FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Flows were very light inAsiaas markets gradually wind down for the holiday season.
The Wall Street Journal reports that the Fed is reconsidering the policy rate guidance it provided in August – when it signalled that rates would likely stay at zero until mid-2013. The article says the FOMC is poised to revamp its policy communication strategy at the Jan. 25 policy meeting, and could indicate that rates are likely to stay near zero until 2014 or beyond. The report cited FOMC members’ fear of weak economic conditions as the reason to move to an even more dovish stance.
Also, a day after the ECB engaged in ‘quasi-QE’ via its 3-year refinancing operation, outgoing Executive Board member Bini-Smaghi stated in an interview with the Financial Times that quantitative easing should be an option for the ECB if deflation risks were to emerge. We note that the recent data prints out of Germany and the ECB’s own inflation forecasts still suggest outright ECB QE (outside of the SMP mandate) is not on the horizon, but we have seen over the last two years that previous taboos in the Eurozone have been broken one by one, and the same could happen again.
In theUS, Q3 GDP figures were revised lower to 1.8%y/y. TheUniversity ofMichigan Index also came in weaker than expected at 68.0 (cons. 69.9). However, jobless claims were again lower than expected, creating a visible downtrend which suggests theUS labour market may be in better shape than commonly assumed. On Friday, Canadian GDP is due and theUS will have the durable goods and personal income and spending report for November.
EUR
In an interview with the Financial Times, the ECB’s outgoing Executive Board member Bini-Smaghi said that he ‘did not understand the quasi-religious discussion’ over quantitative easing. He acknowledged that theUSand theUKare adopting current measures because the central banks of these countries saw strong deflation risk, whereas this is so far not the case for the Eurozone. However, he also stated ‘But if conditions changed and the need to further increase liquidity emerged, I would see no reason why such an instrument, tailor made for the specific characteristics of the euro area, should not be used.’
On the SMP programme, Bini-Smaghi refused to commit to any explicit form of action, such as purchase or yield targets. However, he called for ‘constructive ambiguity’ on the matter and noted that central banks still need to be mindful of their mandates. ECB President Draghi has stressed in the past that acting as a lender of last resort to governments is not in the ECB’s mandate.
The Portuguese government announced that a Chinese State-Owned Enterprise had won the auction for its 21% stake in a major energy company. This is an example of how we believe China will chose to help the Eurozone – via strategic acquisition of assets rather than an increase in bond purchases or greater IMF support.
GBP
UK Q3 GDP was revised higher slightly to +0.6% q/q from +0.5% y/y. OurUKeconomist noted that this trend-like pace in Q3 comes after a very poor holiday and weather disrupted Q2. In fact, Q2 data was revised down from 0.1% to 0.0%. Forward-looking indicators point to a stagnant economy in Q4.
TheUK current account deficit for Q3 was much wider than expected at GBP15.2 bn from GBP7.4 bn last, expanding to 4% of GDP. We note that the quarterly data is volatile and prone to revision and that the trend thus far has been for the trade deficit to narrow after the currency depreciation in 2008.
NZD
Moody’s affirmedNew Zealand’s sovereign rating at AAA, outlook stable. The agency did observe though that the rating could face downward pressure if the upward trend in public debt was not corrected. We note that both S&P and Fitch already cut the rating one notch to AA+ on Sept 29.
Another earthquake, measuring 5.9, struckChristchurch during theAsia session. NZD briefly fell 20 pips but soon recovered fully.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURUSD BEARISH Initial support lies at 1.2994 ahead of key low at 1.2946. Resistance is at 1.3197.
USDJPY NEUTRAL Pair is trading in a narrow range with directional triggers at 78.29 and 77.49.
GBPUSD NEUTRAL Key resistance is at 1.5780 ahead of 1.5889. Support lies at 1.5497 ahead of 1.5465.
USDCHF NEUTRAL Support lies at 0.9235 ahead of 0.9176. Resistance is at 0.9415 ahead of key high of 0.9548.
AUDUSD NEUTRAL Resistance is at 1.0219 ahead of 1.0258. Support lies at 1.0052 ahead of 0.9895.
USDCAD BULLISH Near-term resistance is at 1.0309 ahead of 1.0389. Key support is at 1.0194.
EURCHF BEARISH Initial support lies at 1.2164 ahead of 1.2123, the Oct. 3 key low. Resistance is at 1.2254.
EURGBP BEARISH Support is at 0.8303, a decline through which would expose the year-to-date low of 0.8285. Resistance is at 0.8390.
EURJPY BEARISH Key support area is at 101.05/100.76, a violation of which would open the psychological support of 100.00. Resistance is at 102.54.
SCHEDULE
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