By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
USD
The dollar weakened slightly versus some of the higher beta currencies amid yet another data disappointment. The lower than expected durable goods and new home sales figures ratcheted up worries of a double dip scenario and more potential Fed easing but equities and Treasury yields managed to close higher. Investors could be at the point where they now expect further Fed easing, which could remain supportive to risk-seeking. However, the relatively muted dollar reaction, especially with the better than expected German IFO data, also indicates investor uncertainty surrounding future G10 policymaking as G10 central banks have sounded more dovish as of late. That uncertainty could help the dollar at the current juncture and the spotlight is getting more intense on Fed Chairman Bernanke’s upcoming speech with every negative data print. Overall durable goods orders rose much less than expected in July though the June decline was revised upward. Details were also softer and revisions to inventories and shipments data should add 0.1% to Q2 real GDP growth. Our economists now expect a 1.1 point downward revision to Q2 GDP to 1.3% from 2.4% and still forecast 1.5% for real GDP growth in Q3. New home sales have been more volatile but mortgage apps signal some stabilization. EURUSD traded 1.2609-1.2726, USDJPY 83.90-84.84.
EUR
The EUR fared well though the better-than expected German IFO did not give as much of a boost as had been thought. A Portuguese auction passed without incident and worries over Ireland’s debt position remains but sentiment is stable for now. The IFO business climate came in at 106.7 (cons. 105.7) and the expectations index dipped slightly to 105.2 (cons. 104.3).
German Finance Minister Schaeuble is not worried about recent bond spread widening and said Greece is doing its job on curbing its deficit. Schaeuble also said the euro is in a reasonable trading range.
JPY
USDJPY has continued to drift higher in the last few sessions as the government rhetoric has increased but the pair is still sub-85, which has investors still on edge. Japanese PM Kan noted that he did not talk about intervention in a meeting with business leaders. However, he noted that cooperation between authorities would continue, and BoJ Governor Shirakawa will be attending the Jackson Hole meetings this week.
The merchandise trade balance improved on the month, with export growth coming in stronger than expected at 23.5%y/y, and imports were down. The results may cause investors to further question the need for intervention at this stage, and we continue to doubt any prospect of the BoJ coming in the near term.
TECHNICAL OUTLOOK
EURUSD BEARISH Break through 1.2606 has exposed next support lying at 1.2434 with scope for 1.2152 next. Near-term resistance holds at 1.2933.
USDJPY BEARISH Decline through 84.73 halted at 83.60, which lies ahead of 79.75 key support. Near-term resistance at 85.20 ahead of 86.38.
GBPUSD NEUTRAL While resistance is at 1.5713 holds, move below 1.5324 would put odds in favor of a negative trend. Next support lies at 1.5125 ahead of 1.4906.
USDCHF BEARISH While resistance at 1.0676 holds expect loses to target 1.0131 and 0.9918 next.
AUDUSD BEARISH Momentum is negative; initial support is defined at 0.8663 ahead of 0.8531. Only a move above 0.9080 would hurt the negative tone.
USDCAD BULLISH Upside potential capped at 1.0677 ahead of 1.0853. Initial support lies at 1.0383 ahead of 1.0248.
EURCHF BEARISH Defines fresh trend lows. Clearance of 1.3000, psychological support level exposes 1.2755. Near-term resistance at 1.3242 ahead of 1.3458.
EURGBP BEARISH Focus is on 0.8068 and 0.7974 support levels. Short-term resistance is defined at 0.8247 ahead of 0.8363.
EURJPY BEARISH Bearish pressure held above 104.72; breach of the level would expose 100.00, round number support. Near-term resistance is defined at 108.87 ahead of 111.11.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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