By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
A disappointing Australian CPI reading allowed the dollar to advance against its Australian counterpart in an otherwise quiet Asia trading session. The BoJ opted to keep policy unchanged. EURUSD traded 1.3628-1.3684, and USDJPY 82.34-82.64. The Nikkei-225 is 1.1% firmer at the time of writing, and the S&P 500 finished +0.58% ahead. President Obama is due to deliver his State of the Union address tonight, a speech in which job creation is expected to feature prominently. At the margin, this could support the US dollar, but its main drivers this week are more likely to be the FOMC announcement and the Q4 GDP data. Our analysts do not think that the FOMC statement will suggest a near-term change in monetary policy. Both the consensus and our US economists are expecting a strong rise of 3.5% q/q annualised rate for Q4 GDP.
EUR
Newswires, citing an unnamed Eurozone source, said EU leaders will have an informal discussion on the Eurozone crisis at the Feb. 4 summit and that formal decisions are expected at the late March summit.
The ECB settled only €146 mn worth of bond purchases last week under its Securities Markets Program, down from €2.313 bn the week before.
The Irish finance minister said the finance bill would pass through parliament by Saturday and the main opposition party said an election is likely in the last week of February. The passage of the finance bill removes the worry that parliament would be dissolved without reaching a final agreement on the last piece of budget legislation.
French President Sarkozy said that the dominating theme of France’s chairmanship of the G20 would revolve around FX reforms and highlighted a code of conduct on capital controls as one of his goals.
JPY
The Bank of Japan kept policy unchanged and continues to target a 0-0.1% range for the overnight call rate. No additional measures were announced. The bank revised up its CPI forecast for the fiscal year 2011 to +0.3% y/y from the earlier estimate of +0.1% y/y. Our Japan economics team does not anticipate a BoJ hike until 2013.
GBP
BoE MPC member Andrew Sentence maintained his hawkish stance and said the BoE risks its credibility by failing to tackle inflation. He said the time has come for action and he sees CPI rising to at least 4% during 2011 as it is boosted by global factors, a weaker exchange rate and healthy domestic demand. MPC member Posen has recently affirmed his dovish stance, and the Jan. 13 BoE minutes, due for release on Wednesday, will show if any other MPC member has sided with either of these two non-consensus views.
The consensus expects Q4 GDP to weaken to +0.5% q/q. A stronger print is likely to be sterling-positive, as it may stoke expectations of an early BoE hike.
AUD
The AUD weakened after CPI for Q4 failed to live up to consensus expectations, rising only +0.4% q/q (cons. +0.7%) and +2.7% y/y (cons. +3.0%). Our analysts stick to their view that the next RBA rate hike will not happen until H2 this year.
CAD
The BoC revised down its 2011 core inflation outlook though it still it reaching the 2% target by end-2012. The y/y readings for both headline and core CPI for December are expected to increase, though any rate hikes by the BoC are expected to be gradual this year.
TECHNICAL OUTLOOK
USDCHF clears 0.9521/0.9486 zone.
EURUSD BULLISH While support holds at 1.3541, expect gain towards 1.3741/86 resistance zone ahead of 1.3825.
USDJPY BEARISH Break of 81.85 would open 80.94 while resistance at 83.68 holds.
GBPUSD BULLISH Focus is on 1.6059/94 resistance zone. Initial support defined at 1.5838.
USDCHF BEARISH Breach of 0.9521/0.9486 has exposed 0.9415 ahead of 0.9301 key low. Initial resistance is at 0.9623.
AUDUSD BEARISH Move below 0.9804 would expose 0.9753. Resistance is at 1.0077.
USDCAD BEARISH Remains below 1.0034 as focus is on 0.9889/0.9838 support zone.
EURCHF BULLISH Bullish outlook with focus on 1.3069 ahead of 1.3122. Initial support is defined at 1.2815.
EURGBP BULLISH Break of 0.8563 would open up the way towards 0.8648. Initial support lies at 0.8461.
EURJPY BULLISH The cross has potential to climb to 113.03 ahead of 113.59 Fibonacci level next. Initial support lies at 112.19.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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