FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Radio silence out of Europe has kept investors in wait-and-see mode for yet another overnight session. However, interest in USDJPY is intensifying given the pair is hovering above key levels and US payrolls is just hours away. As far as economic data goes, the yen shows greatest sensitivity to the US employment situation, and a weak report later would likely give the yen another push higher. Extremely weak data might even be enough to trigger a round of intervention on Monday, and Japan Finance Minister Azumi’s comments overnight reinforce this view. He complained that the latest yen moves were “one-sided”, and said the price action was increasingly driven by speculation. This represents a moderate hardening of rhetoric – a step which typically precedes an act of intervention.
Late in the European session, the euro did receive a healthy bounce on the back of comments coming out of Beijing. Speaking with visiting German Chancellor Merkel, Chinese Premier Wen Jiabao noted that China was considering ‘greater involvement’ in the EFSF and ESM stabilisation funds. However, he added that China was still ‘researching’ ways to participate, suggesting no imminent developments on this front. Dallas Fed President Fisher stuck to his hawkish views. He described the new Fed projections for the path of the policy rate as ‘pure guesses’, and said economic data is already on an upswing since those projections were made. We note that he lost his FOMC vote at the end of 2011 but is due to regain it in the Jan. 2014 rotation, along with two other hawks. Consensus opinion is looking for a +140k payrolls print (UBSe. +130k) and for the unemployment rate to remain stable at 8.5%. EURUSD traded 1.3115-1.3154 and USDJPY 76.12-76.26.
EUR
Greece appears to be exerting more pressure on official institutions to participate in the debt swap. Finance Minister Venizelos said that the ECB ‘must be mobilised’ for a debt deal, as private sector talks are now almost complete. There is still no official word from the ECB on the matter. Official Sector Involvement is clearly now at the top of the agenda ahead of the Feb 6 Eurogroup meeting.
Germany announced that finance ministers from Germany, Netherlands, Luxembourg, Finland (the remaining fully AAA countries in the Eurozone) will meet on Friday in Berlin. There will be a separate Franco-German meeting on Monday.
EU Economics Commissioner Rehn said that the 120% debt-to-GDP ratio target for Greece remains in place. He also called for swift resolution of the debt crisis as the recession could turn ‘much nastier’ otherwise.
In response, Chinese Premier Wen Jiabao said the country is ‘considering increasing its participation in the solution of the European debt crisis through the channels of the EFSF and ESM’. Previously China has not been as active as the Japanese in commenting on its participation, so the mention was considered a slight shift in tone. However, he clarified the comments saying such participation is being ‘researched’.
Spain sold EUR4.56 bn in bonds, above their EUR 4.5 bn target. Spanish 10-year yields have fallen below 5% in recent days. The Spanish government also announced bank reorganisation plans, which included increasing the firepower of the FROB, and valued the cost at EUR50 bn. This figure has been flagged in advance. The Spanish government said it would not add to the overall public sector burden.
CHF
Swiss trade figures were softer than expected, coming in at CHF2.07 bn. Exports rebounded by 6.1% but this was offset by rising imports.
Interim SNB President Thomas Jordan stressed that he will defend the peg with the ‘utmost determination’, in an interview with the Financial Times. He repeated the SNB is ready to buy foreign exchange in ‘unlimited quantities’ if necessary. The message is essentially unchanged from prior weeks.
GBP
Bank of England MPC member Posen said that he would favour ‘another slug of QE’ to the tune of EUR75 bn. He also mentioned that the MPC has talked about purchasing assets beyond gilts, especially to help small and medium-sized enterprises. We believe this could suggest some purchases of corporate bonds, but these are early stages and we would wait for details at the next BoE meeting.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURUSD BULLISH Resistance is at 1.3234 ahead of 1.3386. Support lies at 1.3026.
USDJPY BEARISH Focus is on 75.35, a break here would signal scope for deeper pull back. Resistance is at 76.42.
GBPUSD BULLISH Momentum is positive; resistance is at 1.5883, a move above which would open 1.5947. Support lies at 1.5780.
USDCHF BEARISH Support lies at 0.9115 ahead of 0.9066, the Nov. 30 key low. Resistance is at 0.9250.
AUDUSD BULLISH Pressure is on 1.0765, the Sept. 1 high, a clearance of which would signal scope for gains towards 1.1081. Support lies at 1.0570.
USDCAD BEARISH Near-term support lies at 0.9964 ahead of 0.9892, the October 2011 low. Resistance is at 1.0071.
EURCHF BEARISH Support lies at 1.2032 ahead of 1.2000 while resistance is at 1.2086.
EURGBP BEARISH Initial support lies at 0.8273 ahead of 0.8255. Resistance is at 0.8385.
EURJPY BULLISH Rally through 100.89 would expose 101.58. Support is at 98.92.
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