By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
President Obama’s State of the Union address was a focal point during the Asia session. Expectations had been building in the market, that Obama might incentivise US multinationals to repatriate their overseas earnings. The dollar was bought ahead of the speech on this, but sold off again when it became clear that no such proposal was in the pipeline. EURUSD traded 1.3633-1.3704, USDJPY 81.98-82.39. The USD also enjoyed a temporary bounce earlier after a much stronger than expected January consumer confidence reading. The Conference Board consumer confidence index rose 7.3 points to 60.6 in January (cons 54.0). US equities finished essentially flat on the day. The focus will now shift to the upcoming FOMC statement. Our analysts do not think that the FOMC statement will suggest a near-term change in monetary policy. However, investors will be focused on the inflation outlook language and whether any of the new voters on the committee dissent in a hawkish direction.
EUR
The first issuance of an EFSF bond saw strong demand. Orders of EUR44.5 bn were received for only EUR5 bn in issuance. EFSF CEO Regling expressed the hope that the bond issue could well be a turning point in the sovereign debt crisis. By contrast, our European rates strategists continue to expect to see an escalation of the crisis.
ECB Governing Council member Honohan said he would not expect an “abrupt response” in terms of the ECB’s monetary policy given that inflation expectations remain well-anchored. ECB Governing Council member Nowotny said he does not expect a change in the policy rate in the first half of the year.
GBP
The GDP print for Q4 was poor, declining by 0.5% versus consensus at +0.5%. The ONS has said that the reading is due largely to the adverse weather conditions impacting the services sector, and without this effect, the print would have been largely flat. However, even with this temporary weather effect, the number was disappointing and casts doubt about the sustainability of the recovery in the UK.
BoE Governor King downplayed the significance of the weak GDP number and stressed the MPC’s commitment to low and stable inflation. He did not seem in any hurry whatsoever to hike the policy rate. Our UK economist does not expect the first hike come until Q3.
Today’s BoE minutes will likely sound more hawkish, simply because the MPC will have had the high inflation print at that meeting, but they will not have had today’s GDP data.
CAD
Canada inflation readings came in a bit under expectations for the headline and core inflation readings, weakening the Canadian dollar for the session. Headline CPI rose 2.5% y/y vs. expectations of 2.5% y/y and core inflation rose 1.5% y/y vs. expectations of 1.6% y/y. While headline inflation is now above the mid-point of the Bank of Canada’s 1% – 3% inflation target range, core inflation remains safely below, where it has resided for most of the past 3 years.
TECHNICAL OUTLOOK
USDCHF 0.9301 key support.
EURUSD BULLISH Outlook is bullish; rise through 1.3741/86 resistance zone would expose 1.3825. Support at 1.3541.
USDJPY BEARISH The pair eyes 81.85; Move below the level would expose 81.61 ahead of 80.93. Near-term resistance at 82.67.
GBPUSD BULLISH Next support below 1.5752 lies at 1.5702. Resistance at 1.6017 yesterday’s high.
USDCHF BEARISH Violation of 0.9415 favors extension of losses towards 0.9301 key low. Initial resistance is at 0.9523.
AUDUSD NEUTRAL Motion is sideways; 1.0077 and 0.9804 mark the near-term directional triggers.
USDCAD NEUTARL Initial resistance at 1.0031; support at 0.9909.
EURCHF BULLISH As long as support at 1.2815 holds view pullback as correction. Resistance at 1.3069.
EURGBP BULLISH Recovery has scope for 0.8691 next. Initial support lies at 0.8529.
EURJPY BULLISH Recovery stalled below 113.03; break of this would expose 113.59 Fibonacci level next. Initial support lies at 111.64.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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