FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
USDJPY continued to slip lower during the Asia session, as Japanese officials said they would now like to take some time to assess the impact of yesterday’s intervention. EURUSD traded 1.4055-1.4165, USDJPY 78.43-79.41. Risk appetite continued to suffer after the S&P 500 closed almost -5% lower. Asian equities were also down sharply, although currencies like the AUD and the NZD managed to stabilize. US initial jobless claims were more or less in line with consensus expectations, but markets now have to contend with today’s US payrolls report. If, as feared, the results confirm still-muted labour market conditions, investor sentiment is likely to suffer another serious decline.
EUR
As widely expected, the ECB left the refi rate at 1.50%. During the press conference, President Trichet sounded more cautious on growth conditions. He said downside risks to growth may have intensified and that global pressures may spill over into the Eurozone. With respect to recent data, he noted that there was some deceleration in the pace of economic growth over the past few months, and that uncertainty is particularly high with respect to growth prospects. Given Trichet’s more cautious economic assessment, we see little scope for rate hikes anytime soon, though he reminded that inflation risk remains on the upside.
Also announced was a reactivation of the ECB’s bond buying programme, which had been suspended since March. However, according to EU monetary sources, there are no plans of expanding the programme to bonds of larger Eurozone member states. This came as a disappointment, especially as Italian and Spanish long-term yields have reached record highs just recently. Last but certainly not least, Trichet said that ECB members were not unanimous with respect to the decision of reactivating the bond buying programme. Bundesbank President Weidman was later confirmed on Bloomberg as one of the opponents.
Italian Economy Minister Tremonti said it would be desirable to see the ECB do something similar to what the SNB and BoJ have done of late. A German finance ministry spokesman said he cannot see how the reopening of the EFSF/ESM debate would contribute to calming markets.
As a result of Trichet’s cautious tone, non-unanimity of ECB members with respect to the bond buying programme, and the tenuousness of both global growth and risk sentiment, we remain cautious on the euro and expect rallies to remain a sell.
JPY
Economy Minister Yosano said it would be premature to think that yesterday’s intervention would be limited to a single day, but he conceded that Japan could not continue to intervene forever. Finance Minister Noda said that he would now like to take some time to assess the impact of yesterday’s intervention, but he warned he was still watching FX and stock markets carefully.
CHF
SNB Chairman Hildebrand said that the Swiss franc’s overvaluation is ‘absurd’, and that the franc’s strength is a danger to the economy. He said that deflationary risks ‘clearly grew’ in recent weeks. He added that upward pressure on the CHF would remain as long as debt concerns in the US and the Eurozone persist.
GBP
The BoE left rates unchanged as expected. They also left the asset purchase program at GBP200 bn, so offered no policy statement.
TECHNICAL OUTLOOK
AUDUSD 1.0391 support.
EURUSD BEARISH Break of 1.4069 signals resumption of bear trend; initial support lies at 1.4014 ahead of 1.3837, a key low from Jul 12. Resistance is at 1.4372.
USDJPY NEUTRAL The pair rallied yesterday to define a high of 80.24; a clear break above this level would favour further gains. Support lies at 76.97.
GBPUSD BULLISH Move above 1.6440/76 resistance area would expose 1.6547. Near-term support lies at 1.6211, a break here would hurt the current uptrend.
USDCHF BEARISH Pressure is on 0.7610, a break of which would expose 0.7500. Resistance is at 0.7802.
AUDUSD BEARISH Fall through 1.0526 has triggered a bear trend; support is at 1.0391, a key low, a move below this level would expose 1.0289. Resistance is at1.0786.
USDCAD BULLISH Rise through 0.9779 has turned the model bullish; clearance of 0.9885 would expose 0.9913. Support lies at 0.9603.
EURCHF BEARISH Initial support lies at 1.0500, a push below would expose 1.0319. Resistance is at 1.1205.
EURGBP BEARISH Break below 0.8611, a key low, would extend losses towards 0.8590. Near-term resistance is at 0.8750.
EURJPY BEARISH The cross witnessed strong gains yesterday, but later pulled back to close near the open. Our focus now is on 110.30 where a break would expose 108.71. Resistance is at 114.18.
SCHEDULE
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