By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
The dollar-positive effects of yesterday’s stronger US data began to wear off during the Asia session. The greenback surrendered some ground after FOMC voter Pianalto said policy options to get the Fed on the path to achieving price stability are being investigated. A better than expected China PMI reading temporarily supported the AUD. EURUSD traded 1.3604-1.3667, and USDJPY 83.37-83.58. Jobless claims fell slightly more than anticipated to 453k and the renewed downturn cautions against extrapolating the mid-summer soft patch in economic activity. Chicago PMI rose to 60.4 and details were strong but the Milwaukee PMI fell to 50. And Q2 real GDP growth was revised up to a 1.7% annual rate. Price data was little revised, with core PCE to 1.0% from 1.1%. The positive data may have given investors pause in their expectation for further easing but easing concerns will persist unless we see continued data improvement. And it will be key how Treasury yields react to the data releases, as higher yields could provide some respite for the dollar. University of Michigan confidence, ISM Manufacturing, core PCE and deflator data for August are due.
The euro remained relatively stable after overcoming the latest risk events. The Irish government announced that the domestic banking system will require further government-sponsored capital injections, the size of which were broadly in line with expectations. Finance Minister Lenihan said that holders of subordinated debt of a nationalized bank would be expected to make a significant contribution to the bailout. The euro initially fell on the news, but a recovery soon ensued as Irish sovereign spreads over bunds began to tighten. The euro drew further strength from reduced demand for ECB cash at the latest tender, and a better than expected fall in German unemployment numbers. The anticipated Moody’s downgrade of Spain also passed quietly – Spain fell only a single-notch in the rankings, and the outlook was set to stable.
The Irish central bank announced that the domestic banking system will required further government-sponsored capital injections. The Irish Finance Minister said that holders of subordinated debt of a nationalized bank would be expected to make a significant contribution to the bailout.
CPI excluding fresh food improved slightly, as expected, to -1.0% (prev. -1.1%). Prime Minister Kan said, in a clear reference to next week’s policy meeting, that he hopes the BoJ will take further necessary steps to beat deflation. Both he and Finance Minister Noda also said that Japan will continue to take decisive steps as needed to counter the yen’s rise.
Ministry of Finance data revealed that Japan undertook JPY2.1249tn of FX intervention in the month of August 28-September 28 (approximately $25bn). This was broadly inline with market estimates and suggests that intervention was limited to a single day.
The UK data calendar was light with the Nationwide house price index increasing 0.1% m/m, ahead of consensus of -0.3%. Cable moved higher in the overnight session but then fix-related selling pressured sterling.
Prior to the New York open, BoE policymaker Posen said he could be talked out of his opinion of further QE. The MPC appears more fragmented between Posen’s pro-QE approach, Sentance’s dissent and the rest of the committee.
July monthly GDP was negative as expected and BoC Governor Carney again cautioned on the economic outlook, similar to the latest BoC statement. He stressed the unusual uncertainty surrounding the outlook and reiterated that future monetary policy moves would have to be carefully considered. The BoC raised the policy rate at its last meeting but the concerns of further Fed easing have tempered expectations for the BoC’s policy rate path, which has weighed on the Canadian dollar.
EURCHF breaks 1.3391.
EURUSD BULLISH Upside potential eyes 1.3692 with scope for 1.3896 next. Near-term support comes in at 1.3381 ahead of 1.3287.
USDJPY BEARISH Focus is back on the downside; break of 82.88 would expose 79.75. Resistance remains at 84.50 ahead of 85.40.
GBPUSD BULLISH Bull stalls in front of 1.5999 key high; key reversal lower has support at 1.5503.
USDCHF BEARISH Next support below 0.9625 lies at 0.9500 psychological level. Resistance at 0.9918 breakout low.
AUDUSD BULLISH The pair is expected to target 0.9850 with scope for 1.000 psychological resistance next. Support is at 0.9559 ahead of 0.9463.
USDCAD NEUTRAL 1.0509 and 1.0108 mark the near-term directional triggers.
EURCHF BULLISH Following the break of 1.3391 model had turned bullish. Need a break above 1.3924 to confirm the positive trend.
EURGBP BULLISH As long as support at 0.8463 holds, expect the pair to target 0.8736 ahead of 0.8808.
EURJPY BULLISH Momentum is positive; clearance of 114.74 would expose 116.68 and 119.33. Near-term support comes in at112.67 ahead of 110.66.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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