FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
FX markets remained nervous during the Asia session although sentiment got a small boost after Japanese stocks rebounded. An FOMC statement which sounded a little more optimistic on the US economy also helped. USDJPY and USDCHF remain heavy however. EURUSD traded 1.3954-1.4013, USDJPY 80.69-81.17. The Nikkei rose +5.68%, erasing slightly more than half of yesterday’s losses. A slightly more constructive FOMC statement noted the economic recovery is on a “firmer footing” and also acknowledged improvements in labor market conditions. The Fed seemed to view the rise in energy prices in the context of what it might mean for inflation rather than growth, a sign that they are beginning to worry more about the outlook for inflation. The FOMC did not acknowledge any risk to growth posed by recent events, even though it seems likely these events have created some additional uncertainty. And the FOMC left little doubt that they would complete the $600 bn program of Treasury purchases by June. Our analysts continue to expect the Fed will allow passive balance sheet contraction to occur in H2 2011
EUR
The euro fell 20 pips after Moody’s downgraded Portugal by two-notches to A3, outlook negative. This brings the rating into line with S&P, but Fitch still rates Portugal two notches higher.
Even though the EU surprised with its decisions over the weekend, the press reported that smaller EU states want to change how the size of contributions to the bailout fund is calculated, which points to persistent uncertainty on the fate of the so-called comprehensive solution.
We expect Eurozone CPI for February will match the consensus estimate of +2.4% y/y.
The ZEW surveys in the Eurozone were slightly disappointing as a result of wider risk aversion in the markets. The current situation index in Germany came in below expectations at 85.40 and the economic sentiment index at 14.10.
JPY
Headlines throughout the session indicated ongoing uncertainty regarding the damaged nuclear reactors in Japan. USDJPY was range-bound but heavy, although yen crosses were a little firmer on the back of much stronger Japanese equities. Finance Minister Noda again reminded investors that he is watching markets closely.
TECHNICAL OUTLOOK
AUDUSD 0.9804 key support.
EURUSD BULLISH The pair eyes 1.4003/36 resistance area, break of this would expose 1.4086. Initial support lies at 1.3855, yesterday’s reaction low.
USDJPY BEARISH Currently holds support at 80.61 ahead of 80.22 key support. Initial resistance defined at 82.00.
GBPUSD BEARISH Bearish pressure holds above 1.5964; a break here is required to confirm the bear trend and expose 1.5845. Near-term resistance lies at 1.6200.
USDCHF BEARISH Bearish trend is intact; break of 0.9200 has exposed 0.9000 ahead of 0.8951. Initial resistance is at 0.9369.
AUDUSD BEARISH Sharp sell-off yesterday held above 0.9804 key support ahead of 0.9739. Initial resistance defined at 1.0107.
USDCAD NEUTRAL Recovery through 0.9902/59 has exposed 1.0011/58 area. Support lies at 0.9735.
EURCHF BEARISH Focus is on 1.2727/06 support zone, while resistance is at 1.2945.
EURGBP BULLISH Momentum is positive; break of 0.8692 has exposed 0.8787 Fibonacci level ahead of 0.8818. Near-term support is at 0.8626.
EURJPY NEUTRAL Key support lies at 111.96, break of this would pave the way to 110.78 next. Resistance is at 115.02/29 area ahead of 116.00.
SCHEDULE
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