FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar failed to claw back any of its recent losses during the Asia session. EURUSD traded 1.3813-1.3862, and USDJPY 81.31-81.60. US equities closed up over 1% and Treasury yields pushed higher. The manufacturing ISM index rose much higher than expected to 60.8 in January versus consensus 58.0. The report included increases in the components most directly indicative of faster growth, with the employment index, the new orders index, and the production index all posting gains. All in all, the ISM report showed the trend in manufacturing output growth (and hiring) rising solidly at the beginning of 2011. The strength in the ISM index is consistent with our economists’ forecast for real GDP growth to pick up to a 4.2% annual rate in Q1 from 3.2% in Q4. But with labour data ahead, market participants do not appear to want to cheer the ongoing US recovery just yet. The ADP employment change does have a reasonable correlation to payrolls data. However, the last ADP print conflicted with the official non-farm payrolls release and wintry weather could add more volatility to the payrolls data this time around.
EUR
Manufacturing PMIs across the Eurozone were strong, with Germany, Italy and France all beating consensus. The EU composite indicator was equally positive, although there is substantial country divergence between the larger economies and the peripheral nations. But with the indicator near the 2006 high, a potential turning point may be at hand. The Eurozone unemployment rate fell for the first time since 2007, to 10.0%, in line with UBS estimates.
Spanish Economy Secretary Campa is confident that Eurozone leaders will reach a deal on improving the financial stability facility and said recent market calm does not remove the need for a more effective facility.
JPY
BoJ Board member Kamezaki said that rapid FX moves are undesirable, but that the yen’s appreciation has subsided somewhat from the sharp gains that have been seen in the past.
GBP
Manufacturing PMI in the UK rose to 62.0, the highest level since records began in 1992. Mortgage approvals fell in December, but this was largely due to the adverse weather conditions and sterling reacted positively to the PMI data primarily.
CHF
Swiss data was mixed with a disappointing retail sales number but a very strong PMI print. Retail sales fell in December by -0.4% y/y versus November’s reading of +2.5%. The PMI was 60.50 versus consensus at 59.2.
SNB Vice President Jordan did not comment on monetary policy but again said that the Swiss franc has massively appreciated and poses a risk to growth
AUD
Australia is bracing itself for the arrival of a category 5 cyclone today. Queensland Premier Bligh said it could be “catastrophic”.
CAD
BoC Senior Deputy Governor Macklem said a strong Canadian dollar could jeopardize the export recovery but at the same time said it would be a “risky business model” to assume the Canadian dollar would weaken.
TECHNICAL OUTLOOK
EURUSD clears 1.3786/1.3825.
EURUSD BULLISH With the breach of 1.3786/1.3825 look for a run towards 1.3888/1.3948 resistance zone. Initial support lies at 1.3690.
USDJPY BEARISH Break of 80.93 would expose 80.54 and 80.22 next. Resistance at 82.15.
GBPUSD BULLISH Focus is on 1.6183/1.6214 resistance zone. Support lies at 1.6010.
USDCHF BEARISH Pressure builds on 0.9301; break of the level would leave little support till 0.9018. Initial resistance is at 0.9482.
AUDUSD BULLISH Clearance of 1.0083 favours extension of bull trend towards 1.0149 and 1.0256. Support lies at 0.9964.
USDCAD BEARISH Sharp fall through 0.9934 has put focus on 0.9838 next. Near term resistance at 1.0011.
EURCHF BULLISH As long as support at 1.2774 holds, expect gains towards 1.3002 and 1.3069.
EURGBP BULLISH Break of 0.8619 would expose 0.8672/91 resistance zone. Initial support lies at 0.8510.
EURJPY BULLISH Upside potential; break of 114.01 would confirm the resumption of bull trend and aim for 114.94 ahead of 115.68. Support lies at 111.28.
SCHEDULE
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