FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk appetite was somewhat subdued overnight. However as US stocks managed to finish in the positive, most Asian markets have responded accordingly. A lack of data and fresh event risk appears to have steadied markets but the release of several Eurozone indicators will put the focus back on growth in the region, which has held up relatively better than the US throughout the year but now appears increasingly at risk. Elsewhere, FX developments remain troubling for the Japanese and Swiss authorities, for despite warnings and sustained operations in money markets respectively, the yen and franc’s losses against the USD and EUR appear to have stalled as markets wait for the next step. In the current market environment it remains to be seen how they can respond unilaterally but the longer fresh measures are put off the more costly any form of outright intervention could prove in the medium term. Ahead today PMI figures in Germany and the Eurozone are due, along with other activity indices. In the US, new home sales are out. St. Louis Fed chairman Bullard said yesterday that the FOMC will definitely act if the economy weakens substantially and deflation risk reappears. We expect Bernanke to lay out similar markers for fresh QE later this week at Jackson Hole.
EUR
German Finance Minister Schaeuble said that the EUR was a strong currency and that developments in the German labour market were positive. He repeated his opposition to the introduction of eurobonds, again insisting on the need to maintain the risk of different borrowing costs for different countries so that market discipline could be imposed. Finland’s Prime Minister Katainen said he is sceptical of Eurobonds, and described them as risky.
Moody’s said that bilateral agreements on collateral to facilitate a second Greek rescue would be credit-negative for Greece. The agency judged that the pursuit of such agreements could delay the next tranche of aid for Greece and so precipitate payment default. Also, it was claimed that a proliferation of collateral agreements would limit the availability of funds for future programs. Moody’s said it expects other Eurozone members to ultimately reject the Finland-Greece collateral deal.
ECB Governing Council member Nowotny said that he feared Eurozone governments would not be able to complete the ratification of the EFSF’s new powers by October.
The ECB announced that EUR14.18 bn worth of SMP bond purchases settled last week, down from EUR22 bn the week before.
CHF
Average sight deposits held at the SNB were CHF136.6 bn last week, up from an average of CHF 61.15bn for the week before. The SNB’s stated ambition is to raise sight deposits to CHF200 bn so given that the target is now within reach, this raises the possibility of new measures begin introduced.
Swiss Foreign Minister Calmy-Rey said that the franc is ‘clearly overvalued’. She added that ‘energetic intervention’ was needed and all monetary-policy instruments should be used.
JPY
Japanese Finance Minister Noda said that coordinated intervention could not be ruled out and called current JPY price action ‘one-sided’. Multiple media reports said the MoF was considering intervention but so far no action has been witnessed.
The ruling DPJ has announced its intention to hold a party leader vote on Aug. 29.
AUD
RBA Deputy Governor Ric Battellino noted overall Australian growth is turning out to be slower than expected and setting policy will be a challenge up ahead. Overnight a private-sector flash PMI release for China showed manufacturing continued to contract, pointing to ongoing challenges for the Australian economy.
TECHNICAL OUTLOOK
EURGBP 0.8643 support.
EURUSD BULLISH A rise through 1.4536 would open the way for gains towards 1.4697, a key high. Near-term support lies at 1.4226.
USDJPY BEARISH A move below 75.95, the key low, would expose the psychological 75.00 level. Near-term resistance is at 77.31.
GBPUSD BULLISH A break above 1.6618 would pave the way for 1.6661. Support lies at 1.6421.
USDCHF NEUTRAL The pair has resistance at 0.8017 and support at 0.7744.
AUDUSD BEARISH Initial support lies at 1.0315, a break here would expose 1.0246. Resistance is at 1.0559.
USDCAD BULLISH A clearance of 0.9939 would reinforce the bull trend and open the way towards 0.9969. Near-term support lies at 0.9799.
EURCHF NEUTRAL The near-term directional triggers are at 1.1555 and 1.1046.
EURGBP BEARISH Key support lies at 0.8643; a move below this level would expose 0.8611. Resistance is at 0.8797, a Fibonacci level.
EURJPY BEARISH A decline through 109.02 would expose 108.03, the key low from Aug 11. Initial resistance is at 111.25.
SCHEDULE
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