By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar weakened versus the G10 despite stronger than expected US retail sales data. Recent US data has been more positive but that has not stopped investors from worrying about future Fed actions although it appears policymakers are in a holding pattern as they wait for more data. Dropping Treasury yields also stoked worries of future Fed asset purchases as there was decent buying from foreign institutions behind the move. Equities were flat and oil and gold $76.79 and $1268.55 at the time of writing. EURUSD traded 1.2830-1.3033, USDJPY 82.92-83.76. Our team does not think the Fed will announce anything immediate as the data has not been weak enough to argue for further easing and officials are starting to put the onus on more fiscal-oriented shifts. Among the data releases, headline and ex-auto retail sales were better than expected, though there was a slight downward revision for July figures. That said, there were still some signs of a hesitant consumer as larger ticket items were softer. Even so, real consumer spending (including services) appears to be accelerating and our economists estimate that it is rising at a 2.2% annual rate so far in Q3, up from the 1.9% pace in H1. Upcoming US data releases include industrial production and capacity utilization.
EUR
The German ZEW survey surprised sharply to the downside with the sentiment survey registering a surprise negative print of -4.3. The current situation survey however was much stronger than expected at 59.9. Our team notes that the ZEW is not a very reliable leading indicator, but the figures are consistent with the view that Q3 will remain strong, but activity will falter afterwards. Eurozone industrial production was a little softer at 7.1% y/y. Up next is Eurozone CPI, with no change expected in the y/y reading.
GBP
Sterling weakened on the accelerating decline in UK house prices according to the RICS house balance for August before rebounding in the broader dollar sell-off. The RICS data was -32% versus consensus -12%.In other data, headline CPI was unchanged at 3.1%y.y, but monthly sequential inflation was again higher than expected at 0.5%. Martin Weale, in his testimony, brushed off any suggestion that there was scope for changing in the inflation target, but implicitly acknowledged that inflationary pressures were somewhat stronger than expected, calling the OBR’s 4% output gap estimate “plausible”.
Labour data is due and BoE Governor King addresses the Trades Union Congress. This marks the second occasion where a BoE governor speaks at the annual Trades Union Congress and following BoE policymaker Weale’s comments, King’s speech and ensuing Q&A should draw the focus of investors.
TECHNICAL OUTLOOK
EURUSD NEUTRAL Model has turned neutral; 1.3334 and 1.2588 mark the key near-term directional triggers.
USDJPY BEARISH Trend is bearish; there is little support till 79.75 key level. Short-term resistance is defined at 84.43 ahead of 85.23.
GBPUSD BEARISH Support is at 1.5297 with resistance above 1.5565 at 1.5731.
USDCHF BEARISH Slashed through 1.0061 thus exposing 0.9918 with scope for 0.9786. Near-term resistance comes in at 1.0278 ahead of 1.0466.
AUDUSD BULLISH Rise above 0.9389 and 0.9406 targets 0.9563. Near-term support is at 0.9309.
USDCAD NEUTRAL 1.0673 and 1.0108 define the next bull and bear triggers respectively.
EURCHF BEARISH Sell-off from 1.3924 found support at 1.2766; break of the level would expose 1.2403. Resistance at 1.3163.
EURGBP NEUTRAL Pulls back before 0.8390; move below 0.8252 and 0.8142 next would reinstate the bearish tone.
EURJPY BEARISH Focus is maintained on 105.44, next support at 100 psychological level. Resistance is at 111.19.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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