FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Asian markets traded on a very soft tone as global equities suffered amid renewed fears over the US economy and beyond. The particular weakness in the banking sector also shows investors are not yet convinced funding problems have been resolved. However, macro numbers were the driving force as a toxic mix of higher price pressures and weak employment statistics pointed to stagflation. US CPI was stronger than expected at 3.6% y/y (cons. 3.3%). Even the core reading rose to 1.8% y/y (cons. 1.7, potentially making it more difficult for the Fed to contemplate another round of stimulus, for which anticipation is building ahead of Fed Chairman Bernanke’s Jackson Hole appearance next week. However, New York Fed President Dudley said that ensuring financial stability is now as important to the Fed as steering monetary policy, a clue perhaps that the Fed might be willing to consider another round of stimulus even if inflationary pressures remain elevated. At the same time, the August Philadelphia Fed manufacturing survey plunged to -30.7 (cons. 2.0), taking the index back to levels last seen in March 2009. Our US economists note that this weakness implies the wider ISM survey will likely slip below 50 in the near future, taking it into contractionary territory. Initial claims increased to 408K (cons. 399K). Ahead today, data releases are limited and we expect markets to remain in headline-watching mode for economies and any idiosyncratic risk events. Overnight USDJPY traded 76.46~76.94 and EURUSD 1.4294-1.4339.
EUR & CHF
The New York Fed announced that the SNB had tapped the Fed’s dollar swap lines for $200 million in the week ended Aug. 17. The news suggests that at least one Swiss bank may have experienced a dollar shortage during the past week but was unable to meet its needs in the market. The line has not been used since at least May 2010, and follows revelations that a single unidentified Eurozone bank requested $0.5 bn from the ECB yesterday. Given that commercial banks who ask their own central banks for the Fed’s dollars must pay dearly (Fed effective + 100 bps) for the privilege, swap line activation is an indication that all is not well in dollar funding markets. However, investors may take some comfort from the fact that, at $0.7 bn in total, current usage of Fed swap lines is much lower than the $550bn worth of activity seen at the peak of the crisis.
JPY
Despite the JPY remaining at strong levels, there was no recorded official action. Japanese Finance Minister Noda said the government and BoJ will take appropriate measures when necessary. He also noted that speculative moves were behind the JPY’s gains but wouldn’t comment specifically on monetary policy.
AUD
Australia PM Gillard said the high AUD is likely to be sustained for some time; and there are no government plans to adjust AUD strength.
TECHNICAL OUTLOOK
EURGBP 0.8643 support.
EURUSD BULLISH A clearance of 1.4452 would expose 1.4536. Support lies at 1.4226 ahead of 1.4150.
USDJPY BEARISH Momentum is negative; a move below 76.25, the key low, would expose the psychological level of 75.00. Initial resistance is at 77.31.
GBPUSD BULLISH A move above 1.6592 would pave the way for 1.6661. Support lies at 1.6323.
USDCHF NEUTRAL The pair is heavy below 0.8000; the near-term directional triggers are 0.8278 and 0.7744.
AUDUSD BEARISH The fall through 1.0331 has opened 1.0246 ahead of 1.0111. Initial resistance is at 1.0559.
USDCAD BULLISH A rise through 0.9969 would expose 1.0010, a key high from Aug 9. Support lies at 0.9799.
EURCHF NEUTRAL The cross has resistance at 1.1555 while support lies at 1.1046.
EURGBP BEARISH Key support lies at 0.8643; a break below this level would expose 0.8611. Initial resistance is at 0.8745.
EURJPY BEARISH A move below 108.93 would expose 108.03, a key low from Aug 11. Initial resistance is at 110.72.
SCHEDULE
Please visit GCI’s Economic Calendar for a schedule of market news and events.
