FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar recovered lost ground during the Asia session, after an earlier bout of weakness in the aftermath of Fed Chairman Bernanke’s speech. EURUSD traded 1.3689-1.3744, USDJPY 82.20-82.60. AUDUSD was hit by a decline in full-time jobs in January. Asian equities are slightly weaker at the time of writing, mirroring small losses on the S&P 500 earlier. Bernanke’s testimony before the House Budget Committee offered little new insight into his outlook for the economy or public policy as he largely reiterated his speech from Feb. 3. He again sounded guardedly optimistic and the only (minor) new information was his acknowledgement of the back-to-back sharp drops in the unemployment rate. Specifically, he said “Notable declines in the unemployment rate in December and January, together with improvement in indicators of job openings and firms’ hiring plans, do provide some grounds for optimism on the employment front.” But he again said, “It will be several years before the unemployment rate has returned to a more normal level. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.” Atlanta Fed President Lockhart said that the QE2 asset purchase program would stick to buying USTs and would not have its scope widened to include the purchase of municipal bonds. Head of the New York Fed’s Markets Group, Brian Sack, said that there are no signs that the market is facing a shortage of particular Treasury securities.
EUR
EU President Van Rompuy said EU leaders will hold a special summit on March 11 to consider new measures to tackle the sovereign issue. The press continued to report that Bundesbank President Weber may not seek a second term at the Bundesbank, which could eliminate him as a possible successor to ECB President Trichet, whose term ends in October..
The ECB’s Bini Smaghi discussed some potential changes to the EFSF, such as debt buybacks, and said interest rates of 6% would ensure debt sustainability. He also said restructuring would be a plan B for the current crisis, as it could be more costly in the long run.
The IMF said assistance for Ireland would continue despite the political uncertainty. The Irish government said it informed the IMF and the EC of its decision to postpone further capital injections into its banks until the election is completed. The Finance Minister did say that even without these injections, the banks are adequately capitalized.
GBP
Our analysts are with the consensus and expects no change at today’s BoE policy decision, which should mean that no explanatory statement is published. That would shift the focus to the Feb. 23 meeting minutes, when the voting breakdown is revealed. However, our economist does note that “Given that this decision will take place against the backdrop of the quarterly Inflation Report [Feb 16], there is a risk of a surprise vote.” Any vote in favour of a rate hike would likely prove strongly sterling-positive in the very short term. However, over the longer term, monetary policy tightening would likely be viewed as being in conflict with the weak growth outlook.
CHF
While Swiss officials seem less concerned about deflation these days, a bad CPI print today could stir up intervention rhetoric. On the other hand, a strong print would help the Swiss franc, prompting more rhetoric on currency strength. Nevertheless, we remain constructive on CHF
AUD
The AUD fell overnight, despite the creation of 24k new jobs in January, more than consensus expectations of 17.5k. But the mix was not encouraging – part-time jobs accounted for all the increase, and some full-time jobs were lost. The unemployment rate held steady, as expected, at 5.0%. Our Australian economics team notes that today’s data is neither definitively strong enough nor weak enough to provide clear insight into the near-term rate outlook. They continue to expect the next RBA hike in August.
TECHNICAL OUTLOOK
EURJPY breaks 112.92.
EURUSD BULLISH Violation of 1.3741 has made the pair target 1.3779, break of this would expose 1.3826/62. Near term support is at 1.3572.
USDJPY NEUTRAL Rise through 82.67 would expose 82.93 while support lies at 81.78.
GBPUSD BULLISH Expect gains to target 1.6186 ahead of 1.6279/99 zone. Near-term support is defined at 1.6010.
USDCHF BULLISH Focus is on 0.9687 with scope for 0.9764 next; support at 0.9524.
AUDUSD BULLISH Resistance zone lies at 1.0200/56 while near term support lies at 1.0002.
USDCAD NEUTRAL Resistance lies at 0.9978 while initial support is at 0.9869.
EURCHF BULLISH Momentum is positive; focus is on 1.3206/87 resistance zone. Support at 1.2973.
EURGBP NEUTRAL Move above 0.8508 has turned the model to neutral; 0.8577 and 0.8520 mark the near term directional triggers.
EURJPY BULLISH Rise through 112.92 has exposed 114.01/94 resistance zone. Initial support lies at 112.06 yesterday’s low.
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