FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk aversion persisted in Asia on continued worries about the Eurozone periphery. Eurozone finance ministers agreed yesterday that Greece could wait until mid-November until it receives the next aid tranche. Greece was said to be able to run without additional cash until the second week of November. Separately, Eurogroup Chairman Juncker confirmed that discussions are underway to revise the July 21 agreement on private sector participation in a second Greek rescue. Yesterday’s meeting produced little in terms of additional steps to enhance the size of the stability fund. The latest reports indicate that the next finance ministers’ meeting, which was scheduled for Oct. 13, has been postponed. Elsewhere, the RBA kept rates unchanged in line with market expectations, mainly due to increased uncertainty about global growth prospects. The US ISM was above expectations yesterday but had a short-lived impact on risk sentiment. Most equity market indices are trading lower, with the Nikkei down by 1.44% after declines in US equities. EURUSD traded 1.3163-1.3217 and USDJPY 76.53-76.74. Ahead today investors will remain focused on headlines with respect to Greece. Fed Chairman Bernanke is also due to testify on the economic outlook.
EUR
Eurozone finance ministers met on Monday and as expected, no final decision was taken on whether Greece would receive its next tranche of cash. Greek officials indicated the country will not run out of cash before mid-November.
Juncker repeated that the ambition is to use the EFSF’s available funding in a more efficient manner but, in a new development, he stressed that there would be no extra burden for the German taxpayer. He did not elaborate on the leveraging options under consideration, which suggests that a leveraged EFSF is still some way off, if indeed it ever sees the light of day.
Agreement was reached on how collateral arrangements will be handled. As newswires reports had previously suggested, EFSF CEO Regling confirmed that although all countries would be eligible to demand Greek collateral as part of any future contributions to Greece, only Finland was likely to do so. Regling added that countries who receive collateral would have to forego some of the profit earned by lending to Greece. The emergence of agreement on this point is euro-positive at the margin.
The series of manufacturing PMIs were generally revised higher across the Eurozone. German numbers were revised to 50.3 from 50.0, French to 48.2 from 47.3 and Italian 48.3 from 47.0. The composite indicator was inevitably revised higher to 48.5.
GBP
UK September manufacturing PMI was revised higher to 51.1 vs 48.5 consensus. New export orders fell to 45.0 from 46.9 though. Our analyst notes that the underlying UK PMI data series also paint a positive picture – new orders and output are higher, but export volumes have eased – consistent with the slowdown in manufacturing output in the Eurozone and elsewhere.
AUD
The RBA left the overnight cash rate unchanged at 4.75%, in line with market expectations. Rising uncertainty on global growth prospects along with weaker domestic conditions kept the central bank in a wait-and-see mode. The bank also said that the pace of near-term growth will be weaker than previously assumed and that there is less risk of an acceleration in labour costs. Hence the RBA is taking a more relaxed stance with respect to inflation risk.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURUSD BEARISH Break below 1.3245 has opened support at 1.3089 ahead of the key low at 1.2867. Near-term resistance is at 1.3389.
USDJPY NEUTRAL Initial resistance is at 77.28, while support lies at 76.11.
GBPUSD BEARISH Decline through 1.5433 has opened the key low of 1.5328. Next support is at 1.5251. Resistance is at 1.5666.
USDCHF BULLISH Clearance of 0.9183 has paved the way for 0.9340 and 0.9506. Support lies at 0.8919.
AUDUSD BEARISH Break below 0.9537 has opened 0.9406, channel lower drawn off Aug 1 high, ahead of 0.9331. Initial resistance is at 0.9701.
USDCAD BULLISH Initial resistance is at 1.0569 ahead of 1.0680. Support lies at 1.0352.
EURCHF BULLISH Near-term resistance is at 1.2283 ahead of key resistance area of 1.2346/1.2403. Support lies at 1.2051.
EURGBP BEARISH Pressure is on 0.8530, a key low from Sep. 12; a move below this level would expose 0.8456. Resistance is at 0.8632.
EURJPY BEARISH Clear break below 100.85, channel lower drawn off July 5 high, would open 100.00, a psychological level, ahead of 98.95. Resistance is at 103.23.
SCHEDULE
Please visit GCI’s Economic Calendar for a schedule of market news and events.
