By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
USD
Risk sentiment continues to find support as figures out of the US yesterday suggested some of the recent economic fears could prove overblown, especially ahead of Friday’s crucial payrolls report. Manufacturing ISM was above consensus estimates at 56.3, which is consistent with an above-5% growth trend in manufacturing output. Regional manufacturing data had been mixed as of late so the positive ISM print was a pleasant surprise. The ADP estimate of private payrolls disappointed at -10k but our economists note ADP has been running lower than the official Bureau of Labor Statistics payroll estimates. That said, our team maintains the +75k forecast on private payrolls as the stronger ISM employment index partially offsets the weak, but perhaps unreliable, ADP. Philadelphia Fed President Plosser said he would support further QE only if real deflation risks arise, which he does not see currently. He also said the Fed should not ease to solve the unemployment problem and Dallas Fed President Fisher echoed this when he said more monetary easing would be akin to “pushing on a string.” Fisher said the ball is in the fiscal, regulatory policy court but declined to say whether more fiscal stimulus is needed at this juncture. Neither official spoke of a potential double dip ahead. Fed vice-Chairman Donald Kohn, on his last day in office, also noted that the decision to reinvest maturing securities is not an automatic precursor to further easing and maintained the need to watch data. Ahead today, Jobless claims data are due and Fed Chariman Bernanke will testify before the Financial Crisis Inquiry Commission. EURUSD traded 1.2785-1.2814 and USDJPY 84.08-84.56.
EUR
Our team does not expect the ECB decision to yield any surprises and would highlight a couple of points to watch for during ECB President Trichet’s press conference. ECB Governing Council member Weber already discussed the possibility of extending the full allotment refinancing operations. Since bank recapitalization remains an issue, We could see a more formal decision on this soon. Q2 growth was strong but Trichet cautioned on the second half at his previous press conference. While the stronger Q2 figures could augur better overall 2010 figures, it may not necessarily translate to an improved outlook for 2011.
German retail sales were worse than expected at -0.3%m/m, 0.8%y/y. The manufacturing PMI was also confirmed at 58.2, in line with expectations, showing that growth remains on track in Germany, but the rest of the Eurozone may struggle to keep pace. Eurozone manufacturing PMI was also firm at 55.1, higher than the initial release. Similar PMI releases across Europe were generally firm.
CHF
Q2 GDP was stronger than expected at 0.9%q/q (cons. 0.8q/q), 3.4%y/y, supporting expectations that the SNB could move to a more hawkish track. While CPI has tracked down recently, deflationary risks are not as prevalent as they were previously and continued growth should keep further SNB intervention at bay. Retail sales figures will be out later.
AUD
The Australian trade balance was weaker than expected at A$1.88bln, our economists note that the figure is still healthy after June’s record figure. However, they warn that given the rise in AUD commodity prices and stronger AUD point to falling net volumes and exports may subtract to Q3 GDP.
TECHNICAL OUTLOOK
EURUSD BEARISH Trend is still bearish with focus on 1.2588 ahead of 1.2434 Fibonacci support. Short-term resistance is defined at 1.2933.
USDJPY BEARISH Stalled above 83.60 trend low, move below the level would expose 79.75 key support. Short-term resistance is defined at 85.91 intraday high.
GBPUSD BEARISH Sustained break of 1.5324 would favor a bearish move towards 1.5125. Near-term resistance lies at 1.5475 ahead of 1.5713.
USDCHF BEARISH Break of 1.0131 favors the extension of bearish trend towards 0.9918 ahead of 0.9786. On the upside resistance holds at 1.0265 ahead of 1.0466.
AUDUSD NEUTRAL Recovery clears 0.9080; need a break above 0.9222 to confirm a bull trend. 0.8771 marks the key support level.
USDCAD BULLISH Bullish pressure holds below 1.0680; break of the level would open 1.0853. Initial support is defined at 1.0473 ahead of 1.0248.
EURCHF BEARISH Defined a new trend low at 1.2852, a break here would leave little support till 1.2403. Near-term resistance comes in at 1.3146.
EURGBP NEUTRAL 0.8363 and 0.8068 define the key near-term directional triggers.
EURJPY BEARISH Push below 105.44 would expose 100.00 next. Near-term resistance is defined at 111.11 ahead of 114.74.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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