By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar fell sharply against its G10 peers during the Asia session, as global risk appetite continued to build. EURUSD traded 1.3362-1.3484, and USDJPY 82.13-82.76. The S&P 500 gained 0.14% on the day, and Asian equities were also firmer. US economic data yesterday was largely second-tier. The Empire state manufacturing survey for January rose to 11.92 from 9.89 in December. The NAHB housing market index was unchanged at 16 in January, just below the consensus of 17. TICS data showed net foreign inflows to US long-term securities rose to $85 bn in November from $29 bn in October. Today, US housing starts and building permits are due for December. However, tomorrow’s jobless claims report will be critical to the dollar’s near-term direction – a substantial fall in claims may be enough to lend the dollar some much needed support. We remain bullish on the dollar as we await further evidence that the US recovery is accelerating.
EUR
Yesterday’s meeting of EU finance ministers broke up without agreement on how to address perceived deficiencies in the European Financial Stability Facility. Belgian Finance Minister Reynders said the EFSF discussions are progressing, but German Finance Minister Schaeuble did not appear to be in any hurry to support near-term changes.
French Finance Minister Lagarde confirmed that the European banking system will undergo another round of stress tests due to begin February. She expressed the hope that these would be “extremely specific, well-documented and well communicated to be of irreproachable quality”.
Germany’s ZEW economic surveys were positive with the economic sentiment index rising to 15.40, significantly above consensus at 7.0. The Eurozone’s equivalent survey was equally impressive, rising to 25.40. However, markets continue to be mainly driven by developments over the debt crisis.
Some details emerged over the next round of bank stress tests to be conducted across Europe later this year. They are expected to be significantly more comprehensive in their nature.
GBP
Headline CPI for December beat market expectations, rising by +3.7% y/y (prev. 3.4%). Sterling rallied on the numbers, as investors now see a greater chance that the BoE may hike sooner. However, our UK economist continues to expect the first rate hike in Q3. This is consistent with public comments by MPC members recently, which reveal some concern over the strong inflation readings, but also a willingness to look through the short-term inflation strength.
Attention will now turn to today’s employment report, followed by MPC member Posen’s speech tonight. He voted to begin another round of Gilt purchases in December, and investors will be curious to see if the latest developments have caused him to reconsider his stance.
CAD
As expected, the Bank of Canada kept its target for the overnight rate unchanged at 1.00%. The policy statement reminded markets that the recovery in net exports is being restrained by the stronger CAD, and this was enough to push USDCAD a little higher. The BoC’s quarterly Monetary Policy Report is due for release later today.
AUD
Consumer confidence for January fell by -5.7% m/m, reflecting the impact of extensive flooding.
TECHNICAL OUTLOOK
USDJPY breaks 82.31 support.
EURUSD BULLISH Remains constructive below 1.3500, a move above this level would signal a strong bull trend and expose 1.3575 next. Near-term support lies at 1.3245.
USDJPY BEARISH Negative tone continues with break of 82.31 and targets 81.89/61 next. Resistance is at 83.67.
GBPUSD BULLISH Recovery eyes 1.6074/94 resistance zone. Initial support defined at 1.5878 yesterday’s low.
USDCHF BULLISH As long as 0.9542 support holds; broader focus is on the upside with initial resistance at 0.9687 ahead of 0.9784.
AUDUSD NEUTRAL Upward momentum with break of 1.0020 resistance; support is at 0.9804 while resistance is at 1.0076.
USDCAD BEARISH Tough support at 0.9820; breach of this would favor extension of bear trend towards 0.9712. Resistance is at 0.9977 reaction high.
EURCHF BULLISH Recovery found resistance at 1.2952 ahead of 1.3038; initial support at 1.2757.
EURGBP BEARISH The pair targets 0.8313 ahead of 0.8285. Resistance is at 0.8455.
EURJPY BULLISH Push above 111.12 has made the pair focus on 111.16 yesterday’s high ahead of 112.19 next. Support at 109.56 holds.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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