FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk sentiment was muted in Asia, mainly due to disappointingUSlabour data and intact uncertainty about the Eurozone. According to Friday’s payrolls report US employers added no new jobs in August. The unemployment rate was stuck at 9.1%. With the labour market remaining weak, there is no indication for a quick rebound in consumer sentiment and hence domestic demand. Elsewhere, according to S&P, eurobonds, if becoming reality, would be rated according to the weakest member state. InGermanyChancellor Merkel’s party lost regional elections in Mecklenburg-Vorpommern. This also comes in response to voters’ discontent with Merkel’s handling of the debt crisis. As a result to above outlined conditions, most Asian stock markets indices are trading in the red, with the Nikkei down by 1.9%. EURUSD traded 1.4137 -1.4195 and USDJPY 76.72-76.96.
EUR
According to EU Commission President Barroso it is premature to make an assessment onGreeceand its performance against agreed targets. He added that he still expects modest growth inEuropeand that all is done in order to improve the situation.
German Chancellor Merkel’s party lost state elections in Mecklenburg-Vorpommern. This was also du to increasing discontent about her handling of the debt crisis. This was the fifth election loss this year.
According to S&P’s Moritz Kraemer, Head of European Sovereign Ratings, the rating of a common euro-area bond would reflect the rating of the weakest country if jointly guaranteed.
Italian 10y bond yields continued to rise on Friday, and are now significantly higher than those of Spain. Italy’s Foreign Minister Frattini on Saturday ruled out the ECB ceasing to buy Italian debt saying “I think we will press the ECB to continue with its very wise policy to sustain the efforts of countries such asItaly andSpain”. He later clarified the remarks noting that the ECB is an independent institution, and said there are “no requests, pressures”.
EU Council President von Rompuy is due to meetFinland’s Prime Minister Katainen on Monday, and then to confer with Germany’s Chancellor Merkel that evening inBerlin. The question of how to handleFinland’s request for Greek collateral seems likely to dominate the agenda.
France’s Budget Minister Pecresse warned about the consequences if France were to lose her triple-A rating. “The triple A… if we lost it then immediately we would borrow more expensively, our interest rates would rise and it would cost us nearly 5 billion euros per year… so I really think that we need to be careful”.
We note that all three of the main ratings agencies affirmedFrance’s Aaa/AAA rating in the aftermath of theUS rating downgrade.
The EU approved the release of the next tranches of aid toIreland andPortugal. The IMF stated thatIreland had shown “resolute implementation” of the program.
The Spanish parliament approved constitutional amendments for budget deficit limits, as expected.
JPY
Prime Minister Noda gave his support to the principle of FX intervention, stating that it tends to curb excessive, disorderly FX moves. Given he presided over the past three interventions, his views are not surprising. He added that steps to counter yen rise is an urgent issue for government and that the yen’s rise has already had a negative impact on the economy.
Azumi made his first policy announcement in his capacity as the newly-appointed Japanese finance minister. It would appear that as far as exchange rate policy is concerned, policy continuity is the intention. He repeated the well-worn phrase that domestic industry would suffer if the government does not take measures against the strong yen. He said he was opposed to the BoJ underwriting JGB issuance – again a central policy plank of theKan administration.
Newly-appointed Economy Minister Furukawa said he wants the BoJ to consider further monetary easing to cope with the yen’s rise. He did not specify which method of easing he had in mind.
CHF
The SNB is due to announce the average level of sight deposits held at the SNB last week. We expect the announcement shortly before 07:00 GMT on Monday. The SNB’s stated policy intention is to increase sight deposits to CHF 200 bn, and we believe that target has already been reached. Last week’s announcement showed deposits at CHF 189 bn.
SCHEDULE
EURUSD BEARSIH Sell-off continues; near-term support lies at 1.4104 ahead of the Aug. 5 key low of 1.4055. Resistance is at 1.4288.
USDJPY BEARISH Support lies at 75.95, the low from Aug 19 and resistance is at 77.70.
GBPUSD BEARISH The pair targets 1.6111, where a break would expose 1.6101, the Fibonacci level. Initial resistance is at 1.6261.
USDCHF NEUTRAL Resistance is at 0.8088, while support lies at 0.7712.
AUDUSD BULLISH Recent pullback is seen as a correction; A move above 1.0765 would open 1.0809. Support comes in at 1.0419.
USDCAD BULLISH Clearance of 0.9901 would expose 0.9939. Support lies at 0.9754.
EURCHF NEUTRAL Near-term directional triggers are at 1.0799, a Fibonacci level, and 1.1621.
EURGBP NEUTRAL Resistance is at 0.8822 and support at 0.8697.
EURJPY BEARISH Focus is on initial support at 108.52, a break here would open key low at 108.03. Initial resistance is at 109.89.
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