FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Data out of Asia was broadly soft overnight, giving risk trades a mild knock though equities are faring well. Safety plays have started the European session relatively robust as growth fears remain in place. In addition to a soft Japanese Tankan, Chinese PMI also came in softer than expected at 50.9, the lowest since Q1 2009. However, Australian data was stronger. The focus today will be on PMIs out of Europe and also the US, where manufacturing ISM is due. Indications are mixed so far. Yesterday the Chicago PMI surprised strongly to the upside at 61.1 (cons. 54.4) and the NAPM-Milwaukee June PMI also printed higher at 59.3 vs. 59.0 expected. However, earlier regional prints were softer. In other news, Bloomberg reported that current Treasury Secretary Geithner may leave his post once the budget impasse ends, though he has not made a final decision on the matter. Fed’s Bullard was also on the wires sounding hawkish, warning it was hard to the extended period language and expected the economy to strengthen. However he also said the Fed should act if economy underperforms. Ahead on Friday, the Michigan Confidence release is also due, while several PMIs are out across Europe. EURUSD traded 1.4468-1.4526 and USDJPY 80.54-80.88 overnight.
EUR
The EUR pushed higher as the Greek government passed the implementation vote on the austerity package by 155 votes to 136. The EUR hit a session high of 1.4538 as risk rallied across the board, though we expect the bounce to be temporary as details of private sector participation are yet to be released.
Greek PM Papandreou said the two successful votes was a critical point but the country still faces difficult and critical battles. As the focus turns to the PSI, German Finance Minister Schaeuble said today that the country’s banks and insurers ad agreed to a participation plan which would roll over at least EUR2bn in Greek bonds, with the total cost expected to come in at EUR3.2bln.
The Italian cabinet approved EUR47bn in austerity measures to pre-empt any concern about the country’s fiscal position. There were occasional signs of stress in Italian bond markets throughout the month but we believe Greece’s problems are ring-fenced for now. The key driver for the EUR remains whether core growth is sustainable.
Eurozone June CPI estimate was slightly softer at 2.7% y/y vs 2.8% consensus. Eurozone M3 increased to 2.4% y/y in ahead of expectations of 2.1%. A July rate hike remains the base case.
GBP
PMI manufacturing is due in the UK with markets expecting a 52.3 print (prev. 52.1).
BoE’s fisher said the sovereign debt crisis is the most material risk to the financial recovery in the UK and domestic bank funding costs remain elevated. His comments echo Governing King’s remarks earlier and sterling is starting to respond to elevated signs of financial risk stemming from the crisis.
CHF
The Swiss Economy Minister Schneider-Ammann said that it is not the government’s responsibility to deal with the strong franc, and that he is confident that exporters will be able to cope with the strong currency. He warned that the franc’s strength is not a ‘temporary phenomenon’ and that the ‘strong franc will persist’.
CAD
Canadian GDP by industry was unchanged in April (cons. -0.1%). Our economists note that gains in mining and oil & gas extraction industries (+1.0%) and retail trade (+0.5%) were offset by weak manufacturing (-0.7%) and wholesale trade (-0.5%).
TECHNICAL OUTLOOK
EURCHF 1.2318 resistance.
EURUSD BULLISH Resistance is at 1.4551, scope for further gains towards 1.4697. Initial support is at 1.4427.
USDJPY NEUTRAL Key support lies at 80.00, decline through which would open 79.57. Near-term resistance is at 81.27.
GBPUSD BEARISH A move below 1.5970 would open the way to 1.5911 and 1.5881. Resistance is at 1.6119.
USDCHF BEARISH Initial support lies at 0.8276, a move below which would leave little support till 0.8165. Resistance is at 0.8517.
AUDUSD BULLISH Focus is on key resistance at 1.0775, a break above this level would open 1.0889. Support lies at 1.0520.
USDCAD BEARISH The pair’s sell-off signals weakness towards 0.9600 and 0.9556. Near-term resistance is at 0.9705.
EURCHF NEUTRAL Upside trigger lies at 1.2318, the key level. Support lies at 1.2030.
EURGBP BULLISH Focus is on initial resistance at 0.9095, a push above the level would open way to 0.9150. Support lies at 0.8968.
EURJPY BULLISH While support at 115.91 holds, look for a break above 117.90 to confirm the bullish conditions and open up 118.38
SCHEDULE
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