FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Price action was subdued in Asia overnight, with market focus centered on today’sUSpayrolls release. The S&P 500 closed down 1.2% despite a stronger ISM number yesterday and softer risk appetite worked its way into the Asian session. Yesterday’s August ISM number came in well ahead of expectations. Not only did it force some market participants to reassess their expectations for further Fed monetary easing, it also contrasted sharply with a batch of weak European PMIs released earlier in the day. The dollar got a significant boost for both reasons. However, the upswing was brief against most currencies, although the dollar held onto the gains it made against the euro. The Swiss franc continued to advance, driven by risk-off flows on the disappointing Eurozone PMI numbers, and also due to silence from the SNB regarding its policy intentions. Fed Governor Duke said that theUShousing market is “so severely out of balance” that it is hampering the economic recovery. OurUSeconomists are slightly above consensus for today’s non-farm payrolls print, looking for a headline number of +80k and an unemployment rate of 9.1%. EURUSD traded 1.4229-1.4242 and USDJPY 76.79-76.97.
EUR
Reuters, citing an unnamed source close to the inspection team, reported that EU/IMF inspectors have serious doubts about whether Greece can meet its targets for the privatisation of state assets, but that it is much too soon to say if September’s quarterly instalment of aid is at risk. Dow Jones, citing an official, reported that the Troika has suspended theGreeceinspection and is set to resume in ten days.
ECB Governing Council member Nowotny said he doesn’t share any concerns aboutFrance losing her triple-A rating.
German Chancellor Merkel repeated her opposition to Eurobonds, describing them again as the ‘wrong answer’. Interestingly,Portugal’s Prime Minister Coelho also said Eurobonds are not the solution, given the deeper political union that would first be required for their introduction.
Eurozone PMIs disappointed. Flash estimates inGermany andFrance were both revised down to 50.9 and 49.1 respectively while the Italian estimate for August was below consensus at 47.0. As expected, composite European PMI was revised down to 49 from 49.7 preliminary. These prints (particularly the ones below 50) are concerning and pushed markets into risk-off mode.
Irish Finance Minister Noonan said that it looks as ifIreland will have to revise down projected growth figures for 2012. He added that he understands that the Finland-Greece collateral deal is now off the table.
Bundesbank President Weidmann said that the policy response to the Eurozone crisis has strained its framework and blurred the line between fiscal and monetary policy. He said that in the long term this blurring puts a strain on the confidence in central banks. He believes some Eurozone states taking on risk for the whole bloc is not the way to curtail uncertainty, as this only puts more pressure on monetary policy to be loose.
JPY
New Japanese Prime Minister Noda has appointed Jun Azumi as finance minister. Not much is known about him yet, but Noda is likely to maintain some influence over policy.
AUD
Prime Minister Gillard said she has not been approached about stepping down, despite some speculation. She said she is determined to keep doing what she has been doing as PM and is not considering replacing the immigration minister
Retail sales rose by 0.5% m/m in July; a strong print after months of weakness. Q2 capex was also robust at +4.9%, in line with UBS, above consensus.
SCHEDULE
EURJPY 110.95 resistance.
EURUSD NEUTRAL Initial support lies at 1.4150, a break here would open 1.4104 ahead of 1.4055. While a recovery through 1.4386 would expose 1.4469.
USDJPY BEARISH Break below 76.34 would reinforce the bearish conditions and open the way for a move towards 75.95, the key low. Resistance is at 77.70.
GBPUSD BEARISH Sharp sell-off broke through 1.6167 to expose support at the Aug 11 low of 1.6111 ahead of 1.6041. Initial resistance is at 1.6334.
USDCHF BULLISH Resistance is at 0.8209 ahead of 0.8278, while a pull back through 0.7893 would hurt the short-term bull trend and open up 0.7744.
AUDUSD BULLISH Focus is on resistance at 1.0786, a break of which would expose the Fibonacci level of 1.0809 ahead of 1.1007. Initial support lies at 1.0561.
USDCAD NEUTRAL Resistance is at 0.9839 and support lies at 0.9708, a Fibonacci level.
EURCHF BULLISH Initial resistance is at 1.1852, a break above which would open 1.1973. Support lies at 1.1248, a Fibonacci level.
EURGBP BULLISH A clear break above the key high from Aug 10 of 0.8886 would be an important bull trigger to expose 0.8915. Support lies at 0.8742.
EURJPY BEARISH Key support lies at 109.02, next level comes in at 108.52. Initial resistance is at 110.95.
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