FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Markets stabilised overnight after further heavy selling yesterday. The AUD came under pressure after disappointing labour data but soon reversed its losses. Yesterday, increasing stress in the European banking sector together with increased global growth worries, put risk sentiment back under pressure. French industrial output data disappointed. The BoE’s quarterly Inflation Report was dovish. Against expectations for a hike, Norges Bank left its policy rate unchanged, mainly due to increased uncertainty about global growth conditions and generally heightened market stress. The S&P 500 lost 4.42%, while equities in Asia are currently trading slightly in the red. EURUSD traded 1.4123-1.4249, USDJPY 76.48-77.23. Jobless claims are due in the US session today.
EUR
France reported June industrial output of -1.6% (cons. -0.6%, prev. 2.0%), indicating muted business activity. An S&P official affirmed that the rating outlook for France is stable and that no downgrade is expected over the coming two years. Fitch, meanwhile, downgraded Cyprus to “BBB” and kept a stable outlook.
Italy’s Prime Minister Berlusconi reaffirmed that the government will act quickly in order to implement austerity measures as decided last week. He called for a cabinet meeting on anti-crisis measures by Aug. 18. Italy’s biggest union reportedly threatened industrial action over austerity measures were ‘ordinary Italians’ to bear the brunt.
GBP
The BoE Quarterly Inflation Report was dovish, the BoE fan chart shows CPI at around just below 2pc in 2 years if interest rates are held constant. In the post-report conference, King was relatively dovish, saying that growth risks are skewed to the downside. King also left the possibility of further asset purchases open if circumstances dictate. Sterling fell on the release but soon reversed its losses.
AUD
Australian labour data was slightly disappointing, with an increase in the unemployment rate to 5.1%. Our analysts note however that this is in itself unlikely to alter the RBA’s stance, although markets continue to price in rate cuts at the next meeting.
CHF
SNB Vice Chairman Jordan said the SNB is ready to take further measures if needed. He added that a wide range of tools is under consideration to weaken the franc. According to SNB Board Member Danthine, any overvalued currency has the tendency to return to fair value. Switzerland’s economy minister reiterated that the franc rate is a matter for the SNB and that the country has to accept the challenge of a strong franc. Jordan later said that raising liquidity was appropriate SNB measures make holding francs less attractive; says a temporary CHF-EUR link would be legal.
The SNB announced further liquidity measures. The press released noted that to accelerate the increase in CHF liquidity, the SNB will additionally conduct foreign exchange swap transactions. They will also increase bank sight deposits to CHF 120 bn. Our Swiss economist notes that this is a comparably small measure to counter the latest CHF strength. The SNB’s measure might not be excessively big, but it clearly highlights that it is willing to take additional measures if necessary. We believe the market will view the latest measures with a high degree of scepticism.
TECHNICAL OUTLOOK
USDJPY 76.25 support.
EURUSD BEARISH Failure to break 1.4536 has brought back focus on the downside; support lies at 1.4055/14 area ahead of 1.3837, a key low. Resistance is at 1.4454.
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 The pair has resistance at 1.6336 while support lies at 1.6047, a key retracement level.
USDCHF BEARISH A break of 0.7071 would expose 0.7000, psychological level. Resistance is at 0.7593.
AUDUSD BEARISH The pair has support at 0.9928, a move below which would open the way for 0.9781. Initial resistance is at 1.0447.
USDCAD BULLISH A clearance of 1.0010 would expose 1.0058. Near-term support lies at 0.9742.
EURCHF BEARISH A move below 1.0075 would expose 1.0000, an important psychological level. Resistance is at 1.0843.
EURGBP NEUTRAL Near-term directional triggers are at 0.8886 and 0.8643.
EURJPY BEARISH Key support lies at 106.61, a break here would expose 105.80. Resistance is at 111.25.
SCHEDULE
Please visit GCI’s Economic Calendar for a schedule of market news and events.
