FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
With much of Asia on holiday, the FX price action was relatively subdued. The dollar did strengthen marginally on signs of escalation in Egypt which coincided with a general stalling of the risk rally. EURUSD traded 1.3771-1.3817, USDJPY 81.49-81.76. A better ADP print also helped the dollar’s cause earlier, but market participants are wary about extrapolating from this reading to Friday’s official non-farm payrolls report.
ADP private payrolls for January were +187k (cons. +140k). Our analysts still forecast a below-consensus gain in Friday’s jobs report. Fed Chairman Bernanke is due to speak on “The Economic Outlook and Macroeconomic Policies.” We think he will have to depart significantly from the latest FOMC statement to really affect the dollar but his comments on inflation will be interesting as he recently said the risk of deflation has “receded considerably,” while the FOMC noted only that “measures of underlying inflation have been trending downwardâ€.
EUR
Today’s ECB policy decision is expected to be a non-event and the focus again falls on President Trichet’s subsequent press conference. Hawkish overtones are expected given the latest Eurozone CPI print for January came in at +2.4% y/y, which is well above the ECB’s target of “below, but close to 2%”. Our European economists do not expect a policy rate hike until Q4.
S&P downgraded Ireland one notch to A-, keeping the rating on watch negative. However, both Moody’s and Fitch rate the sovereign one notch lower still.
European Council President Van Rompuy said the EU is planning to announce a comprehensive solution to the sovereign debt crisis by March 25 – the scheduled date of the second of two upcoming EU Summits.
GBP
MPC members Charles Bean and Andrew Sentance offered different views on prospective monetary policy. Sentance sounded hawkish as usual, suggesting that the weak Q4 GDP report released last week should not be considered too significant and is likely no more than a fluctuation.
Bean on the other hand seemed in no hurry to hike the policy rate, noting that the current policy setting is “sensible” given that the recovery is “fragile”. He also forecast that inflation will “come back down towards the target” in the absence of further external shocks.
Construction PMI came in well above consensus at 53.7 for January, suggesting that activity has bounced back following the adverse weather in December. The more important Services PMI is due today.
TECHNICAL OUTLOOK
EURCHF 1.3069 resistance.
EURUSD BULLISH Climb through 1.3888/1.3948 resistance zone would expose 1.4086. Initial support lies at 1.3690.
USDJPY BEARISH Momentum is negative; scope for 80.93 and 80.54 next. Resistance at 82.15.
GBPUSD BULLISH Move above 1.6299 key high would open up the way towards 1.6379. Support lies at 1.6128.
USDCHF BEARISH Focus is on 0.9301; break of the level would leave little support till 0.9018. Initial resistance is at 0.9482.
AUDUSD BULLISH Recovery found resistance at 1.0149 Fibonacci level; break of this would expose 1.0256. Support lies at 0.9964.
USDCAD BEARISH Expect losses to target 0.9838/20 support area. Near term resistance at 0.9916.
EURCHF BULLISH Rise above 1.3002 exposes 1.3069. Support at 1.2873.
EURGBP BULLISH Break of 0.8619 would expose 0.8672/91 resistance zone. Initial support lies at 0.8510.
EURJPY BULLISH Need to break through 114.01 to confirm the bull trend and aim for 114.94 ahead of 115.68. Support lies at 111.28.
SCHEDULE
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