FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Overnight, the RBA left rates on hold at 4.75% but our economists note that the media release signalled less certainty on growth, both domestic and globally. As a more cautious tone was largely priced in, the AUD was not hit hard, nor was risk in general as there were bright spots elsewhere, but we note that increased uncertainty within policymaking is denting risk:reward generally. Yesterday, the July 4 Independence Day holiday closed US equity and Treasury markets, and ensured an exceptionally quiet session in FX. Ahead today, our European economists expect the Riksbank to deliver another 25bp of tightening. This week’s ECB press conference and Friday’s payrolls report are likely to be the main events. On the data side, German PMI services and composite Eurozone PMIs will be released. It’s a quite session in the US as factory orders are the only release of note due. EURUSD traded 1.4466-1.4553 and USDJPY 80.71-81.11.
EUR
With investors having fully digested the weekend news that the EU is to release the next quarterly tranche of cash to Greece, attention is already starting to focus on the next hurdle. A second Greek rescue program is clearly in the pipeline, but questions remain over the scale and nature of any private sector participation, the timing of any final announcement on this, and the likely reaction of ratings agencies.
As far as timing is concerned, the latest official remarks suggest that nothing imminent should be expected. Greek Finance Minister Venizelos suggested details would be available before mid-September. The German Finance Ministry said a new Greek aid package could be finalised by the Autumn. Slovakia’s Finance Minister Miklos said it “would be ideal” to have agreement by August 20.
The euro got a scare when S&P warned that a Greek debt rollover might cause Greece’s rating to be cut to “selective default” if the plan was implemented along the lines proposed by French banks last week. However ISDA’s General Counsel Geen said that a voluntary rollover or an exchange of Greek bonds would not “typically” lead to the triggering of CDS.
Ahead today German and pan-Eurozone service PMIs are due. We expect a hike at the Thursday ECB meeting but the post-meeting press conference may air greater caution if data momentum continues to disappoint.
JPY
BoJ Governor Shirakawa repeated his view that the Japanese economy is showing signs of picking up and will eventually resume a moderate recovery. The comments suggest that another round of monetary easing is still a somewhat distant prospect.
AUD
The RBA kept rates on hold overnight at 4.75%, in line with expectations. Our economists note, however, that the overall tone of the accompanying release was less certain on growth, with the RBA saying 2011 economic expansion is “now unlikely to be as strong as earlier forecast”. Nevertheless, their medium-term forecast of trend growth remained intact. On inflation the RBA noted loose global policy settings were leading to global inflation and the high AUD was seen as having a ‘noticeable dampening effect’, suggesting conditions are tightening.
We continue to expect an RBA move in October as inflation pressures compel the central bank to act.
In other data, the May trade surplus was much higher at $2.3 bn (conssensus $1.9 bn), the best since October 2010 as export values rebounded.
TECHNICAL OUTLOOK
EURCHF 1.2405 next resistance.
EURUSD BULLISH A move above 1.4578 would expose 1.4653 and 1.4697, the key high from June 7. Support lies at 1.4427.
USDJPY BULLISH Clearance of 81.27 would open up the way towards 81.77 and 82.21. Support comes in at 80.27.
GBPUSD BEARISH Focus is on support at 1.5970, a move below which would expose 1.5911. Initial resistance is at 1.6141.
USDCHF NEUTRAL Targets 0.8551 key resistance; a break here would open 0.8663. Near-term support lies at 0.8400.
AUDUSD BULLISH Recovery stalled in front of 1.0790; clearance of the level would signal scope for further gains towards 1.0889. Initial support lies at 1.0520.
USDCAD BEARISH Break below 0.9580 would expose key support at 0.9513. Resistance is at 0.9651.
EURCHF BULLISH Next hurdle for the bulls is at 1.2405, the Dec 30 low. A break here would open 1.2500. Support lies at 1.2186.
EURGBP BULLISH Initial resistance is at 0.9098 ahead of 0.9095 Fibonacci level. A move above these levels would expose 0.9150 key high. Support is at 0.8976 previous high.
EURJPY BULLISH Rise through key high at 117.90 would open 118.38, while support holds at 115.91.
SCHEDULE
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