By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar continued to grind modestly higher during the Asia session, the move having first got underway during Monday’s holiday in the US. There were no major releases, but Asian equities were significantly weaker. EURUSD traded 1.3845-1.3901, USDJPY 81.85-82.36. We have changed our one-month forecasts for EURUSD, USDJPY, EURJPY, EURGBP, USDCHF, AUDUSD and NZDUSD in the wake of our economists now expecting the Fed to announce quantitative easing in the form of a programme of bond purchases on the order of $100-200 bn a quarter. We have however retained our three-month currency views, as we believe the market has already priced in substantial new Treasury purchases by the Fed, meaning that the eventual decision risks being a disappointment, which would likely limit any post-announcement dollar weakness.
Fed Vice Chairman Janet Yellen made her first remarks after being sworn in but did not directly address the economic outlook or upcoming policy decisions. She did say, however, that policymakers should be cautious as accommodative policies could spark a build-up in leverage and risk-taking. The September FOMC minutes are due – no surprises are expected, but these should at least provide a fuller picture of the discussions surrounding the surprisingly dovish Sept 21 policy statement.
EUR
ECB Governing Council member Quaden said excessive FX volatility needs to be avoided by common efforts at the global level. He also said the ECB is not pre-committed to making any decisions on exit strategies and that there are no plans right now to change collateral rules in order to stop banks refinancing exclusively at the ECB.
CPI data in Germany is due. At 0.0% (cons. 0.3%, prev. 0.9%) August French industrial output was released below expectations. In contrast, seasonal adjusted Italian industrial output was 1.3% (cons. 0.0%, prev. 0.1%).
JPY
Finance Minister Noda repeated that he is watching FX markets with great interest, and said Japan is willing to take decisive steps, including FX intervention, if needed. Economics Minister Kaieda repeated comments that Noda made over the weekend, saying that Japan’s explanation for its FX policy met with a certain understanding at the weekend IMF meetings. Given the likelihood that US yields will remain under pressure in the run-up to the FOMC’s November policy announcement, we lowered our 1m USDJPY forecast to 80 from 85. Our US economists expect that any Fed easing at that meeting will likely disappoint the market in terms of its size and ambition. Recognizing this, as well as the scope for further BoJ easing, we keep our 3m target unchanged at 85.
GBP
CPI is expected to remain unchanged at 3.1% y/y, while core CPI and RPI are expected to dip slightly. The m/m CPI consensus is 0.0% versus 0.5% previously. While we will not see how the latest MPC vote breaks down until Oct 20, any upside CPI surprises could intensify differences of opinion ahead of the UK spending review.
We remain cautious on sterling as fiscal austerity will dampen growth and keep monetary policy accommodative, particularly following recent comments by Prime Minster Cameron and Finance Minister Osborne. Cameron said that there are risks for the economy and that monetary policy was the best lever for support.
AUD
Business confidence in September was broadly unchanged at 10 (prev. 11), while business conditions rose to 7 from 5 in August. Our analysts note that there is nothing in the data that ought to change the RBA’s expectation that growth ahead will be at, or above, trend.
TECHNICAL OUTLOOK
USDCHF look for a break below 0.9500.
EURUSD BULLISH Violation of 1.4029 will trigger further acceleration to 1.4194. Near-term support holds at 1.3799 ahead of 1.3637.
USDJPY BEARISH Trend is bearish; initial support at 81.39 ahead of 79.75. Resistance remains at 83.03 ahead of 83.99.
GBPUSD BULLISH Sustained break of 1.6018/69 would expose 1.6276. Support at 1.5670 ahead of 1.5503.
USDCHF BEARISH Look for a break below 0.9500 which will expose 0.9078 next. Resistance at 0.9739 ahead of 0.9918 breakout low.
AUDUSD BULLISH Upside potential held at 0.9918 below 1.000 psychological resistance next. Support at 0.9709 reaction low.
USDCAD BEARISH As long as resistance at 1.0380 holds, expect losses to target 1.0063 with scope for 0.9931 and 0.9820 next.
EURCHF BULLISH Trend is bullish; break of 1.3494 would expose 1.3697 measured objective. Support at 1.3265.
EURGBP BULLISH Stalled in front of 0.8808 with next resistance at 0.8894. Support holds at 0.8689 ahead of 0.8563.
EURJPY BULLISH Pullback from 115.68 eyes 113.26 support, but overall outlook is bullish with next resistance at 116.68 and 119.33 next.
Forex Daily Market Commentary provided by GCI Financial Ltd.
GCI Financial Ltd (”GCI”) is a regulated securities and commodities trading firm, specializing in online Foreign Exchange (”Forex”) brokerage. GCI executes billions of dollars per month in foreign exchange transactions alone. In addition to Forex, GCI is a primary market maker in Contracts for Difference (”CFDs”) on shares, indices and futures, and offers one of the fastest growing online CFD trading services. GCI has over 10,000 clients worldwide, including individual traders, institutions, and money managers. GCI provides an advanced, secure, and comprehensive online trading system. Client funds are insured and held in a separate customer account. In addition, GCI Financial Ltd maintains Net Capital in excess of minimum regulatory requirements.
DISCLAIMER: GCI’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be U.S.ed as investment advice. GCI assumes no responsibility or liability from gains or losses incurred by the information herein contained.
