FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar continued to strengthen gradually during the Asia session. The absence of news, combined with the prevalence of short dollar positions, suggests that an unwind of overstretched positions was likely at work over the past 24 hours. EURUSD traded between 1.3873 and 1.3924 and USDJPY between 82.61 and 82.94. Asian equities are marginally ahead at the time of writing, while the S&P 500 had closed up 0.89%.
There are no top-tier releases in the US ahead so positioning and external factors will likely continue to drive currencies. Our 1m forecasts, which we revised earlier in the week, reflect that sentiment favours the currencies of hawkish central banks in the near term, but we maintain our 3m forecasts on the basis of an improving US economy and continuing Eurozone debt worries.
EUR
Greek and Irish bonds remain under pressure, with their 2y spreads relative to Germany well above the rest of the Eurozone. S&P said it also sees more downgrades for Eurozone countries, though the ratings agency did not elaborate.
German factory orders grew faster than expected in January at +16.0% y/y and +2.9% m/m, compared to consensus expectations of +15.6% y/y and +2.5% m/m respectively.
ECB Governing Council member Nowotny said that the ECB is strictly keeping to the goal of price stability. Inflation is not seen as a threat if second-round price effects can be contained. He also said that the ECB never pre-commits to interest rates, although did acknowledge that “strong vigilance” is seen as a code word in the markets.
CHF
After the unemployment rate fell for February, the upcoming CPI release now takes centre stage. We look for an increase in both m/m and y/y CPI, though slightly below consensus (0.2% m/m vs. cons. 0.3% m/m, 0.3% y/y vs. cons. 0.4% y/y). An upward surprise on CPI could lend support to CHF but might not be enough to shake the SNB out of their current stance. Relative central bank tightening expectations continue to favour EURCHF upside.
AUD
More Australian economic data from January was released overnight. The latest data show more signs of strain as a result of the flooding in Queensland. Our Australian economists note that consumer confidence has fallen to a nine- month low, and the value of housing finance (excluding refinancing) dropped by 6.4% – the sharpest fall since March 2008.
NZD
Our analysts expect the RBNZ to cut the OCR by 50bp. Given that the consensus is only looking for a smaller 25bp cut, the NZD is likely to come under selling pressure immediately after the policy announcement. Clearly the policy statement is also likely to be highly influential, and any suggestion from Governor Bollard that he might consider easing policy further in the future is likely to add to any downside pressure on NZD.
TECHNICAL OUTLOOK
EURGBP 0.8654/72 resistance.
EURUSD BULLISH Focus is on 1.3989 yesterday’s high, move above this would open up 1.4036/86 area next. Support is defined at 1.3833.
USDJPY NEUTRAL Recovery from 81.57 signals potential for gains towards 83.07/41 zone. Short-term support defined at 81.95.
GBPUSD NEUTRAL Pull back from 1.6344 has turned the model to neutral; break of this level is required for resumption of uptrend. Near-term support is at 1.6072.
USDCHF BEARISH Support at 0.9200 holds, move below this would open 0.8951 next. Near-term resistance at 0.9392.
AUDUSD NEUTRAL Initial resistance is at 1.0202, break of this would expose key resistance 1.0256. Near-term support is at 1.0002.
USDCAD BEARISH Bearish outlook is intact; support zone is at 0.9700/0.9684. Resistance is defined at 0.9776.
EURCHF BULLISH Focus is on 1.3138, break of this level would expose 1.3205. Support at 1.2788 holds.
EURGBP BULLISH Outlook remains bullish with focus on 0.8654/72 resistance area. Near-term support is at 0.8566.
EURJPY BULLISH While support at 114.19 holds, the cross targets 116.00/65 resistance zone.
SCHEDULE
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