FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
A distinct risk-off mood took hold at the Asia open after civil unrest in Egypt escalated over the weekend. Both the dollar and the yen initially found support on safe-haven demand, but sentiment soon steadied when no signs of a further deterioration in the political situation materialised. EURUSD traded 1.3571-1.3615, USDJPY 81.78-82.23. Non-Chinese Asian equities lost ground after the S&P 500 finished -1.79% lower on Friday. The VIX also rose 24% to 20.04, it’s highest close since Dec. 1. WTI crude remains elevated although it has slipped back below $90/bbl at the time of writing. Although US Q4 GDP fell short of consensus expectations, it still managed to accelerate to a +3.2% annualised rate (cons. 3.5%) from a pace of 2.6% in Q3. Our analysts see cause for optimism in the composition too, noting that the private demand component has surged ahead, easily surpassing their expectations. The University of Michigan confidence report came in above consensus at 74.2 (cons. 73.3). Elevated geopolitical tensions will likely continue to lend the dollar some near-term support while, over the medium term, we see further dollar strength coming through as the US recovery accelerates.
EUR
German Finance Minister Schaeuble gave a relatively upbeat assessment of the current phase of the Eurozone’s sovereign debt crisis. He said he did not expect any further “major shocks”, and predicted the euro would be “stable”. He added the Eurozone would learn lessons from the crisis and “create instruments to defend the whole Eurozone”. France’s Finance Minister Lagarde took a similar view, saying the Eurozone has “turned the corner”.
Reuters, citing unnamed sources, said a proposal is being considered to extend the maturity of rescue loans offered to both Greece and Ireland. The timeline allegedly being discussed is 30 years.
Greek Prime Minister Papandreou said that Eurozone governments are considering a proposal to allow EU institutions to recapitalize banks.
Austrian Chancellor Faymann indicated he would prefer a speedy conclusion to discussions surrounding a re-design of the EFSF. He said: “The problem must be solved in March, the sooner the better&Continual discussions about this are anything other than helpful.”
Irish Prime Minister Cowen said he would dissolve parliament on Tuesday and call a general election. Both the upper and lower houses of parliament have now passed the key Finance Bill that gives legal effect to the budget proposals announced in December.
JPY
Senior Vice Finance Minister Igarashii described the yen as “overvalued” on the basis of “Japan’s price levels and other factors”. He warned that Japan will “take decisive steps if there is speculative, excessive movement” in the exchange rate.
AUD
Private sector credit growth rose only +0.2% m/m in December (cons. 0.3%), but the annualized figure was in line at +3.4% y/y. Our Australian economics team think this latest data point challenges the notion that the domestic economy is “strong”, and they expect the RBA to lower its near-term GDP and underlying inflation forecasts on Friday. Our analysts still look for the next RBA hike to come in H2.
CAD
Bank of Canada Governor Carney said that “persistent strength” in the CAD is a threat to Canada’s economic growth.
TECHNICAL OUTLOOK
USDCHF pressures 0.9390 support
EURUSD BULLISH Resistance at 1.3786 holds while support zone is at 1.3573/41.
USDJPY BEARISH Break of 81.85 has exposed 81.61 ahead of 81.23. Resistance at 82.93 Friday’s high.
GBPUSD BULLISH Support at 1.5752 holds, focus is on 1.6017 ahead of 1.6059 next.
USDCHF BEARISH Pressure on 0.9390, breach of this level would expose 0.9301 key low. Initial resistance is at 0.9523.
AUDUSD BEARISH Support zone at 0.9833/04 holds. Near-term resistance is at 1.0022.
USDCAD NEUTRAL 1.0067 and 0.9838 mark the near term directional triggers.
EURCHF NEUTRAL Pressure builds on initial support 1.2774, near term resistance lies at 1.3002.
EURGBP BULLISH Focus is on 0.8672/91 resistance zone. Initial support lies at 0.8529.
EURJPY BULLISH Upside potential with resistance at 114.01/94, breach of this zone would expose 115.68 next. Initial support lies at 110.51.
SCHEDULE
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