By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar managed to hold onto yesterday’s gains against the euro during the Asian session, but lost some ground to the Australian and New Zealand dollars. S&P cut Ireland’s long-term sovereign credit rating by two notches to A from AA-. The rating remains on negative watch. EURUSD traded in a 1.3360-1.3419 range, briefly slipping 20 pips on the Ireland downgrade, before recovering. USDJPY traded 82.83-83.36. Risk appetite in general remained muted. Asian equities were mixed, after the S&P 500 closed down -1.4%. US data was mixed too, with the second estimate of Q3 GDP slightly better than expected and the Richmond Fed manufacturing index above consensus, but existing home sales disappointed. The latest FOMC minutes were largely as expected as most officials saw the benefits of QE2 outweighing the costs but there were disagreements as some thought that more easing would put unwanted pressure on the dollar. The lack of cohesiveness could cast doubt that QE2 lasts beyond the current prescribed June end-date. The FOMC cut the central tendency growth projections in line with expectations and the QE2 decision. 2011 growth was cut to 3.0-3.6% from 3.5-4.2%. 2012 growth was little changed at 3.6-4.5%. On inflation, core PCE prices for 2010 and 2011 were increased slightly, as were projections for total PCE inflation, and unemployment rate projections were raised across the board. Ahead we have initial jobless claims, durable goods, new home sales and University of Michigan confidence data in the US.
EUR
German Chancellor Merkel said the euro is in an “exceptionally serious” situation following Ireland’s request for aid. She said that while the situation in Ireland is different to that of Greece, it is just as worrying. ECB Governing Council member Nowotny, however, said it is individual states, not the euro, which are in danger. He said he does not see any country leaving the euro in 10 years. ECB Governing Council member Mersch said that contagion is not afflicting the Eurozone.
Reuters reported the EU/IMF will offer EUR85 bn to recapitalize the Irish banks and fund public finances. The main opposition party, Fine Gael, later said it will act constructively in the interest of Ireland. The government is due to present its austerity plan Wednesday. A Moody’s official commented that while Spain is fundamentally strong, they do have concerns on Portugal because of the banking system’s reliance on ECB Financing.
PMIs in the Eurozone all rose more than consensus, following similar results for France and Germany. Manufacturing at 55.5 and services at 55.2 both beat market expectations, pointing towards a solid reading in Q4 GDP. The German Ifo readings are up next.
JPY
Finance Minister Noda said Japan must make efforts to ensure that there is no economic impact from yesterday’s clash on the Korean peninsula. Economy Minister Kaieda conceded that the economy could be adversely affected.
NZD
RBNZ Governor Bollard said an improvement in the domestic savings rate would take upward pressure off both interest rates and the NZD. He added it would also reduce New Zealand’s exposure to external shocks.
CAD
Canadian CPI was above consensus at +2.4% y/y, suggesting there is scope for a rate hike in the near future. The core figure also surprised to the upside at +1.8% y/y. Retail sales were slightly below consensus and USDCAD remained largely driven by risk aversion flows, which benefited the US dollar.
TECHNICAL OUTLOOK
EURUSD support at 1.3265
EURUSD BEARISH Decline through 1.3363 has exposed 1.3265. Resistance at 1.3786 ahead of 1.4282
USDJPY BULLISH Stalls near 83.99; push through the level would expose 85.93. Initial support at 82.40 ahead of 81.66 reaction low
GBPUSD BEARISH Move below 1.5840 shifts focus to 1.5650. Resistance at 1.5965 intraday high.
USDCHF BULLISH Stalled in front of 0.9998; beyond this the pair has room for a run towards 1.0183. Near-term support at 0.9829
AUDUSD BEARISH The pair has support at 0.9652 ahead of 0.9542. Resistance at 0.9954 ahead of 1.0183
USDCAD BULLISH Sustained break of 1.0264 and 1.0380 required to confirm the bull trend. Initial support at 1.0070
EURCHF BEARISH Violation of 1.3229 would expose 1.3072. Near-term resistance at 1.3488
EURGBP BEARISH Sell-off from 0.8942 violates support at 0.8449 with scope for 0.8390 next. Initial resistance at 0.8598
EURJPY BULLISH Violation of 111.05 exposes Fibonacci support at 109.35. Near-term resistance at 113.67, yesterday’s high.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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