By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
USD
The dollar weakened ahead of the second estimate of Q2 GDP and Fed Chairman Bernanke’s speech at Jackson Hole and risk sentiment overall was weak with equities slightly negative and the Dow Jones Industrial Average settling below 10,000. Initial jobless claims was better than estimated at 473k though the trend is still higher and the consensus estimate for GDP is at 1.4% annualized versus 2.4% in the advance estimate, which was released at the end of July. The much anticipated Bernanke speech is due but investors have increasingly questioned what, if anything, he can say to mollify worries on recent US data softness in between FOMC meetings. The Fed might need further assistance from the fiscal side of things but it will be interesting to see if Bernanke announces any new monetary possibilities beyond the ones that have already been discussed (i.e. extending the “extended period” language, reducing interest on reserves). The text of the speech should be released at 1400 GMT and no Q&A session is anticipated. Should the Bernanke speech pass without much incident, we could see safe havens supported as investors may take that as a sign that further easing, which would be risk-supportive, is not in the cards. EURUSD traded 1.2651-1.2764, USDJPY 84.32-84.89.
EUR
Data divergences have been in favour of the Eurozone versus the US as of late but uncertainty on central bank policies have kept EURUSD range-bound this week. Eurozone M3 was as expected and Germany August CPI is expected to be flat. GfK consumer confidence came in slightly above expectations at 4.1 (cons. 4.0). While much of the direction for the pair will come from the US, investors should bear in mind that fiscal tightening will keep the ECB on hold for quite some time as well, and banking recapitalization concerns and sovereign financing will also provide some overhang for the Eurozone.
JPY
DPJ former Secretary-General and party heavyweight Ozawa will likely challenge PM Kan for the leadership (and the Premiership as the DPJ still commands a lower-house majority). Political uncertainty will likely increase uncertainty and the policy deadlock, but given that Japanese investors’ traditionally respond to domestic-based risk aversion with yen buying, this may not constitute a significant risk event which could open up USDJPY upside. 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.
National CPI is expected to remain negative, which would keep pressure on the BoJ to implement further easing measures.
CHF
Consensus estimate for the Swiss KOF leading indicator is 2.20, roughly in line with the July reading. Elevated KOF levels will support the Swiss franc as investors look towards the September policy meeting, where we expect some form of policy tightening, and also as they rotate among the safe haven currencies. The employment data for Q2 2010 recorded a new all-time high in the number of employed.
TECHNICAL OUTLOOK
EURUSD BEARISH Sell-off from 1.3334 found support at 1.2588, a break here would expose 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 is defined at 85.20 ahead of 86.38.
GBPUSD NEUTRAL While resistance 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 As long as 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 While 1.0677 caps the upside initially, next resistance lies at 1.0853. Initial support lies at 1.0511 ahead of 1.0248.
EURCHF BEARISH Defined a fresh trend low at 1.2972 clearance of which will expose 1.2755 next. 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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