FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk sentiment was stable in Asia, mainly in reaction to yesterday’s constructive performance of European and US stock markets. Sentiment improved mainly on the notion that Greece will receive the next aid tranche from the IMF/EU after German Chancellor Merkel and French President Sarkozy both said that Greek Prime Minister Papandreou is committed to meeting agreed deficit-reduction targets and that they are convinced about Greece staying in the euro. However, the statement issued after yesterday’s telephone conference actually offered little new of substance. New Zealand‘s central bank kept interest rates unchanged, mainly due to heightened uncertainty about global growth prospects. US data was generally soft yesterday. PPI was unchanged from last month while retail sales came in below expectations. Our US economists note that some of the softness may have been related to hurricanes, as households postponed spending, but there should also have been some offset. We remain cautious on risk and the euro against the dollar and yen in particular, amid uncertainty over policy implementation and growth concerns.
EUR
The conference call between Merkel, Sarkozy and Papandreou gave no further information to the markets. In similar fashion to previous statements, all 3 leaders committed to implementing the July 21 measures as quickly as possible. Germany said that Greece needs to put ‘pledges into practice’ to return to growth.
It was announced that 2 banks used the ECB’s USD swap facility, for a total of $575 mn in the 7-day operation at fixed rate. While some have pointed to this as a further sign of funding stress, it is largely due to the large moves in EURUSD basis markets over recent weeks, banks will be increasingly tempted to use the facility if current trends continue. However, the very fact that the swap facility is now a cheaper option highlights the recent trend in funding concerns. It was also announced that Spanish banks borrowed EUR81.61 bn from ECB in August vs EUR57 bn in July, quite a sharp rise.
S&P said that is is very likely German banks could digest Greek default without state aid if crisis can be contained. They said the profit outlook for German banks appears negative, but not threatening yet if there is no recession or further widening of crisis
The EU Commissions Barosso said that the only way to stop a negative cycle of debt crisis is through deeper Eurozone integration; markets and investors will trust us only when we show that we can deliver on our commitments. He suggested that Eurobond proposals will soon be presented by the European Commission. The proposals that require substantial treaty change are no substitute for Greece meeting its obligations ECB’s Costa also suggested that Europe needs to consider euro bonds, although the ECB have offered these thoughts before.
GBP
UK average earnings growth was 2.8% y/y in the three months through July from 2.7% in June and against forecasts for 2.8%. The UK‘s August claimant count jobless rose 20.3k in the month following a revised +33.7k in July (prelim +37.1k) and against forecasts for +35.0k. Overall, slightly supportive data for GBP although the currency remains driven by external factors at the moment.
Moody’s stated that the final report published by the ICB will not trigger any immediate rating changes for UK banks; but is credit-negative for bondholders longer-term.
NZD
The RBNZ left the OCR unchanged at 2.5%, mainly due to heightened uncertainty about global growth prospects and as monetary conditions tightened on the back of the strong NZD. RBNZ Governor Bollard said the exchange rate around current levels is hurting the corporate sector and will have a lasting impact in tightening monetary conditions.
In an environment of firm risk aversion, global growth momentum likely weakening further and the RBNZ on hold for now we expect the NZD to be a sell on rallies versus the greenback in particular.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURGBP 0.8749 resistance.
EURUSD BEARISH As long as resistance at 1.3837 is intact, look for a move below 1.3591 to expose 1.3495.
USDJPY BEARISH Our focus is on 76.43, a break below which would open 75.95, the key low. Resistance is at 77.25.
GBPUSD BEARISH Initial support is at 1.5676, a Fibonacci level, ahead of 1.5583. Resistance is at 1.5870.
USDCHF BULLISH Key resistance is at 0.8928; a rise through which would expose 0.9105. Support lies at 0.8706 ahead of 0.8540.
AUDUSD BEARISH Decline through 1.0111 would expose the key low at 0.9928. Resistance is at 1.0376.
USDCAD BULLISH Clearance of 0.9977 would open up 1.0027. Initial support lies at 0.9891, the intraday low.
EURCHF NEUTRAL The cross is consolidating below 1.2191, the high from Sept 6. A break here would open 1.2346. Support lies at 1.1973, a previous high.
EURGBP BEARISH Near-term support is at 0.8639 ahead of 0.8596. Initial resistance is at 0.8749, a key Fibonacci level.
EURJPY BEARISH Fall through 103.90 would expose 102.45. Resistance is at 106.05.
SCHEDULE
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