FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk sentiment was muted in Asia, mainly on the back of intact worries about global growth prospects and the Eurozone debt crisis. Several officials stressed the fragile situation in France and Italy. According to German Chancellor Merkel Greece will not receive aid payments this month if conditions of the rescue package are not met. Italy‘s President Napolitano said that the alarming widening of Italian sovereign spreads over bunds cannot be ignored, and said it shows the urgent need to regain market confidence. Elsewhere, the RBA kept a neutral monetary policy stance. In terms of data, Australian export growth slowed more than expected. As a result to above outlined conditions and European markets’ weak closing yesterday most Asian stock market indices are trading lower, with the Nikkei down by 1.2%. EURUSD traded 1.4059-1.4099 and USDJPY traded 76.78-76.97.
EUR
German Chancellor Merkel said that Greece will not receive aid payments this month if it is not meting conditions of the rescue package. She added that the situation in Greece and Italy is extremely fragile. Elsewhere, German Finance Minister Schaeuble said that Eurozone countries “will continue to collectively provide conditional financial assistance” to countries locked out of capital markets.
ECB President Trichet said that the global debt crisis is hitting Europe particularly hard. He added that if a country does not take appropriate fiscal decisions, it should one day be possible to enforce appropriate policy through a central authority. He said again that Europe would have a “federal government” one day.
Bank of Italy Governor Draghi said the EFSF must have enough resources so that it is not perceived as lacking in size. Draghi also advocated a change to the Treaty so that fiscal rules can be imposed. Draghi is due to succeed ECB President Trichet on Nov. 1.
The ECB reported that EUR 13.305 bn worth of bond purchases settled last week, taking the total stock of purchases to date to EUR 129 bn. This was the third-most active week since the program began in May 2010, and does suggest renewed investor selling pressure on Eurozone sovereign debt.
JPY
Economy Minister Furukawa said he expects the BoJ to take appropriate measures to help the economy. He also said that he expects the BoJ to pay heed to downside economic risks arising from the strong Yen.
According to G7 sources Japan is likely to bring up the issue of the appreciation of the Yen at this weekend’s meeting. However, according to the source the recent rise of the greenback against most major currencies as investors sought a safe haven was likely to make any currency discussion less sharp. Hence G7 will unlikely agree on any joint FX intervention.
CHF
Economy Minister Schneider-Amman repeated that the Swiss franc is overvalued, and said it would be ideal to have EURCHF near the level implied by purchasing power parity. Schneider-Amman said he knows that many ‘wait for action’. He added that it is up to the SNB to act.
The SNB announced that the average level of sight deposits held at the SNB last week was CHF 229.797 bn. This surpasses the CHF 200 bn target previously announced..
AUD
The RBA kept rates unchanged at 4.75 as broadly expected. The central bank remains concerned about the inflation outlook but views the outlook for the global economy as less clear. As such externally driven downside risks to growth are more difficult to assess. The board continues to assess the outlook for growth & inflation. On a different note cautious households and the strong AUD are regarded to dampen activity in some sectors. Altogether the RBA’s statement is indicative for the central bank to remain in a wait and see mode.
On the data front, export volumes weakened more than expected. According to the Bureau of Statistics net exports could detract 0.5% from Q2 GDP. Housing finance in July rose 1%, less than an expected rise of 1.5%.
Governor Stevens is due to speak at a separate event at 23:30 GMT later on Tuesday night.
SCHEDULE
EURUSD BEARSIH Break below 1.4055, the key low would open the way towards 1.3951 ahead of the key low from July 12 of 1.3837. Initial resistance is at 1.4288.
USDJPY BEARISH Initial support lies at 76.34; break below which would expose 75.95, the key low from Aug 19. Resistance is at 77.24.
GBPUSD BEARISH Sell-off through 1.6069 has exposed initial support at 1.6006, a move below which would open 1.5906. Near-term resistance is at 1.6261.
USDCHF NEUTRAL Resistance is at 0.8088, while support lies at 0.7712.
AUDUSD BULLISH Initial resistance is at 1.0666 ahead of 1.0765, while support at 1.0445 holds.
USDCAD BULLISH Sharp rally through 0.9901 has exposed resistance at 0.9969 ahead of 1.0010. Support lies at 0.9854.
EURCHF NEUTRAL Initial resistance is at 1.1353, while support lies at 1.0799, a key retracement level.
EURGBP NEUTRAL Near-term directional triggers are at 0.8822 and 0.8697.
EURJPY BEARISH Decline through 108.03 would signal extension of losses towards 106.61 ahead of 105.44. Initial resistance is at 109.12.
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