FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk sentiment weakened in Asia mainly on lingering worries about the Eurozone periphery and global growth prospects. Greek government draft budget figures show the country is facing larger deficits than previously assumed. This comes as no surprise as published figures were in line with most recent estimations by the IMF. Nevertheless, the government has said additional spending cuts will be undertaken in order to get closer to agreed targets. EU finance ministers will meet today to discuss responses to the debt crisis. Any comments with respect to leveraging the stability fund will be closely followed. In Japan, the BoJ’s Q3 Tankan was below expectations, suggesting that the strong yen and uncertainty about global growth prospects are keeping sentiment depressed among the largest manufacturers. Most Asian stock market indices are trading in the red, with the Nikkei down by 2.5%. EURUSD traded 1.3314-1.3380 and USDJPY 76.97-77.26.
On Friday, St Louis Fed President Bullard (non-voter) said that if the economy deteriorates, “monetary policy will respond”, adding that the Fed is not “out of ammunition”. Dallas Fed President Fisher, a dissenting hawk, continued to sound increasingly concerned about the state of the economy. Although he did not think current weakness would develop into a double-dip, he said the economy was “on an edge here”. Apart from the EU finance ministers’ meeting, markets will be watching the US ISM Manufacturing PMI for indications of US growth conditions and prospects.
EUR
Government draft budget figures show Greece is facing larger deficits than previously assumed. GDP is now predicted to fall by 5.5% this year and by 2-2.5 % in 2012. A deficit of 8.5% of GDP is expected for 2011, well above the previously agreed target of 7.6%. Although those numbers are worse than assumed, they are in line with most recent calculations by the IMF. Hence they do not come as a major surprise and should not derail Greece‘s current negotiations with the troika. Greece pledged to undertake additional spending cuts in order to secure the next aid tranche. We remain of the view that Greece will ultimately receive its current bailout tranche.
The ECB’s Noyer said that it is unrealistic to expect an increase in size of the EFSF. This is in line with comments from German Finance Minister Schaeuble last week. However, Noyer also said that he is open to any scheme that would allow existing commitments to be leveraged.
The monthly Eurogroup meeting of Eurozone finance ministers is due to get underway at 1600GMT on Monday. Press reports suggest that the question of how to leverage the EFSF will dominate the agenda. An additional Eurogroup meeting (to be scheduled later in October) is due to decide if Greece is to receive its next quarterly instalment. Greek news reports indicate that the troika will remain in Greece until Friday, continuing their quarterly inspection.
Irish Prime Minister Kenny said that he was opposed to changing the Lisbon Treaty to enable deeper European fiscal integration. Irish sovereign bonds continue to advance and yields are now below where they traded when the EU/IMF rescue was agreed in Q4 2010.
CHF
According to ECB’s Noyer the SNB’s decision to set a floor in EURCHF confirms the optimistic future of the euro.
The KOF leading indicator was much weaker than consensus expectations, with the headline number coming in at 1.21 (cons. 1.30), down from 1.61 last month. Our Swiss economist notes that this indicates a significant slowdown in the Swiss economy, but that the print was taken at the height of CHF strength and so we would expect a slight improvement going forward.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURUSD BEARISH Break below 1.3356 has opened 1.3245 ahead of 1.3089. Near-term resistance is at 1.3601.
USDJPY NEUTRAL Initial support lies at 76.11 ahead of 75.95, the key low. Key resistance is at 77.86.
GBPUSD BEARISH Decline through 1.5526 has opened 1.5433 ahead of 1.5328, key low from Sep. 22. Resistance is at 1.5597.
USDCHF BULLISH Key resistance is at 0.9183 ahead of 0.9340. Support lies at 0.8919.
AUDUSD BEARISH Fall through 0.9537 would open 0.9463 next. Initial resistance is at 0.9810.
USDCAD BULLISH Clear break above 1.0512 would open 1.0569 ahead of 1.0680. Support lies at 1.0352.
EURCHF BULLISH Initial resistance is at 1.2283 ahead of key resistance area of 1.2346/1.2403. Support lies at 1.2051.
EURGBP BEARISH Key support lies at 0.8530; a break below this level would open 0.8474 next. Resistance is at 0.8579.
EURJPY BEARISH Move below 102.85 has opened the way towards 101.94 ahead of the psychological level of 100.00. Resistance is at 104.48.
SCHEDULE
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