FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk sentiment has been supported in Asian hours, mainly in reaction to Fed Chairman Bernanke’s Jackson Hole speech on Friday and with Hurricane Irene causing less damage than initially feared. Bernanke confirmed a view of reaccelerating growth by the end of the year, but also said that the Fed has a range of tools for stimulating growth and that it will use its tools as appropriate. Separately, he announced that the upcoming FOMC meeting would be extended to two days, from one day previously. This is to allow for a “fuller discussion” of options available for further easing, as well as other topics. Although Bernanke did not signal new steps to promote growth, he kept all options open, which ultimately helped risk sentiment. Fears that Hurricane Irene would wreak havoc in New York City have proved largely unfounded, and Irene has now been downgraded to tropical storm status. US stock futures are trading in the black as a result, with S&P 500 futures up by 1.2%. EURUSD traded 1.4466-1.4495 and USDJPY 76.65-76.82.
EUR
Speaking on a panel at Jackson Hole, ECB President Trichet gave no indication that the ECB was considering reversing the 50bp of tightening applied so far this year. He said anchoring of inflation expectations is “absolutely essential” to supporting confidence. He added that although European economic fundamentals were not bad, economic governance needs to be improved.
ECB Governing Council member Nowotny said that Eurozone inflation expectations are “stable”, adding that even if an economic slowdown is on the way for Europe, it would not lead to an actual recession.
German Finance Minister Schaeuble said the global economy may see “seven lean years” as fiscal consolidation programmes are implemented. CEO of the EFSF, Regling, said “there is good reason to hope” the Eurozone debt crisis will be over in 2-3 years, provided corrective action is taken. He added that “the risk that the euro is discarded, from whatever quarter, is zero”.
The ECB is due to announce the value of bond purchases that settled last week under the Securities Markets Program. EUR14.29 bn settled the week before, the third-highest level of activity since the program began in May 2010. The announcement itself tends not to move FX markets. However, with the ECB holding down Eurozone sovereign yields, the yields themselves are now an imperfect indication of sovereign stress levels, and knowledge of ECB activity helps to build a more complete picture. Clearly vigorous official bond buying would suggest market participants are keener to part with their bond holdings than current yields suggest, and could raise doubts about the EFSF’s capacity to take over the ECB’s bond buying duties by the end of the year.
IMF Managing Director Lagarde said that the crisis has entered a “dangerous new phase”, and floated the idea of “mandatory substantial recapitalisations” of the Eurozone banking system, from private sector sources if possible or via the EFSF if necessary.
CHF
The SNB is due to provide its weekly update on the amount of sight deposits held at the SNB by commercial banks averaged over the past week. The SNB’s stated ambition is to raise sight deposits to CHF200 bn in a bid to weaken the Swiss franc, so this data will provide a useful measure of how much progress there has been toward this target. The previous level announced a week ago came to CHF 136.614 bn.
JPY
Finance Minister Noda won the DPJ’s election for a new leader, and hence will become Japan’s sixth prime minister in five years.
SCHEDULE
USDCHF clears 0.8017.
EURUSD BULLISH Rise through 1.4536 would open 1.4578 ahead of 1.4697. Support lies at 1.4328.
USDJPY BEARISH Break below 76.34 would confirm the bear trend and expose the key low at 75.95. Resistance is at 77.52.
GBPUSD NEUTRAL Resistance is at 1.6534 and support lies at 1.6208.
USDCHF BULLISH Clearance of 0.8017 has paved the way for gains towards 0.8178 and 0.8278. Initial support lies at 0.7893.
AUDUSD NEUTRAL Break above 1.0602 has opened resistance at 1.0786 and support at 1.0419.
USDCAD NEUTRAL Fall through 0.9792 has turned the model neutral. Initial resistance is at 0.9939 and support at 0.9742.
EURCHF BULLISH Sharp rise through 1.1663 has opened the way for further gains towards 1.1892 and 1.1984. Support lies at 1.1396.
EURGBP BULLISH Key resistance is at 0.8886, a break of which would expose 0.8915, a Fibonacci level. Initial support is at 0.8795.
EURJPY NEUTRAL Resistance is at 111.83, a Fibonacci level. Support lies at 109.94.
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