By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar weakened ever so slightly versus much of the G10 as investors wait for more data to help clarify the global economic outlook. Stocks in Asia are broadly flat at the time of writing and US equities finished modestly negative. Gold has managed to hold onto yesterday’s gains immediately after US jobless claims disappointed, and touched a high of $1217.23/oz. US data disappointments, such as the latest jobless claims, are not helping risk appetite and investors will scrutinize the next wave of consumer-related data, with retail sales, CPI and the University of Michigan consumer confidence index due today. While US data needs to stabilize to calm investors, the relative data discrepancy between the Eurozone and the US might recede after the upcoming Q2 Eurozone GDP print, as ECB President Trichet acknowledged that the second half will not be as robust as Q2. There is still appetite for the dollar as a safe haven, at least relative to the euro and sterling, and there are certain dollar asset classes such as corporate credit, which remain attractive, though the latest Fed actions have investors treading more cautiously.
EUR
Over the past two months we had the impression that the market participants on the EUR-USD market suf-fered from similar symptoms. EUR-USD seemed dominated completely by US news. The debt crisis in Greece and other peripheral countries seemed forgotten just as its cyclical and struc-tural consequences. And while we consider about 2/3 of the euro recovery during that period to be justified (due to the fact that the FOMC seems to increasingly resemble a dovecote) 1/3 of the recovery from levels below 1.19 that is still present is due to this neglect of the markets. The symptoms seem to be improving slowly though. Yesterday the fact that an ECB poll among forecasters had resulted in deteriorating growth prospects as well as the surprisingly negative GDP data from Greece received surprising levels of attention – despite the fact that the change in the forecaster’s view was marginal and the surprisingly bad GDP data from Greece was counterbalanced by an upward revision of the previous quarter. If those suffering from neglect symptoms remain in remission one would have to expect that EUR-USD should find support from Eurozone data today. After all the GDP data is likely to come in slightly above analysts’ expectations and is very probably going to illustrate a strong Q2. But some care is required when predicting the effects on EUR-USD. First of all it seems to be generally expected that analysts’ expectations are exceeded – certainly when listening to the latest market comments. And moreover the problem of the Eurozone has never been ag-gregate growth but the problem cases. Strong growth in Germany or Finland is not going to help. The US data is more likely to provide support for EUR-USD, as retail sales are due for publica-tion today. For years the US consumers were the driver of the global economy. But the double dip prophets are of the view that they will remain inactive for years to come thus preventing a sustainable recovery. Our economists expect that this pessimistic view might be dented today. First available June data suggests that retail sales recorded a notable rise last month. That might create the impression that everything will be alright in the US while the problems in the Eurozone remain. From a fundamental point there is very little reason today for a continuation of the EUR-USD trend seen over the past few days.
JPY
The verbal interventions relating to the yen are gradually becoming stronger. Yesterday Minister of Finance Yoshihiko Noda let slip that there had been G7 consultations on civil ser-vant levels about the exchange rate developments. Japan would not really need outside help for interventions. The BoJ should be happy for every yen it creates in liquidity. But from another point of view coordination among G7 members would be necessary: It would remove the dan-ger of criticism from the US, in particular the US Congress. For that reason suggestions of this nature are important. But Noda’s comments were not the only intervention. Central bank gov-ernor Masaaki Shirakawa pointed out once again that the exchange rate developments and their effects on the Japanese economy were being observed carefully. And when Noda then pointed out he would communicate closely with Shirakawa that rounded things off completely. Yesterday’s comments are at best gradually stronger than previous Ministry of Finance and central bank comments. But their effect was nonetheless spectacular. According to general market conviction USD-JPY trades in the danger zone if it falls below 85.00, a fact that caused stronger verbal intervention in November. As a result small steps on the part of the Minister of Finance and the governor of the central bank have a particular effect. As a result hardly any-body is likely to have an appetite for a renewed attempt on the danger zone today. But that makes it increasingly difficult to justify JPY longs. Also from a fundamental point of view there are clearly no reasons for a USD-JPY exchange rate below 85.00.On the contrary: GDP publications next week are likely to be negative again. As a result Prime Minister Naoto Kan’s government is likely to once again face demands for additional fiscal policy stimulation. From a fundamental point of view all reason for an upward correction in USD-JPY. We expect prices around 87 in USD-JPY in the foreseeable future, and prices around 88 by year end.
TECHNICAL OUTLOOK
EURUSD BEARISH Move below 1.3024/1.2929 opens door for a run towards 1.2737. Initial resistance at 1.3070 ahead of 1.3334
USDJPY BEARISH The pair currently holds support at 84.73, a break here would leave little support till 79.95. Near-term resistance holds at 87.15 ahead of 88.12
GBPUSD NEUTRAL Recent pullback slashed through 1.5665 support thus exposing 1.5324. Initial resistance is defined at 1.5999 ahead of 1.6458 key high
USDCHF NEUTRAL Remains heavy below 1.0676 keeping our focus on the downside. Support holds at 1.0332 ahead of 1.0131
AUDUSD BEARISH Pullback from 0.9222 eyes 0.8896 with scope for 0.8634 next. 0.9389 marks the key resistance level
USDCAD BULLISH Model has turned bullish with upside gains initially capped at 1.0587 ahead of 1.0853. Near-term support comes in at 1.0303 ahead of 1.0108
EURCHF NEUTRAL Break of 1.3511 enhances the chances for another run towards 1.3074. Near-term resistance at 1.3665 ahead of 1.3924
EURGBP BEARISH While resistance at 0.8363 holds, expect loses to target 0.8068 with scope for 0.7694 next
EURJPY BEARISH Sustained break of 110.02 favors another bearish run towards 107.32. 111.57 defines the near-term resistance
Forex Daily Market Commentary provided by GCI Financial Ltd.
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