By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
Activity in FX markets was fairly subdued given the lack of news flow. The yen used the opportunity to claw back some of yesterday’s downgrade-driven losses against the dollar. EURUSD traded 1.3696-1.3744, USDJPY 82.58-82.98. The Nikkei 225 is -1.1% lower at the time of writing. Earlier the S&P 500 breached the 1300 level for the first time since Sept. 2008, but closed just below. Headline durable goods unexpectedly dropped but the ex-transportation figure increased, albeit by less than anticipated. Jobless claims jumped due to inclement weather and the Martin Luther King Day holiday, which indicates the jump does not reflect a material weakening in the labor market. Q4 GDP and the University of Michigan confidence index are due. Treasury Secretary Geithner speaks on the economy at Davos.
EUR
The euro benefited from hawkish remarks by ECB Executive Board member Bini-Smaghi. He highlighted his concerns over the effects of imported inflation in the Eurozone, noting that second-round effects can only be avoided if domestic inflation is “significantly lower than 2%”.
Greek Prime Minister Papandreou said Greece would not need to restructure its debt, but acknowledged that extending the maturity of EU/IMF loans would be beneficial and would help to calm financial markets. ECB President Trichet said a strong economic union is needed to strengthen EU ties and to keep those nations that exceed deficit and debt limits accountable.
We maintain our EURUSD forecasts as our team does not envisage an ECB rate hike until Q4. We also believe that over-optimism on a solution to Eurozone sovereign worries could ultimately lead to disappointment when any changes to the EFSF are finally announced.
TECHNICAL OUTLOOK
EURGBP targets 0.8672/91.
EURUSD BULLISH Targets the upper boundary of the 1.3741/86 resistance zone; break through this would expose 1.3825. Support at 1.3637.
USDJPY BEARISH Rise through 82.67 and 83.13 has exposed 83.68. Near term support is at 81.85.
GBPUSD BULLISH The pair eyes initial resistance 1.6017 ahead of 1.6059. Support comes in at 1.5843.
USDCHF BEARISH Focus is on 0.9390 ahead of 0.9301 key low. Initial resistance is at 0.9523.
AUDUSD BEARISH Momentum has shifted downside towards 0.9833/0.9804 support zone. Near-term resistance is at 1.0022.
USDCAD NEUTRAL 1.0004 and 0.9889 mark the near term directional triggers.
EURCHF BULLISH Break of 1.3069 would expose 1.3118. Near term support is defined at 1.2827.
EURGBP BULLISH Remains bullish targeting 0.8672/91 resistance zone. Initial support lies at 0.8582.
EURJPY BULLISH Positive momentum; initial resistance is at 114.94, breach of this would expose 115.68 next. Initial support lies at 112.45.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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