By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar continued to strengthen during the Asia session, as equity markets lost their upward momentum, and commodities suffered losses, hurting the AUD in particular. EURUSD traded 1.3264-1.3331, USDJPY 81.53-82.28. Gold and oil stabilised after yesterday’s heavy falls, and are respectively trading at $1383.45/oz and $89.19/bbl at the time of writing. The Dec. 14 FOMC minutes contained no negative dollar surprises as officials “felt that the change in the outlook was not sufficient to warrant any adjustments to the asset-purchase program, and some noted that more time was needed to accumulate information on the economy before considering any adjustment.” Officials did not seem concerned with the rise in Treasury yields leading up to the meeting, noting that yields are still “lower than would otherwise be the case” if asset purchases were not being undertaken. Factory orders, turned positive in November coming in at +0.7% (cons. -0.1%). But with payrolls and Chairman Bernanke’s testimony still ahead, risk-seeking remains in check as market participants, like Fed officials, want more data points to gauge prospects for the US recovery and the dollar.
EUR
China’s Vice Premier Li pledged to “buy more” Spanish government bonds “depending on market conditions”.
ECB Governing Council member Mersch called on governments to withdraw economic stimulus measures “at a moderate but steady pace” so that public finances can be brought back “onto a sustainable track”. He noted that fiscal surpluses would eventually be needed “to erode massive debt mountains”. Not doing so, he said, could lead to “sovereign debt crises in yet more countries”.
Greek Finance Minister Papaconstantinou said Greece would qualify for the next EU/IMF bailout tranche as reforms are on schedule. He also said talks with China on buying Greek bonds are progressing, although the amount and timing are not publishable yet. Papaconstantinou said he is confident the EU will agree on Eurobonds in the near future and said there are no discussions on potential debt restructuring.
The preliminary reading for Eurozone CPI was higher than forecast at 2.2% y/y for December, above the ECB’s target rate of 2% for the first time in over 2 years. While this is largely due to the temporary impact of rising energy prices, questions over the timing and extent of an ECB exit strategy are likely to weigh heavy if above-target readings continue.
German unemployment rose by a seasonally adjusted 3 mn versus expectations of a slight decrease. Our European economists note however, that this was probably due to the cold winter weather and is therefore a temporary diversion. Spanish unemployment figures were more promising, with the non-seasonally adjusted measure contacting by 10.2k m/m in December. Our team of analysts notes that the Spanish labour market is beginning to stabilize, although the absolute level is structurally high.
German manufacturing PMI was softer than expected at 60.7, however the factory jobs index came in at 57.1, the highest in the survey’s 14-year history. Other Eurozone PMI and industrial new orders are due
GBP
The PMI manufacturing reading for December was strong at 58.3, with the headline figure at its highest level since 1994. The forward-looking new orders balance also rose to its highest level since May, offering a positive view on the UK manufacturing industry.
Mortgage approvals were also fairly strong at 48k versus consensus at 16.5k. Our analysts note however that, with the long-run average up at 95k, the reading is still at an unusually low level.
AUD
The local press quoted RBA board member McGauchie as saying that monetary and fiscal policy are working against each other in Australia. He said that “we are spending money on fiscal stimulus and other things we shouldn’t be spending money on and that means higher interest rates than we would otherwise have”.
TECHNICAL OUTLOOK
EURCHF support at 1.2402
EURUSD BULLISH Momentum is positive; break of 1.3433 would expose 1.3499. Support at 1.3216
USDJPY BEARISH The outlook remains bearish; focus is on 80.93 ahead of 80.54. Resistance is at 84.51
GBPUSD NEUTRAL The 1.5345 support remains intact, a break here is required to confirm a resumption of the bear trend. Resistance is at 1.5775
USDCHF BEARISH Bearish outlook remains; focus is on 0.9301 ahead of 0.9202; initial resistance is at 0.9734
AUDUSD BULLISH Momentum is slowing; targets 0.9988 ahead of 0.9951/18 while resistance is at 1.0256
USDCAD BEARISH Bearish outlook; targets 0.9889/25 support zone. Initial resistance is at 1.0073
EURCHF BEARISH Outlook remains bearish; break of 1.2402 would expose 1.2283; resistance at 1.2714
EURGBP BULLISH Upside momentum with focus on 0.8692, a break here exposes 0.8777. Support at 0.8503
EURJPY BEARISH Support holds at 107.61, break here would expose 105.80. Resistance at 110.82.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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