FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Markets reacted positively to Tuesday’s FOMC statement. While officials did pledge to use additional policy tools as appropriate and embellished the “exceptionally low” rate commitment to indicate low rates are likely to be warranted “at least through mid-2013″, they also acknowledged increased downside risks to growth. Equity markets initially fell on the dovish outlook but later rallied after the rates commitment. Asian equities rallied and high-beta risk currencies gained, with AUD and NZD in particular recovering some lost ground. EURUSD traded 1.4398-1.4196, USDJPY 77.31-76.71. There were 3 dissenters in the latest FOMC meeting, suggesting that additional measures may be difficult to push through, however. Ahead today, Norges Bank is expected to hike rates by 25bp, although much will depend on the underlying CPI print. The BoE’s quarterly inflation report is also due, where the outlook for UK growth is likely to be revised down.
EUR
ECB President Trichet said that they are not planning to intervene on primary bond market but said the ECB is in the secondary debt market and plans to stay there. Our bond traders note that the ECB have been lifting offers in Italy and Spain once again.
German Economy Minister Roesler says wants new stability council for Eurozone that has power to impose sanctions on states that violate fiscal rules. ECB’s Nowotny says we are in difficult situation, need to adopt measures. The EU Commission says not sure it is possible to conclude from markets that EU is entering a recession; says it is more optimistic about economy than what is seen in markets
The ECB allotted EUR157.1bn at the one-week refinancing operation and EUR75.8bn at one-month refinancing operation, broadly in line with consensus.
JPY
Japan Finance Minister Noda said they will closely watch markets. He added that they are ready to take appropriate action and will remain in close contact with G7 counterparts.
GBP
UK Industrial production was weak at 0.0% m/m, -0.3% y/y vs +0.4%, +0.2% consensus. GBP remains supported however, despite the ongoing troubles in the UK, which intensified overnight..
AUD
Consumer confidence fell by 3.5% m/m to 89.6 in August, a poor print in general. AUD continued to rally however, following last nights FOMC statement.
CHF
The CHF was volatile again in the Asia session, reaching historical highs versus the euro and dollar, before falling back as Europe came in.
TECHNICAL OUTLOOK
EURCHF approaches parity.
EURUSD BEARISH A break below 1.4055/14 area would open the way for 1.3951. Near-term resistance is at 1.4536.
USDJPY BEARISH Key support lies at 76.25, a break here would expose the psychological level of 75.00. Resistance is at 77.86.
GBPUSD BULLISH A clearance of 1.6478 would pave the way for gains towards 1.6547. Near-term support lies at 1.6176.
USDCHF BEARISH A move below 0.7071 would expose 0.7000, psychological level. Resistance is at 0.7593.
AUDUSD BEARISH A violation of 0.9928 would open the way for further losses towards 0.9781. Initial resistance is at 1.0505, Fibonacci level.
USDCAD BULLISH Initial resistance is at 1.0010, a break here would expose 1.0058. Support lies at 0.9742.
EURCHF BEARISH A clear break of 1.0500 has extended losses towards 1.0075 and 1.0000, psychological level. Resistance is at 1.0843.
EURGBP BEARISH Support lies at 0.8677, a move below which would expose 0.8643. A move above 0.8884 would trigger a bull trend.
EURJPY BEARISH The cross now heads towards 108.71, a key low from Aug 1, and 106.61. Resistance is at 112.71.
SCHEDULE
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