FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
S&P put the US rating on negative watch “owing to the dynamics of the political debate on the debt ceiling’. The agency said there is “at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days”. At Fed Chairman Bernanke’s second day of testimony he floated contingency plans around the debt ceiling issue, such as the Fed itself buying up defaulted securities, though he added that any such decision would need to be taken by the FOMC as a whole and he expressed doubts over its efficacy on preventing prohibitive gains in yields. Meanwhile, the White House reported that $1.5 trn in cuts were agreed upon and an additional $200 bn could be found, though we believe these figures are insufficient to avoid another vote next year.
On the data side, core retail sales were better than expected despite a soft headline print, and CPI numbers are due on Friday. EURUSD traded in a range of 1.4116-1.4200 and USDJPY 78.89-79.25.
EUR
Germany’s Finance Minister Schaeuble said that the Greek crisis is now endangering the euro as a whole.
The Austrian finance minister said he wants to avoid a haircut for Greece, as this would have a negative effect on taxpayers. He added that the Greek plan could be a debt rollover, bond swap or “insurance model”, or a mix of all three. He is also against increasing EU safety net ‘again and again’.
It appears that there will be no special EU session on Friday, which should clear the way for markets to focus on the banking stress tests. German Chancellor Merkel noted that a summit would be welcome, but the pre-condition would be an agreement on the Greek program. Similar comments were echoed by the Dutch.
The Italian Senate approved austerity measures and the lower house will vote on it tomorrow. The government has a slimmer majority in this chamber so there is still some prospect of event risk if the measures do not pass.
The European Stress Test results are due. National releases come out at 16:00 GMT and individual releases will be available from banks almost immediately after. In other data, the Eurozone trade balance is due..
JPY
Finance Minister Noda repeated that yen moves have been one-sided, but he did not comment on whether he was poised to intervene in FX markets.
Japan chief cabinet secretary Edano says Japan is watching the foreign exchange markets with tension, but has no comment on potential yen intervention. This largely echoes what the Finance Minister Noda said yesterday.
TECHNICAL OUTLOOK
GBPUSD 1.6254 resistance
EURUSD BEARISH Initial resistance is at 1.4295, while this remains intact; watch for a break below 1.3951 to open the way towards 1.3837.
USDJPY BEARISH Support lies at 78.44 Fibonacci level; a break here would open 76.25 key low. Resistance is at 80.38.
GBPUSD NEUTRAL Key resistance lies at 1.6254, while support lies at 1.5906.
USDCHF BEARISH Scope for weakness towards 0.8016 and 0.7836. Resistance is at 0.8276, a previous low.
AUDUSD BULLISH Break of 1.0802 is needed to reinforce the bullish conditions and target 1.0889 next. Initial support lies at 1.0580.
USDCAD BEARISH Decline through 0.9549 would pave the way for losses towards 0.9513, a key low. Near-term resistance is at 0.9669.
EURCHF BEARISH Focus is on 1.1495, a move below which would expose 1.1458. Resistance is at 1.1752.
EURGBP BEARISH Violation of 0.8760 has signalled potential for further downside towards 0.8749 ahead of 0.8722. Initial resistance is at 0.8877.
EURJPY BEARISH While resistance at 112.95 holds, expect losses towards 109.58 ahead of 107.99.
SCHEDULE
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