FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk sentiment was stable in Asia after a Financial Times report indicating that China may be considering purchases of Italian debt triggered some position squaring, helping markets stabilize. Most Asian stock markets indices are trading in the black, with the Nikkei up by 0.5%. S&P futures are trading 0.3% higher. EURUSD traded 1.3689-1.3621 and USDJPY 77.25-76.99.
On the data front Australian business confidence slipped to the lowest level in more than two years and manufacturing sales in New Zealand fell for the first time in three quarters. Overnight, a spokesman for US House Speaker Boehner said the tax hikes President Obama seeks to fund his jobs bill run afoul of a ‘bipartisan spirit’, a sign that pushing through the $450 bn jobs plan could be tricky. Giving rising market expectations of a Greek default, weakening global growth momentum and faltering confidence in the ability of officials to tackle the European debt crisis, we recommend a cautious stance on risk and continue to believe rallies in the euro should be sold, for instance against the US dollar and yen.
EUR
The Financial Times reports that Italy is in talks with a ‘China fund’ for it to buy significant amounts of Italian debt. Greek Deputy Economy Minister Sachindis said Greece will run out of cash by the end of October if the next aid tranche is not released.
A German government spokesman said that Germany assumes Greece is doing all it must to fulfill obligations; only troika can judge if Greece is doing enough. They also said that if Greece does not fulfill the troika criteria than it is automatic that the next tranche cannot be paid.
EU officials said that the EFSF won’t issue long-term bonds until governments approve the July 21 deal. The ECB said a total of EUR143 bn of purchases were settled under the bond buying programme to Sept. 9, from EUR129 bn the previous week, making the weekly numbers EUR13.96 bn.
Bloomberg reported that French banks could face a downgrade as early as this week. This would force funding costs to rise again within the Eurozone financial system and pressure risk in general. We remain cautious on the EUR at current levels. The French finance minister said French banks have no liquidity or solvency problems and passed tough stress tests in July.
ECB’s Trichet repeated his calls from last weeks ECB meeting and said that central banks stand ready to provide banks the liquidity they require.
CHF
The SNB meets for its quarterly policy decision this week. We doubt much will be announced as the SNB has already actively introduced new policy measures throughout the past month, though the post-decision press conference could reveal more details about the implementation of the exchange rate floor for EURCHF.
SNB’s total sight deposits in CHF reached CHF253 bn for the week ending September 9. While domestic banks had CHF207 bn, other sight deposits were CHF46 bn.
AUD
Business confidence in August fell to the lowest level in more than two years. The drop was mainly driven by rising uncertainty about the impact of weakening global growth momentum on business activity in Australia.
Falling business confidence does not bode well for labour market conditions as it may suggest that companies’ readiness to hire will moderate further. Under such conditions there is little to suggest that the RBA will turn more hawkish in the near future. The AUD is therefore likely to be driven by risk sentiment.
GBP
The Confederation of British Industry said the ICB proposals on capital are out of step with internationally agreed measures underway. It added that the UK government must rigorously examine banks’ ring-fencing otherwise it risks threatening economic growth.”
CAD
Finance Minister Flaherty said he expects quite modest growth for Canada in coming quarters and next year. He added that if there were an external shock which shrank the Canadian economy, they would act accordingly.”
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
USDCHF 0.8951 resistance.
EURUSD BEARISH As long as the resistance at 1.3837, July 12 low, holds, watch for a move below 1.3495 to expose 1.3428.
USDJPY NEUTRAL Near-term directional triggers are at 78.10 and 76.43.
GBPUSD BEARISH Clear break below 1.5781 would open the way for 1.5719. Resistance is at 1.5991.
USDCHF BULLISH Rise through 0.8951, a key high from May 16, would open up 0.9012. Support lies at 0.8706.
AUDUSD BEARISH Decline through 1.0248, a Fibonacci level would expose 1.0111. Resistance is at 1.0478.
USDCAD BULLISH Look for a move above 1.0027 to expose 1.0058, a key high from Jan 31, while support at 0.9869 holds.
EURCHF NEUTRAL The key directional triggers are at 1.2191 and 1.2000.
EURGBP BEARISH Support lies at 0.8530 ahead of 0.8479. Resistance is at 0.8720.
EURJPY BEARISH Break below 103.90 would expose 102.45. Resistance is at 106.61, March 17 low.
SCHEDULE
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