larger-than-expected loan growth quota for the coming year. EURUSD traded 1.3079-1.3141, USDJPY 83.07-83.71. Japanese equity markets were closed for a holiday, but the S&P 500 closed up +0.34%. Oil remains near multi-month highs and is trading at $90.69 at the time of writing. Philadelphia Fed President Plosser, a 2011 FOMC voter, said he remains skeptical of quantitative easing, particularly if the economic growth rate continues to strengthen and looks sustainable. Plosser said the Fed could react to such a scenario by purchasing fewer bonds. Q3 real GDP growth was revised up slightly to a 2.6% annual rate (cons +2.8%) from the previously reported 2.5%, but the composition of growth was weaker, with upward revision to inventory investment and downward revision to consumer spending. Inventories now contribute 1.6 percentage points. Real consumer spending growth was revised down to a 2.4% annual rate from 2.8%. In housing data, existing home sales rose 5.6% in Nov to a 4.68mn unit annual rate (cons 4.75mn). Data releases ahead include durable goods orders, jobless claims and the final University of Michigan confidence index.
EUR
EU Commissioner Rehn said that markets are too pessimistic on Portugal and Spain. He said “Spain’s and Portugal’s ability to take care of state debt and stimulate economic growth is much better than what the markets currently assume”. He added that speculation on a euro breakup “has no resonance in practical decision-making and political discussion.”
ECB Governing Council member Kranjec said he is “sure that the euro will survive … that is in the interest of the European Union and all euro zone members”. He said there are some problems, but these are now “being solved”.
GBP
BoE MPC member Fisher would not rule out the possibility that the UK could see a quarter of negative growth, noting that “when you are recovering from a deep recession it is not impossible” for this to happen. Although he said recovery will continue to be slow, he noted that the risk of deflation had “diminished”. On the possibility of more QE, he said ” the chances are less than they were but it’s still not ruled out.”
UK GDP was revised downwards slightly from previous estimates, increasing by 0.7% q/q versus consensus of 0.8%, an indication that the fiscal austerity measures are beginning to bite. The vote split for the December BOE meeting remained at 7-1-1 on interest rates and QE, with Adam Posen voting for £50 bn more QE and Andrew Sentance a 25bp rate hike. However, the other voters sounded slightly more hawkish than in previous meetings as the minutes said that the “accumulation of news over recent months had probably shifted the balance of risks to inflation in the medium term upwards”.
The GDP revision moved the market more than the MPC minutes but should GDP numbers remain stable, the upward trending inflation path could lead to a fundamental shift in stance of the MPC in future meetings, along the lines of the recent shift in rhetoric, which could give GBP some support in the medium term.
TECHNICAL OUTLOOK
EURUSD BEARISH Move below 1.3061/48 support zone would expose 1.2969. Resistance at 1.3360
USDJPY NEUTRAL While support at 82.84 holds, resistance is at 84.51
GBPUSD BEARISH Break below 1.5454 leaves little support till 1.5297/65. Initial resistance at 1.5568
USDCHF BEARISH Support is at 0.9463 key low, a break here would leave little support till 0.9202
AUDUSD BULLISH Upside potential, break of 1.0029 has exposed 1.0091 ahead of 1.0183; 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 Break of 1.2533/00 support zone exposed 1.2283; resistance at 1.2714
EURGBP BULLISH Resistance at 0.8553, support at 0.8426
EURJPY BEARISH Break of 109.57 has exposed 108.35. Resistance at 110.82
Forex Daily Market Commentary provided by GCI Financial Ltd.
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