By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar continued to strengthen during the Asia session in the aftermath of the exceptionally strong ADP employment report. EURUSD traded 1.3130-1.3185, USDJPY 83.15-83.40. The FX reaction was very much in tune with our view that the dollar is poised to become a growth currency that benefits from stronger US data. The ADP change of +297k (cons. +100k) is the highest ever recorded, and was well above the upper range of economist estimates. The nonmanufacturing ISM index also beat expectations although the employment component slipped in December. Nevertheless, our US economists raised their December payroll forecast to +190k for private payrolls and +160k in total payrolls, up from +150k and +120k, respectively. They also lowered their unemployment rate forecast to 9.7% from 9.8%. Continued improvement in the economic backdrop should point to more dollar strength, particularly versus the yen and Swiss franc, as market participants could start to price out further quantitative easing. But we remain cautious until we see the actual payrolls print and hear what Fed Chairman Bernanke has to say on Friday. Jobless claims are due and the dollar is likely to find further support if fewer than 400k claims are reported
EUR
The European Commission said that its ?5 bn sale of bonds to finance Ireland’s rescue package was oversubscribed. The EFSF is expected to issue ?8 bn of bonds by the end of January for the same purpose.
An auction of Portuguese 6m bills was well covered, but the average yield was significantly higher than at the previous auction.
Eurozone PMIs were above consensus with services at 54.2 and composite at 55.5. The trend of diverging paths across Europe continued with softer data from Italy and Spain and stronger conditions across the ‘core’.
GBP
The UK construction PMI was disappointing at 49.1 in December, although this is likely to be due to adverse weather conditions. Our UK economist notes that the more important measure is the services sector PMI tomorrow.
CHF
December CPI is due but while the m/m print could be negative, the y/y reading should remain in positive territory, which should be enough to dampen expectations of renewed SNB intervention. Consumer surveys show inflation expectations picking up, suggesting upside CPI risks in 2011. We still look for some monetary policy tightening by the SNB in early 2011.
AUD
Residential building approvals for Nov. fell -4.2% m/m, a decline that was slightly faster than the consensus expected. AUDUSD did not react, and the pair seems more concerned with the impact of flooding in Queensland and a resurgent US dollar.
TECHNICAL OUTLOOK
EURGBP support is at 0.8446.
EURUSD BEARISH Break of 1.3199 Fibonacci support exposes 1.3084/55 area.
USDJPY NEUTRAL Move above 83.10 has exposed 83.67, with the big resistance at the 84.51 mid-December high; support at 81.89.
GBPUSD NEUTRAL 1.5695 and 1.5345 mark the near term directional triggers.
USDCHF NEUTRAL Focus on the tough 0.9774 Fibonacci resistance. Support is at 0.9469 yesterday’s low.
AUDUSD NEUTRAL Support lies at 0.9951/18 while resistance is at 1.0256.
USDCAD BEARISH Bearish outlook; break of 0.9917 exposes 0.9889/25 area. Initial resistance is at 1.0034.
EURCHF NEUTRAL Model has turned neutral; rise above 1.2699/1.2702 exposes 1.2847/88. Support is at 1.2456.
EURGBP NEUTRAL Pressure on 0.8446 support holds while resistance is at 0.8637.
EURJPY NEUTRAL Focus is on 110.82 resistance while support lies at 107.61.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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