By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar steadied a little during a quiet Asia session, having found itself on the defensive on Friday after at least two Fed speakers gave their conditional support to further easing measures. EURUSD traded 1.3746-1.3807 and USDJPY 83.23-83.87. New York Fed President Dudley, an FOMC voter, sounded especially dovish and clearly favours further policy accommodation. He noted that “the current levels of employment and inflation, and the timeframe over which they are likely to return to levels consistent with our mandate, are unacceptable”. Chicago Fed President Evans, who becomes an FOMC voter in January, worried aloud that the economic recovery seemed to have lost some forward momentum. However, Dallas Fed President Fisher, who also obtains FOMC voting rights in January, sounded less convinced about the merits of further easing, saying that the efficacy of further asset purchases is unclear. On the data front, the September manufacturing ISM index came in just below consensus at 54.4 (cons. 54.5, prev. 56.3). Looking into the detail, our US economics team notes that the new orders, employment, and export orders components all softened. The University of Michigan confidence reading was stronger than expected, rising to 68.2 (cons. 67.0).
EUR
China’s Premier Wen said China supports a stable euro and will not reduce its holdings of European bonds. He also offered to increase holdings of Greek debt when Greece returns to debt markets in search of funding. Wen continues his visit to Europe this week to propose what Xinhua call “practical actions” to help solve Europe’s continuing woes. The three countries on his itinerary, Greece, Italy and Belgium, are the most indebted in the Eurozone.
ECB Governing Council Member Draghi struck a hawkish note, observing that many banks have a “serious exposure” to the risk of a sudden rise in interest rates. Referring to the ECB’s unconventional measures, he said that their withdrawal should be timed so as not to sow the seeds of future crises by leaving too much liquidity in the system. Like some of his ECB colleagues, he noted that some banks remain addicted to ECB funding but that this issue should be addressed by national authorities, and not the central bank.
EU Commissioner Almunia expressed some satisfaction with the Irish government’s plans to restructure parts of the domestic banking system, and said the EU Commission would “proceed rapidly” towards making a final decision on whether the plan would be permitted under EU rules.
JPY
The BoJ’s latest policy meeting gets underway today, with a decision expected on Tuesday. The local press reports that the policy board is close to taking further easing steps. Possible measures reportedly include an expansion of the scale of fixed-rate liquidity operations from ¥30 trn to ¥40 trn, combined with a maturity extension from 6 months to “around one year”. An increase in the monthly intake of JGBs is also reportedly under consideration, along with the purchase of private sector assets and further “yen-selling operations”.
On Friday, a Japanese government official indicated that the MoF would seek to impress upon the BoJ that any future interventions should remain unsterilized. The local press also reported that the T-bill issuance calendar for October, published on Friday, shows that the MoF does not plan to issue financing bills this month to repay funds borrowed from the BoJ to fund the recent intervention operations. Any such issuance would have absorbed the excess yen liquidity the BoJ injected through its yen selling operations.
GBP
Our analysts team has pushed back his BoE rate call by six months, and now sees the first hike coming in Q3 2011. They also lowered the end-2011 policy rate forecast to 1.0% from 2.0%.
TECHNICAL OUTLOOK
EURJPY clears 114.74.
EURUSD BULLISH Bull trend continues; targets 1.3896 next with scope for 1.4194. Near-term support comes in at 1.3619 ahead of 1.3381.
USDJPY BEARISH Focus is back on the downside; break of 82.88 would expose 79.75. Resistance remains at 84.50 ahead of 85.40.
GBPUSD BULLISH Bull stalls in front of 1.5999 key high; support at 1.5670 ahead of 1.5503.
USDCHF BEARISH Bearish pressure held at 1.9709 ahead of 0.9625. Resistance at 0.9918 breakout low.
AUDUSD BULLISH The pair is expected to target 0.9850 with scope for 1.000 psychological resistance next. Support is at 0.9559 ahead of 0.9463.
USDCAD BEARISH Break below 1.0192 opens up the way towards 1.0108 and 0.9931 next. Resistance comes in at 1.0380.
EURCHF BULLISH Expect recovery to targets 1.3651; need a break above 1.3924 to confirm the positive trend. Downside risk capped at 1.3361.
EURGBP BULLISH Violation of 0.8736 exposes 0.8808 next. Support holds at 0.8659 ahead of 0.8563.
EURJPY BULLISH Clears 114.74; expect gains to extend towards 116.68 and 119.33 next. Near-term support comes in at 113.76 ahead of 112.67.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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