FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
The euro rallied in the Asia session despite limited newsflow as investors await the German Parliament’s EFSF vote. Given the opposition has already pledged its support for the bill, we expect it to pass. However, there’s significant dissent within German Chancellor Merkel’s own governing coalition. Although the result may not be in doubt, the vote is seen as a vital test of political support for the resolution of the Eurozone sovereign debt crisis, especially if more adjustments are needed to complete the process, which is highly possible. The vote is due to start at at 0900 GMT and the result is expected around 1100 GMT.
In other news, Fed Chairman Bernanke said yesterday that the unemployment situation in the US is a ‘national crisis’ and warned monetary policy is ‘not a panacea’. He also called for strong housing policies to help real estate markets recover. Also late in the European session, Spain and Italy extended short-selling bans on bank shares, saying the restrictions would be in place until conditions improve. On the data front, US durable goods were slightly better than expected, with both the headline and core numbers dipping by 0.1% (cons -0.2% m/m). GDP figures are due on Thursday; the market is looking for a 1.2% annualised quarterly expansion in the US economy. Sweden and Norway retail sales figures are due . Overnight EURUSD traded 1.3527-1.3615 and USDJPY 76.52-76.60.
EUR
The euro rallied on anticipation of a midday announcement from the Troika. They are only due back in Greece on Thursday so we do not expect any major verdict to emerge from this announcement so the risk of disappointment remains high.
Finland’s parliament has approved the EFSF expansion, in a vote of 103 to 66. Prime Minister Katainen said the collateral demands of the countries were still under discussion but likely to be agreed within days or weeks. However this is only one of many ratifications due, there are 8 more with Germany deciding on Thursday. Slovakia is also striving to reach a decision and Premier Radicova said a vote must be held before the October 17th leaders’ summit. Delays in any country could cause more risk aversion, as Greece is already struggling to obtain approval for the next tranche of aid by October 3rd.
EU’s Barroso said deeper integration of the Eurozone will allow for issuance of joint sovereign debt. It should be noted that he will have no personal say in the matter as it is up to national Governments to decide but he has been a known supporter of the policy.
German Chancellor Merkel said her country ‘will do everything necessary’ for a strong Greece. We expect Greece to receive the next aid tranche and hence to avoid a default this year.
The European Union proposed a financial transaction tax which would take effect in three years. There is still much division within the Union on this measure, with several non-Eurozone members opposing the move, though new statements have allowed some room for flexibility.
France has announced it would trim debt issuance next year, as a part of a deficit reduction plan. However, the country has denied that its banks need more capital, noting they can face their current situation.
GBP
The UK Treasury announced that it would only support a financial transactions tax if it was enforced globally. To some extent this is a slight change in stance as it had been openly rejected on a European basis by the UK, but whether it can be implemented globally is another question entirely.
The Debt Management Office’s CEO Stheeman said there was good demand from overseas investors for 2052 Gilts, despite the long maturity.
JPY
Retail sales figures released overnight were disappointing as consumption contracted by 1.7% on the month in August (cons. 0.2%m/m).
CAD
Canadian Finance Minister Flaherty said the current flight to the dollar has had an impact on the Canadian dollar. He declined to comment on a meeting held today with the BoC and the Prime Minister. He reiterated that Europe needs to ‘overwhelm the debt crisis.
AUD, NZD
New Zealand Finance Minister Bill English said overnight that the country’s growth forecasts may be lower in the coming years. RBNZ Governor Bollard said he was comfortable with the official cash rate at current levels.
RBA’s Broadbent said overnight that a Greek default could have indirect impact on Australia, though the RBA board is more concerned about the domestic economy’s vulnerability to Europe that than banks.
CHF
SNB’s Jordan acknowledged that losses on gold and FX were possible in their operations, warning that making a profit could not be guaranteed. However he reaffirmed the SNB’s commitment to the exchange rate floor, noting SNB monetary policy cannot be measured by earnings and said there was no balance sheet problem.
TECHNICAL OUTLOOK
USDCAD key support at 1.0144.
EURUSD BEARISH Initial support lies at 1.3479 ahead of 1.3363. Near-term resistance is at 1.3690 ahead of 1.3797.
USDJPY BEARISH The pair continues to consolidate above the all-time low of 75.95; a break here would expose the psychological level of 75.00. Resistance is at 77.00.
GBPUSD BEARISH Outlook is bearish with initial support at 1.5526 ahead of 1.5433. Resistance comes in at 1.5706.
USDCHF BULLISH Initial resistance is at 0.9058 ahead of 0.9183, a key high. Key support lies at 0.8647.
AUDUSD BEARISH A break below 0.9622 would open 0.9537. Resistance holds at 0.9986 for now.
USDCAD BULLISH Initial resistance is at the intraday high of 1.0358 ahead of the key high of 1.0386. Key support lies at 1.0144.
EURCHF BULLISH Key resistance area is at 1.2346/1.2403, a break through this would expose 1.2646. Support lies at 1.2012.
EURGBP BEARISH Focus on initial support at 0.8632, a break here would open 0.8593. Resistance is at 0.8772.
EURJPY BEARISH Initial support lies at 102.85 ahead of 101.94. Resistance is at 104.96.
Please visit GCI’s Economic Calendar for a schedule of market news and events.
