By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
USD
The higher initial jobless claims data caused some consternation despite the fact that it is not included in the upcoming payrolls figure. The dollar lost some ground versus the safe haven JPY and CHF as Treasury yields moved lower but otherwise the dollar remained rangebound versus the rest of the G10 currencies ahead of the payrolls report. Risk-seeking was muted as equities finished flat. Data this week has largely been positive, which helped ease investor worries of further easing by the Fed but a payrolls disappointment could again stoke those fears. Our team expects headline figures and private payrolls to be more or less in line with consensus. In the event of a positive payrolls print, we expect dollar upside versus the EUR and the JPY. But a disappointment would again see the CHF and JPY gain versus the dollar. We also expect the CAD to have the highest beta to the release among dollar bloc currencies.
EUR
The ECB did not alter policy and President Trichet sounded cautious for the outlook for the rest of the year. He was constructive on better than expected Q2 and initial Q3 data but it did not prove much support for the euro as those releases were in the past and he said that it would be clear the second half would be less buoyant. Trichet said no changed would be made in the projections with risks to inflation and growth balanced for now and offered no new information on sovereign bond purchases and liquidity tenders, only to say that the ECB will do what is needed. Admittedly it does not look as if either the ECB or the Fed might change rates any time soon. The ECB’s policy does however entail comparatively small risks for the future. While the Fed relies on an extremely high monetary policy stimulus there is a risk of inflation causing problems at a later stage
GBP
As expected the Bank of England left rate levels and the volume of bond purchases unchanged. The BoE is facing a problem, in that due to the fiscal consolidation there are risks for the economic outlook, while on the other hand the rate of inflation is still stubbornly high and likely to remain so. The inflation report, due for publication next week, is likely to reflect this: Growth is likely to be revised downwards while inflation is likely to be revised upwards. All in all the BoE is likely to take a ‘wait and see attitude’, wanting to observe the effects of the government’s savings measures first. A first rate step is therefore not to be expected until the second half of 2011. Today’s data on industrial production is likely to be relatively neutral against this background. Even though we expect a result slightly above consensus, positive momentum for Sterling is likely to be relatively limited.
CAD
Canadian Finance Minister Flaherty said the Canadian dollar would have to go significantly above parity before he gets concerned with the level. This is in contrast with earlier concerns that currency strength could act as a brake on growth. We have noted that growth differentials make the Canadian dollar a good candidate for relative value in the G10 and Flaherty also said that the Canadian dollar’s rise makes sense given demand for investments and fundamentals. The labour data release will be important to see if domestic momentum continues but USDCAD will be more susceptible to the US labour data release. The more volatile Ivey PMI is also due.
AUD
Our team does not anticipate any major revisions to the RBA’s growth and inflation forecasts in its quarterly Statement of Monetary Policy. They also note that recently softer data and the RBA’s latest statement focussing somewhat on the ‘uncertain global outlook’ raises the chance that they remain on hold for several months.
TECHNICAL OUTLOOK
EURUSD NEUTRAL Momentum is slowing; upside potential toward 1.3511 with next resistance lying at 1.3692. Near-term support comes in at 1.3060/29 ahead of 1.2737.
USDJPY BEARISH Bearish pressure holds above 84.83, break of the level would expose next support at 81.85. Near-term resistance holds at 86.66 ahead of 88.12.
GBPUSD BULLISH Focus is on 1.5969 Fibonacci level break of which would open up the way for further gains towards 1.6069 and 1.6458 next. Near-term support is at 1.5696 ahead of 1.5400.
USDCHF BEARISH Currently holds support at 1.0348 with near-term resistance at 1.0581 ahead of 1.0676. Overall focus on 1.0131; break of the level would expose 0.9918.
AUDUSD BULLISH Trend is bullish; expect the gains to target 0.9389 ahead of 0.9850. On the downside, initial support lies at 0.8896 ahead of 0.8634.
USDCAD BEARISH Violation of 1.0139 has exposed further weakness towards 0.9931 key low. Initial resistance is at 1.0274 ahead of 1.0396.
EURCHF BULLISH Need a break above 1.4041 to confirm the bullish trend. Initial support lies at 1.3730 ahead of 1.3511.
EURGBP BEARISH Outlook is bearish with focus on 0.8245 Fibonacci support break of which would expose 0.8068. Near-term resistance lies at 0.8416 ahead of 0.8532.
EURJPY NEUTRAL Motion is sideways; 115.19 and 110.02 mark the near-term directional triggers. 107.32 defines a key support level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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