FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar gave back some of yesterday’s gains against the euro during the Asia session, after several hours passed without any further euro-negative headlines from inside the Eurozone. EURUSD traded 1.4557-1.4616, USDJPY 80.05-80.33. The RBA kept the cash rate unchanged, which triggered a selloff of AUDUSD, while simultaneously boosting NZDUSD. Asian equity markets steadied after yesterday’s falls in global equities. No US economic data was released, however several Fed speakers offered their views ahead of today’s important speech by Fed Chairman Bernanke. Boston Fed President Rosengren (non-voter in 2011) said that a slowdown in the pace of the US recovery might affect the timing of the Fed’s exit strategy, but added that it is too soon to decide if the latest economic weakness warrants further Fed action. Dallas Fed President Fisher (a 2011 voter) said he personally does not foresee additional accommodation.
EUR
ECB President Trichet maintained his hawkish stance saying the ECB must prevent commodity price increases from triggering second round inflation effects, adding that, in recent months, he has seen upside risks to the outlook for price stability over the medium term.
Eurogroup Chairman Juncker said that the euro is overvalued relative to other major currencies and that he is inclined to think that the Eurozone should have an FX policy. Juncker added that Europe is working on a plan for Greece that would not be seen as a default by ratings agencies. ECB members continued to stress their opposition to any form of Greek debt restructuring. Bini Smaghi said that debt restructuring of a Eurozone country “should only be the last resort”, while Constancio said that the important thing for the ECB is that this doesn’t involve haircuts or partial default.
EU Commissioner Rehn again called for cross-party consensus to be found in Greece, noting that others outside of Greece cannot be expected to show solidarity if Greek politicians cannot find common ground amongst themselves. Rehn added that Greece is facing a default unless it is helped by its international partners.
Greek Prime Minister Papandreou said that the terms of Greece’s latest rescue have yet to be finalised and that the coming days and weeks are crucial. He confirmed for the first time that he would be willing to consider a referendum on the measures. A German finance ministry spokesman said it is not certain whether there will be second bailout for Greece and under what terms.
JPY
Finance Minister Noda finally reacted publicly to the yen’s recent strength. He said “I think the market was affected by perceptions toward the U.S. economy, but in any case, I will closely watch developments in the market”. The remarks do not suggest any imminent intervention risk.
AUD
The RBA kept the cash rate unchanged at 4.75%, in line with consensus estimates. About a 20% chance of a hike had been priced however and this, combined with a statement that was not overly hawkish, caused AUDUSD to fall 70 pips. The statement noted for example that “the current mildly restrictive stance of monetary policy remained appropriate” but, perhaps significantly, they repeat the language used in the latest quarterly statement when it was felt that “higher interest rates were likely to be required at some point”.
CAD
Finance Minister Flaherty said the biggest risks to the Canadian economy are the European debt crisis and the US debt and deficit.
TECHNICAL OUTLOOK
EURUSD BULLISH The pair targets 1.4711, break of this would open 1.4900. Initial support lies at 1.4451.
USDJPY BEARISH The pair tests 80.00 key support; a sustained break below the level would shift focus to 79.57. Resistance is at 81.01.
GBPUSD BULLISH Resistance is at 1.6461/96 area, break above which would open 1.6547. Near-term support lies at 1.6286.
USDCHF BEARISH The pair continues with its downtrend. There is scope for further loss towards 0.8300, followed by 0.8165 next. Resistance lies at 0.8453.
AUDUSD BULLISH Break of 1.0794 would expose 1.0877, while support lies at 1.0587.
USDCAD BULLISH A move above 0.9852 would unlock the way towards 0.9910 and 0.9974. Initial support is at 0.9745.
EURCHF BEARISH Clearance of 1.2108 would expose 1.2054 and 1.2000. Resistance is at 1.2318.
EURGBP BULLISH The cross targets 0.8941, break of this level would shift focus on 0.9000 next. Support is at 0.8846.
EURJPY BULLISH Break of 117.80 is required to confirm the bull trend and target 118.38 next. Initial support lies at 115.93.
SCHEDULE
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