FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
After a strong risk rally yesterday, markets drifted off the highs overnight, with the dollar stronger across the board. Price action was relatively subdued however, and we await European trading to better gauge investor sentiment. Yesterday, better-than-expected macro data and improved sentiment towards European financials both contributed. US weekly jobless claims slipped 5k to 395k in the week of Aug. 6. France, Spain, Belgium and Italy have all introduced a ban on short-selling of financial stocks, effective today, to try and achieve more market stability. Yesterday, the S&P500 ended up 4.63%, but Asian equities were mixed. EURUSD traded 1.4173-1.4258, USDJPY 76.70-77.02. Ahead today, advance retail sales and the Michigan confidence indicator are due.
EUR
France, Spain, Belgium and Italy have all introduced a short sale ban, effective from today in order to try and achieve more market stability. The move is stronger than the initial suggestions of a ban on ‘naked short sales’ and will last for at least the next 15 days.
ECB Governing Council member Mersch said it will be a close call whether the ECB will shift its inflation stance from seeing upside risks to neutral. He added that even if energy prices are coming down for now, it is far from certain what the direction will be in the near future. He also sees an extremely low probability for of another recession in Europe.
According to the EU Commission Cyprus economy is fundamentally healthy. As such no aid plan is currently discussed. On a different note, Cyprus government bonds used as ECB collateral will be charged an extra 5% haircut after Fitch downgraded the sovereign to “BBB” and kept a stable outlook.
JPY
Finance Minister Noda added further comments about the yens strength. He said they are still gauging the effects of the last intervention and will act as needed according to the G7 statement which called for close communication and joint action.
Economy Minister Yosano said he thinks BoJ governor has acknowledged PM Kan’s call for action. He said that Kan has sent a message that he wants BoJ to do its utmost for the economy.
CHF
Citing Swiss politicians, newspaper Tages-Anzeige said that a franc target could get majority party backing. The SNB will likely come under increasing political pressure to adopt some kind of target, which seems to be the ‘consensus’ solution among Swiss politicians. An outright peg is still seen as unlikely however. Yesterday, both the ECB and SNB declined to comment on speculation they discuss ways to peg the franc to the euro.
The CHF retreated yesterday as investors analyse potential measures that the SNB could impose to tackle franc strength. The market expects further announcements about the SNB’s FX swap transactions (highlighted yesterday). This will be very important in terms of judging the SNB’s appetite for outright QE. As long as it wanted to increase sight deposits by repurchasing SNB bills, it was just a shift from one liability item of the balance (SNB bills) to the other (sight deposits) and not a balance sheet expansion. Large swap transactions would be seen as a form of QE and balance sheet expansion.
Our Swiss economist notes that the latest SNB comments and measures highlight that it is clearly committed to tackle what they consider as an excessively strong CHF both vs EUR and USD. It seems to be following a game plan, and is willing to use every tool, including administrative measures. While the protection of its balance sheet (size and quality) is a limitation, its latest measures confirmed that the SNB is flexible on that front, too.
TECHNICAL OUTLOOK
GBPUSD 1.6047 support
EURUSD BEARISH While resistance at 1.4401 remains intact, expect a decline towards 1.4055 ahead of 1.3951.
USDJPY BEARISH The focus is on 76.25, a break of which would expose the psychological level of 75.00. Resistance is at 77.86.
GBPUSD NEUTRAL Key downside trigger is at 1.6047, a Fibonacci level. Initial resistance is at 1.6336.
USDCHF BEARISH A break below 0.7181 would reinforce the bear trend and open the way towards the key low at 0.7071. Resistance is at 0.7802.
AUDUSD BEARISH The pair has support at 0.9928, a move below which would expose 0.9781. Initial resistance is at 1.0391.
USDCAD BULLISH The momentum is positive; a move above 1.0010 would signal extension of gains towards 1.0058. Near-term support lies at 0.9767.
EURCHF BEARISH Key support lies at 1.0075, a drop through which would expose 1.0000, a psychological level. Resistance is at 1.1022.
EURGBP NEUTRAL The near-term directional triggers are at 0.8886 and 0.8677.
EURJPY BEARISH The focus is on key low from March 17 at 106.61, a break here would expose 105.80. Resistance is at 111.25.
SCHEDULE
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