Forex Daily Market Commentary

By GCI Forex Research

Fundamental Outlook at 0800 GMT (EDT + 0400)


During the Asia session, risk appetite initially benefitted from the news that Eurozone finance ministers had approved a ?85 bn financial rescue package for Ireland. However, the dollar quickly re-asserted its authority, and the euro gave back all its gains. EURUSD traded 1.3182-1.3354 and USDJPY 83.83-84.20. The reaction of Eurozone sovereign bond markets when they open today will likely be a key determinant of short term euro performance, and the spread of Irish sovereign yields over bunds will clearly be in focus. However, our European rates strategists doubt that any spread tightening is justified on the back of the rescue package alone. For our part we note that the Eurozone sovereign debt crisis is far from resolved and we consequently remain bearish on the euro’s medium term prospects. Due to the Thanksgiving holiday, the weekly CFTC IMM positioning data which is normally released on a Friday, is scheduled to be released instead at 20:30GMT later today.

Eurozone finance ministers approved a €85 bn financial rescue package for Ireland, although €17.5bn of this will come from Ireland’s sovereign wealth fund and other domestic cash resources. The remaining cash is to be sourced from the EFSM (€22.5 bn), the IMF (€22.5 bn), and the EFSF and bilateral loans (€22.5 bn).
The cash is to be put to several uses: €10 bn has been earmarked for an immediate recapitalization of the banks, with a further €25 bn available as a contingency. The remaining €50bn is to be used to meet the funding needs of the State. The Irish Government estimates that the effective interest rate could be “of the order of 5.8%”.
Ireland will discontinue its participation in the Greece loan facility, and has been given until 2015 to reduce the budget deficit to 3%. This represents a one-year extension to the original timetable. Repayments on the IMF portion of any loans drawn down are not due to start for 4 and a half years, and are scheduled to end after 10 years.
ECB Governing Council Member Noyer said that the current crisis is not a euro crisis; rather it is a sovereign crisis. Last week’s by-election in Ireland was won by a candidate from one of the smaller opposition parties, effectively reducing the government’s majority to 2 seats. The crucial Budget 2011 parliamentary vote is scheduled for Dec. 7.

BoJ Governor Shirakawa observed that the yen had fallen somewhat since the Fed decided to launch another round of quantitative easing, although he remains on guard for how the economy could be affected by FX moves. He nevertheless expects the economy to resume its export-led recovery throughout 2011.

Australian inventory data was much weaker than expected in Q3, falling by -0.8% (cons. +0.4%, prev. -0.1%). Our Australian economics team note this implies a 0.3% q/q detraction from the Q3 GDP reading which is due for release on Wednesday. Consequently, our economists revised down their Q3 GDP forecast to +0.3% q/q, putting them significantly below the consensus of +0.5% q/q. RBA Governor Stevens is scheduled to speak at 0730GMT. The talk is entitled “The Challenge of Prosperity”.


EURCHF 1.3072 support
EURUSD BEARISH Push below 1.3235 favours another bearish run towards 1.2988. Resistance at 1.3421
USDJPY BULLISH Recovery through 83.99 exposes 85.40 reaction high ahead of 85.93. Initial support at 83.57
GBPUSD BEARISH With the break of 1.5650, bear trend remains intact. Next support at 1.5297. Near-term resistance at 1.5773
USDCHF BULLISH Rise above 0.9998 exposes 1.0183. Near-term support at 0.9849
AUDUSD BEARISH Focus is on 0.9542 reaction low; a break here would expose 0.9477 Fibonacci support. Resistance at 0.9818
USDCAD BULLISH Sustained break of 1.0264 and 1.0374 required for confirmation of bull trend. Support holds at 1.0076
EURCHF BEARISH Push below 1.3229 exposes 1.3072. Near-term resistance at 1.3401 intraday high.
EURGBP BEARISH Break of 0.8421 and 0.8390 would expose 0.8311. Resistance at 0.8564
EURJPY BEARISH Break of 109.35 would expose 107.73 ahead of 105.44. Near-term resistance at 113.67.

Forex Daily Market Commentary provided by GCI Financial Ltd.

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