By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
Irish Prime Minister Cowen announced on Sunday that Ireland has formally requested financial assistance from the EU/IMF. The euro clearly benefited from the news during the Asia session, and the dollar in particular weakened steadily against both the euro and the AUD. EURUSD traded 1.3695-1.3768 and USDJPY 83.14-83.65. On Friday, the S&P 500 finished +0.7% higher, despite another 50bp hike to China’s reserve requirement ratio. ECB President Trichet said that a strong dollar relative to the other floating currencies is very important. New York Fed Executive Vice President Checki said that recent dollar weakness is a side-effect, rather than a goal of the Fed’s policy. He forecast that as US growth strengthens, the dollar should strengthen accordingly. US Treasury Secretary Geithner implied he would not support any attempt to change the Fed’s dual mandate so that it focuses exclusively on inflation. He said the existing dual mandate has “served the country well over time”. Minneapolis Fed President Kocherlakota, who is due to become an FOMC voter in January, is scheduled to speak later today. Last week, for the first time, Kocherlakota publicly expressed his support for the Fed’s latest round of quantitative easing.
EUR
The euro was boosted by Irish Prime Minister Cowen’s decision to formally request financial assistance from the EU/IMF. Cowen expects negotiations on the terms of the rescue to be concluded over the coming weeks. Finance Minister Lenihan said the whole package would be worth less than EUR100 bn. In a statement, Eurozone finance ministers welcomed the decision, adding that both the UK and Sweden would also consider participating by means of bilateral loans.
German Finance Minister Schaeuble said that he could not give a concrete figure for the cost of a possible Ireland rescue. He sounded optimistic that there would be no contagion from Ireland, but said that a better solution to debt crises must be set up from 2013.
CAD
BoC Governor Carney said the BoC would be prepared to “adjust policy” if the level of the CAD was such that it threatened the bank’s ability to achieve its inflation target. He said the bank has the tools to intervene in the FX market, but would use these only in extreme circumstances.
TECHNICAL OUTLOOK
AUDUSD support at 0.9652
EURUSD BEARISH Pullback from 1.4282 holds above 1.3363; a break here would expose 1.3265. Initial resistance at 1.3777.
USDJPY BULLISH Push through 83.99 would expose 85.93. Initial support at 82.40 ahead of 81.66 reaction low.
GBPUSD NEUTRAL Model is neutral; 1.6379 and 1.5840 mark the key near-term directional triggers.
USDCHF BULLISH Following the break of 0.9977, the pair has room for a run towards 1.0183. Near-term support at 0.9829.
AUDUSD NEUTRAL While support at 0.9652 holds, break of 1.0183 would leave little resistance till 1.1083.
USDCAD BULLISH Sustained break of 1.0380 required to confirm the bull trend. Initial support at 1.0070.
EURCHF BULLISH Recovery through 1.3834 would expose 1.3924 and 1.4041 next. Near-term support comes in at 1.3411 ahead of 1.3229.
EURGBP BEARISH Bearish pressure held at 0.8449 ahead of 0.8390. Initial resistance at 0.8638.
EURJPY BULLISH While support at 111.05 holds, require a break through 115.68 to confirm a bull trend.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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