By GCI Forex Research
Fundamental Outlook at 0800 GMT (EDT + 0400)
USD
The dollar held onto most of yesterday’s gains after a stronger batch of data pointed to an accelerating recovery in the US. EURUSD traded 1.3442-1.3514, USDJPY 82.87-83.13. Asian equities, with the exception of Shanghai, struggled throughout the session, after the S&P 500 finished just inside negative territory. US Treasury yields remain elevated. Initial jobless claims fell more than expected to 404k and the four-week average in claims implies that the downward trend seen in Q4 has been sustained into 2011. Existing home sales surprisingly jumped 12.3% in December to a 5.28 million unit annual rate, the highest monthly pace since last May. The current activity index in the Philadelphia Fed manufacturing survey edged down to a still-solid level of 19.3 in January. The index of leading economic indicators rose +1.0% m/m in December, and the strengthening is consistent with our US economists’ forecasts for real GDP picking up to a 3.5% annual rate in Q4. All told, the data firmly bolsters the case for a relatively better US recovery which we believe will support the dollar’s transition to growth currency status.
EUR
European officials continued to voice opinions over potential next steps to shore up sovereign debt problems but no clear solution has yet been presented. Newswires quoted an unnamed European source saying there were discussions about expanding the EFSF to purchase sovereign bonds.
Eurogroup President Juncker said euro volatility is extreme without commenting on current levels and said we could see a comprehensive response to the debt crisis in a few weeks. European Council President Van Rompuy sees only a small chance of Eurozone leaders having a separate crisis meeting during the larger EU leaders summit on February 4.
Ifo President Sinn said Greece would not be able to service its debt and suggested Greece should deal with creditor banks about debt restructuring rather than a Eurozone restructuring of Greek debt. German Ifo data is due.
Deputy Chairman Ulyukaev of the Russian central bank said Russia cannot buy EFSF bonds currently because of regulations but they may look to buy them should regulations change. Ulyukaev had also said Russia would look to diversify reserves and potentially buy Chinese yuan when capital controls are lifted.
Recent ECB speakers, including Liikanen and Tumpel-Gugerell, along with the monthly ECB bulletin have reiterated that there are no “imminent price pressures” in the Eurozone and inflation expectations are firmly anchored. The monthly ECB bulletin highlighted that price pressures stem largely from external sources, such as energy prices
CHF
SNB’s Hildebrand and Danthine sounded caution again on Swiss franc strength on the growth backdrop. Hildebrand also said FX intervention decisions are based on the deflation risk assessment but that the deflation threat has largely disappeared.
TECHNICAL OUTLOOK
EURJPY pressure on 112.19.
EURUSD BULLISH Sustained break through 1.3539/75 would expose 1.3741. Near-term support lies at 1.3369.
USDJPY NEUTRAL Spiky rise through 82.98 has turned the model to neutral; while support holds at 81.85/61, resistance is at 83.49.
GBPUSD BULLISH Push through 1.6059/94 resistance zone would open up the way towards 1.6184. Initial support defined at 1.5810.
USDCHF BULLISH While support holds at 0.9521, break of 0.9647 has exposed the next level of resistance at 0.9722 ahead of 0.9764.
AUDUSD BEARISH Abrupt decline through 0.9856 puts pressure on 0.9804, breach of this level would expose 0.9753. Near-term resistance at 1.0009 yesterday’s high.
USDCAD NEUTRAL 1.0034 and 0.9912 mark the near term directional triggers.
EURCHF BULLISH Rise through 1.3038 has exposed 1.3122 next ahead of 1.3206; initial support at 1.2815 yesterday’s low.
EURGBP NEUTRAL Focus is on initial resistance 0.8499 while support holds at 0.8377.
EURJPY BULLISH Pressure on 112.19, break of this level would expose 113.03; initial support is at 110.32.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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