FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
FX market activity was relatively subdued during the Asia session as investors sought a new post-payrolls theme. Despite the thin trade, the dollar managed to claw back some ground lost on Friday. EURUSD traded 1.3962-1.3999, USDJPY 82.15-82.39. The Nikkei-255 fell -1.76% and the S&P 500 closed down -0.74% on Friday. WTI and Brent crude both continue to push higher, as tensions in the Middle East and North Africa remain elevated. Headline payrolls increased +192k in February, while January payrolls were revised up to +63k from +36k and December’s to +152k from +121k. Private payrolls in January showed even greater strength, accelerating to +222k from +68k. The unemployment rate edged down to 8.9% despite a +60k rise in the labor force. Our US economists believe the upturn in employment and the downturn in the unemployment rate are genuine signs of an accelerating US recovery.
EUR
China’s foreign minister said China’s purchases of European debt should not be a cause for suspicion.
At a summit of EU Leaders in Finland on Friday, Finland’s Finance Minister Katainen said that the effective capacity of the Eurozone’s EFSF should be increased to €440 bn. However, he said he was opposed to using the EFSF, or its proposed successor (the ESM), as a vehicle for purchasing bonds.
Katainen added that “right now, today, it doesn’t look that obvious” that more countries will need to avail of EFSF funding. EFSF CEO Regling seemed to agree, saying he did not think it necessary for other Eurozone countries to use EFSF funding “at the moment”.
Fitch affirmed its sovereign rating on Spain, but lowered the outlook to negative from stable. Fitch cited, among other factors, the potential for market volatility if no “credible and comprehensive” solution emerges from this month’s European summits. Greece’s Prime Minister Papandreou said the EU summits in March could turn the page on the debt crisis, but that “Europe does not have the luxury of taking the wrong decisions”.
ECB Governing Council member Noyer said that inflation expectations have “so far” remained fairly well anchored, but he pointed to the risks associated “with having a number of months with an excessive inflation rate due to the cost of commodities and energy”. ECB Governing Council member Gonzalez-Paramo repeated the language used at Thursday’s ECB press conference, noting that a policy rate hike in April “is possible”.
ECB President Trichet reiterated his view that “a solid and credible dollar … is in the interest of the United States and in the interest of the international community”.
JPY
BoJ Deputy Governor Yamaguchi said that core CPI has returned to zero, and forecast that it would likely improve further. He said the BoJ would take appropriate action if either the economy or price conditions worsen.
CHF
SNB Vice Chairman Jordan said deflation risks in Switzerland have largely disappeared and interest rates will need to rise in the medium term. Although his remarks supported the CHF, we do not interpret these comments as a toughening of the SNB’s policy stance. After all, Jordan also stressed that the question of raising rates is not one for ‘today or tomorrow’.
TECHNICAL OUTLOOK
EURUSD 1.4086 resistance
EURUSD BULLISH Move above 1.4000 has exposed 1.4086 ahead of 1.4282. Near-term support is defined at 1.3833.
USDJPY BEARISH Move below 81.57 would open the way towards 81.13/80.93 support area. Resistance is at 83.07, Friday’s reaction high.
GBPUSD BULLISH Resistance is at 1.6344/79 zone, break of this would pave the way for a run towards 1.6458. Near-term support lies at 1.6216.
USDCHF BEARISH Outlook remains bearish with focus on 0.9200; move below this level would open 0.8951 next. Near-term resistance at 0.9392.
AUDUSD BULLISH Upside potential holds below 1.0202, a break here would expose key resistance 1.0256. Near-term support at 1.0076.
USDCAD BEARISH While resistance at 0.9800 holds, focus is on initial support 0.9684. Break of this level would expose 0.9600.
EURCHF NEUTRAL Initial support is defined at 1.2788 and resistance at 1.3138.
EURGBP BULLISH Focus is on 0.8619 ahead of 0.8672, while near-term support lies at 0.8566.
EURJPY BULLISH Initial resistance is at 116.00, Friday’s reaction high. Break of this would expose 117.01. Support defined at 114.19.
SCHEDULE
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