FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk aversion rose again in Asia, mainly on the back of weakening growth expectations, persistent worries about the Eurozone periphery and several less constructive comments by officials. Chinese Prime Minister Wen said sovereign debt problems in some countries are rising, and signaled that developed nations should cut deficits and create jobs, rather than relying on China to bail out the world economy. China‘s central bank adviser Li said China should not buy large amounts of European debt. Moody’s downgraded the credit ratings of two French banks. The Asian Development Bank cut its 2011 and 2012 growth forecasts for the region excluding Japan. And finally, the Australian government trimmed inflation readings for H1. Most Asian stock market indices are trading in the red, with the Nikkei down by 0.96%. EURUSD traded 1.3608-1.3706 and USDJPY traded 76.87-77.06.
Ahead today the focus will be on a call between German Chancellor Merkel, French President Sarkozy and Greek PM Papandreou. As such headlines will continue to feature prominently on Wednesday. Given uncertainty about the Eurozone periphery, weakening global growth momentum and faltering confidence in the ability of officials to tackle the European debt crisis, we recommend a cautious stance on risk and continue to believe rallies in the euro should be sold, for instance against the US dollar and yen.
EUR
Bundesbank President and ECB member Weidmann said he takes German peoples’ worries about the euro seriously and that there is a danger that people will lose trust in institutions which try to solve the crisis. He added that his biggest worry is that measures taken so far shift the framework in a direction that is not sustainable in the long term. As such he said that planned EFSF purchases could weaken incentives for appropriate fiscal policy and that joint euro bonds are not needed. He added that he favours the ECB stopping bond purchases as these pose considerable risks to the Eurosystem.
Austrian economic minister Mitterlehner said on Greek insolvency, everyone must evaluate all possibilities and calculate consequences. He added that this does not mean that the calculated scenario is the preferred option. Clearly the rhetoric has changed in recent weeks from the likes of Germany and Austria and they are beginning to asses the consequences.
German Chancellor Merkel and French President Sarkozy will hold a call with Greek PM Papandreou on Wednesday afternoon.
Dow Jones wires reported the Dutch Finance Ministry expected Greece to default. This was later denied though the ministry noted that it was a scenario being looked at.
Fitch reported that Spain would find meeting its GDP target ‘challenging as the region’s deficits would put pressure on the central government. It warned that risks to the country’s rating are ‘clearly on the downside’.
Belgium‘s parliament has approved the second Greece Bailout, though many other governments and parliaments are yet confirm the July 21st agreements.
The IMF noted that Portugal‘s fiscal overhaul is ‘broadly on track’, but there is still a need to reduce waste and tighten spending controls. The fund stated any delayed fiscal implementation would undermine confidence in the current program.
US Secretary Timothy Geithner has confirmed his presence at the upcoming European Union Finance Ministers’ gathering in Poland. However, he denied that the US will urge a larger EFSF, contrary to earlier reports.
JPY
Industrial production rose 0.4% m/m in July. This compares with a rise of 3.8% in June. Hence latest data confirms that the recovery since the March earthquake is losing steam and that both global growth uncertainty and the strong yen are weighing on business activity.
GBP
UK August CPI came in-line with expectations at +0.6% m/m +4.5% y/y. Our UK economist notes that the data is unlikely to have a material impact on the MPC. For choice, the committee will want to wait before it embarks on any further policy accommodation until there is clear evidence of inflation falling. Inflation is expected to fall from November onwards.
UK labour market data is out on Wednesday. The claimant count rate is expected to dip to 4.9% (from 5.0%) and the ILO unemployment rate to remain at 7.9%.
AUD
The Australian Bureau of Statistics revised its inflation readings for H1 2011 lower, mainly due to changes to its seasonal adjustment methodology. In Q2 the trimmed mean has been revised to 2.5% y/y from 2.7% y/y previously.”
NZD
The RBNZ decision is due today at 21:00 GMT. Our analysts note that although there is little doubt that the economy has been stronger than anticipated at the outset of 2011. However, robust, self-sustaining, growth is yet to be established but Q3 could tip the balance – the data isn’t due until late December. Global uncertainty should keep the RBNZ on the sideline as the cash rate remains at 2.5%.”
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
USDCHF 0.8951 resistance.
EURUSD BEARISH Initial support lies at 1.3495, a break below which would expose 1.3428. Resistance is at 1.3837, July 12 low.
USDJPY BEARISH Break below 76.43 would confirm the bear trend and open up 75.95, the key low. Resistance is at 77.86.
GBPUSD BEARISH Fall below 1.5752 has opened support at 1.5719 ahead of 1.5676. Resistance is at 1.5870.
USDCHF BULLISH Key resistance is at 0.8951; a move above which would open the way for 0.9105. Support lies at 0.8706.
AUDUSD BEARISH Momentum is negative; the break of 1.0248 has opened 1.0111 ahead of 0.9928. Resistance is at 1.0376.
USDCAD BULLISH Rise through 0.9977 would pave the way for 1.0027. Support is at 0.9830.
EURCHF NEUTRAL Resistance is at 1.2191 and support lies at 1.2000.
EURGBP BEARISH Decline through 0.8596 would expose 0.8530. Near-term resistance is at 0.8720.
EURJPY BEARISH Initial support lies at 103.90 ahead of 102.45. Resistance is at 106.61, March 17 low.
SCHEDULE
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