By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar was steady overnight amid a general lack of fresh news. The Bank of Japan detailed its easing measures but intervention seems off the cards around these levels as most partiers are probably waiting for the Fed’s upcoming steps before deciding on further action. UK housing data was also softer than expected. Meanwhile, investors continue to recalibrate expectations for the Fed’s next move following a Wall Street Journal article and signs of pressure in the Eurozone kept the dollar relatively well-supported. Wires also reported that the Fed is asking for projections of upcoming purchases to evaluate their upcoming steps. Equities closed modestly flat and Treasury yields remained elevated as some inflation expectations continue to creep in. The WSJ article suggests a relatively small QE program will be unveiled at the upcoming FOMC meeting: “a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months”. This is a contrast to the shock and awe (large, long-term) approach that some in the market have expected. And again, with US data not terribly disappointing, investors likely took note and adjusted positioning. Among the data releases, durable goods orders rose more than consensus estimates at 3.3% in September though underlying elements of the report were a good deal weaker. Orders excluding transportation fell 0.6% versus expectations for a gain. Meanwhile, new home sales rose 6.6% in Sept. That is still a very slow sales pace, but the rise is consistent with a range of other data that suggest home sales have bottomed. Jobless claims is the only data due in the US. Ahead today, jobless claims data will be out in the US and Germany unemployment is expected to show a further decline. Overnight EURUSD traded 1.3764-1.3829 and USDJPY 81.51-81.79.
EUR
Eurozone worries persist despite the focus on potential QE2 in the US. The Portugese government and the opposition Social Democrats could not reach a consensus for a 2011 budget proposal, which is expected to contain cuts, the amount of which have not been seen since the 1970s. Parliament will discuss the 2011 budget November 2 with votes scheduled for the following day. The Social Democrats need to either vote for the budget or abstain for Prime Minister Socrates to get the budget through. Irish Finance Minister Lenihan said their fiscal position remains serious and that Ireland cannot “unilaterally devalue.” And the ECB’s latest liquidity operation showed larger-than-expected demand from banks for cheap funding.
Meanwhile, the Eurogroup’s Juncker said the dollar is undervalued against the euro and “Europe is the victim” of global currency policies. German Chancellor Merkel also said FX rates must reflect fundamentals and excess currency distortions hurt all economies.
We expect EURUSD to stay capped, and remain of the view that the past few weeks’ range will ultimately unravel to the downside.
JPY
The Bank of Japan announced it would purchase lower-rated corporate debt to further ease conditions in the domestic economy, as a part of its comprehensive package put forward last month. The BoJ also announced more meetings next week to consider purchases of other assets.
Purchases amounts of other assets were detailed at this meeting, but overall sizes were unchanged as the asset purchase program and credit-loan program will remain unchanged at ¥5tln and ¥30tln respectively. Intervention remains a difficult subject but we believe USDJPY will need to make another material move to the downside to force the authorities back in.
On the data side, retail trade was lower than expected at -3%m/m (cons. -0.5%m/m).
TECHNICAL OUTLOOK
EURUSD BULLISH Move above 1.4159 required for resumption of the bull trend. Support at 1.3637/1.3559 zone
GBPUSD BULLISH Recovery has scope for 1.6107. Support holds at 1.5606
USDCHF BEARISH Rise above 0.9918 breakout low exposes 1.0183. Support holds at 0.9703 ahead of 0.9463
AUDUSD BULLISH Break of 0.9662 support has exposed 0.9542 reaction low next. Resistance at 1.0004
USDCAD BEARISH As long as 1.0380 continues to cap the upside, expect decline towards 1.0154 ahead of 0.9981
EURCHF BULLISH Momentum is positive; expect acceleration of gains towards 1.3924. Near-term support at 1.3456 ahead of 1.3265
EURGBP BULLISH Pullback from 0.8942 eyes 0.8689 with scope for 0.8636 next.
EURGBP BEARISH Focus is on the downside; expect loses to target 0.8167 with scope for 0.8068 next. Short-term resistance is defined at 0.8363
EURJPY BEARISH Decline through 107.32 would open up the way to 104.72. Near-term resistance is defined at 111.11 ahead if 114.74
Forex Daily Market Commentary provided by GCI Financial Ltd.
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