FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The ECB decision today will be the main focus as investors assess whether the central bank can maintain a relatively hawkish stance in light of growing data and event risk. Despite heavy volatility in European credit markets, sentiment finally stabilised during the US session once the market had fully digested yesterday’s news of Portugal’s ratings downgrade. Surveying the damage since the announcement we see that the euro fell 200 pips, Portuguese 10y yields widened about 180 bp, and other European sovereigns such as Ireland, Spain, and Italy also came under some pressure. European equities only fell moderately however, and the S&P 500 has since managed to stay just inside positive territory at +0.1% on the day. The European authorities have denounced credit ratings agencies over their action, leading to fears of renewed policy risk. In Australia overnight, jobs figures came in slightly better than expected at +23k (cons. 15k), somewhat offsetting the negative impact of a Chinese hike yesterday but the outlook remains less rosy at this stage. Ahead today, the BoE decision is also out EURUSD traded 1.4312 -1.4347, USDJPY 80.80-81.01.
EUR
The European commission ‘regretted’ Moody’s decision to cut Portugal’s rating, and EU Commission President Barroso said that the move was based on hypothetical scenarios.
It was a light data day but German factory orders surprised to the upside, registering a 1.8%m/m gain vs. expectations for a 0.5% decline. German industrial production is due, along with the ECB rate decision. Our European economists expect another 25 bp hike from the ECB today.
Apart from the ECB decision, In Switzerland, CPI is due today, we also have industrial production data out of Germany and Norway.
GBP
The Bank of England will decide on rates today and the asset purchase program. We expect no action on either policy measure.
CAD
Canadian IVEY PMI is out today and the market is looking for a decline to 62.0 – though still a robust reading. We remain favourable on CAD on the crosses.
AUD
The Australian jobs report came in slightly better than expected at +23k. The unemployment rate was steady at 4.9% – which our economists believe is crucial at this stage. Even though the rate of growth is flat, there is no reason for markets to be overly dovish yet.
TECHNICAL OUTLOOK
EURJPY focus on 117.90.
EURUSD BULLISH While support at 1.4333 holds, focus on initial resistance at 1.4578; a break here would expose 1.4653 and 1.4697, the key high from June 7.
USDJPY BULLISH A move above 81.27 would open up the way towards 81.77 and 82.23. Support lies at 80.27.
GBPUSD BEARISH Decline through 1.5970 would favor extension of losses towards 1.5911. Resistance is at 1.6154.
USDCHF NEUTRAL Key resistance is at 0.8551, while support lies at 0.8306 ahead of 0.8276, the key low.
AUDUSD BULLISH Clearance of 1.0790 would signal scope for further gains towards 1.0889. Initial support lies at 1.0520.
USDCAD BEARISH A push through 0.9580 would expose key support at 0.9513. Resistance is at 0.9705.
EURCHF NEUTRAL Sharp fall below 1.2186 has turned the model to neutral; resistance is at 1.2346 and support lies at 1.2030.
EURGBP BULLISH As long as 0.8903 holds, expect a recovery towards 0.9049 and 0.9095, the Fibonacci resistance.
EURJPY BULLISH Focus is on 117.90 break of which would be an important bullish development to expose 118.38 next. Support holds at 115.91.
SCHEDULE
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