FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar continued to surrender ground during the Asia session, and USDCHF set a new all-time low. EURUSD traded 1.3787-1.3838, USDJPY traded 81.68- 82.07. The euro and sterling remain supported by the prospect of rate hikes to tame inflationary pressures, especially as oil prices stay firm due to tensions across the Middle East and North Africa. Even a better initial jobless claims could not boost the dollar as Treasury yields remained subdued and oil prices elevated. Jobless claims fell more than anticipated, continuing the recent downtrend. January headline durable goods orders rose, while orders ex-transportation were much weaker. New home sales also fell more than expected, declining 12.6% m/m. St Louis Fed President Bullard, a non-voter in 2011, said the economic outlook has improved since QE2 was announced and that “the natural debate now is whether to complete the program, or to taper off to a somewhat lower level of asset purchases.” Our analysts team notes that this is significant because he is historically a hawk but has been very supportive of the QE2 program. He isn’t making a strong argument for curtailing the QE2 program, but is certainly highlighting the risk that the Fed might do that.
EUR
Bundesbank President Weber said interest rates can only go up in the future, which briefly boosted the euro. Bundesbank board member Dombret was also hawkish, saying that second-round price effects cannot be ruled out.
German GDP for Q4 was confirmed at 4.0% y/y, 0.4% q/q, driven by strong export growth and public spending. Our European economists note that the release shows a less balanced growth picture than in Q3, with capex down and private consumption sluggish.
Italy is planning on selling approx. EUR5 bn in 2021 bonds, EUR3 bn in 2013 bonds and EUR1.5 bn in 2017 bonds. Recent auctions have gone well, though their impact on euro sentiment has diminished given that rate hike expectations are currently dominant. Our fixed income strategy colleagues point out that the behaviour of Italian spreads appears to have become more ‘core-like’ over the past year, which could mean these auctions are well received.
GBP
BoE MPC Member Sentance stuck to his hawkish line repeating that the time has come to increase interest rates. Fellow policymaker Posen said that his view on the need for more Gilt purchases has not changed.
We expect no revision to Q4 GDP growth. The initial estimate severely disappointed, triggering a sterling selloff. However, today sterling is likely to remain supported as the market continues to focus on the prospect of an early BoE rate hike.
CHF
We expect a slight dip in the KOF leading indicator but external developments remain the key driver for the Swiss franc these days, as it continues to benefit from safe haven flows. Nevertheless, keep an eye on the data as an accommodative SNB and the end of Swiss economic outperformance could put some downward pressure on CHF.
NZD
An RBNZ spokesman denied speculation that the RBNZ is planning to hold an emergency policy meeting to address the aftermath of this week’s earthquake.
S&P became the third major ratings agency to say that New Zealand’s credit rating has not been affected by the quake.
TECHNICAL OUTLOOK
USDCAD 0.9745/12 support.
EURUSD BULLISH Upside potential targets upper boundary of the 1.3826/62 resistance zone. Near term support is at 1.3705.
USDJPY BEARISH Momentum is negative; expect losses towards 81.13 ahead of 80.93. Resistance lies at 82.52.
GBPUSD BULLISH Tough resistance zone at 1.6279/99. Near-term support comes in at 1.6085.
USDCHF BEARISH Bearish conditions remain intact; look for downside towards 0.9200 ahead of 0.8951. Near-term resistance at 0.9336.
AUDUSD BULLISH Focus is on initial resistance 1.0158 ahead of 1.0200. Support lies at 1.0002.
USDCAD BEARISH Move below 0.9816 exposes 0.9745/12 support area. Resistance at 0.9902.
EURCHF BEARISH Support is at 1.2686 ahead of 1.2592. Near-term resistance at 1.2882.
EURGBP BULLISH Rise above 0.8533 and 0.8577 exposes 0.8619. Near-term support lies at 0.8470.
EURJPY BULLISH Focus is on 114.19, breach of this level would expose 114.94. Support is at 112.06.
SCHEDULE
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