FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
A pair of speeches by US President Obama and House Speaker Boehner showed that there has been no significant convergence of opinion between both camps in the debt ceiling debate. This jolted FX investors into concluding that the risk of a US downgrade and possible default was larger than first supposed, and the dollar sold off across the board. EURUSD traded 1.4358-1.4501 and USDJPY 77.90-78.70. USDCHF made new lows; NZDUSD made new highs. We remain optimistic that a deal will be done but it will probably fall short of what the market is looking for and may not appease the ratings agencies. We expect negotiations to continue into the 11th hour which may suggest further volatility in the coming days, but investors should note that this may not result in dollar sales across the board as deleveraging-based risk reduction tends to cause dollar funding demand to rise. Ahead on Tuesday, Q2 GDP is due in the UK. In the US, consumer confidence and the Case-Shiller HPI are due.
EUR
On a visit to Washington D.C., Greek Finance Minister Venizelos noted that Greece has ‘regained its credibility’ and said the country needed national unity and a less expensive state. He said there would be success in ‘rebuilding the country’.
ECB’s Costa says an economic government needs to be created for the Eurozone. The ECB has offered several hints over recent weeks that it favours a fiscal union, with President Trichet noting on several occasions that it is the best scenario for the Eurozone.
Data are limited on Tuesday but the GfK Consumer Confidence Survey will be out and the market is looking for another dip to 5.6 from 5.7. CPI figures throughout Europe will be released this week and any surprises to the downside will throw the ECB’s tightening prospects into question.
JPY
Finance Minister Noda repeated his recent warnings that yen moves have been “one-sided” and that he is watching FX moves closely.
GBP
UK Q2 GDP is due and we are looking for a +0.1% quarterly gain, below the +0.2% expected by the consensus. Any downside surprise would rekindle QE fears, which has been widely discussed among policymakers of late given the downturn in general growth expectations in the UK.
BBA home loans in June were just ahead of expectations at 31,747, compared with forecasts for 31,000 and an upwardly revised 30,803 in May. However, mortgage lending numbers were down 6% y/y.
AUD
RBA Governor Stevens did not refer to monetary policy during his overnight speech but did point to the advantages of a strong AUD. Wednesday’s Q2 CPI release will be a focus for AUD investors.
NZD
The NZD fell after New Zealand’s trade balance for June came in weaker than expected as exports declined significantly. But NZDUSD ultimately made a full recovery against a backdrop of general dollar weakness.
TECHNICAL OUTLOOK
AUDUSD clears 1.0889
EURUSD BULLISH While support lies at 1.4324, watch for a move above 1.4578 to confirm the bull trend and extend gains towards 1.4697.
USDJPY BEARISH Momentum is negative; a decline through 77.41 would open 76.25, a key low. Resistance is at 79.32.
GBPUSD BULLISH Clearance of 1.6366 would open the way towards 1.6442. Initial support lies at 1.6262.
USDCHF BEARISH Pressure on 0.8000 psychological level; a break here would open 0.7790. Resistance is at 0.8178.
AUDUSD BULLISH Rise through 1.0889 has opened 1.0953 ahead of 1.1012, key high from May 2. Support lies at 1.0796.
USDCAD BEARISH The pair has initial support at 0.9423, a move below which would expose 0.9385. Near-term resistance is at 0.9531.
EURCHF BEARISH Support lies at 1.1496 ahead of 1.1374. Resistance is at 1.1781.
EURGBP NEUTRAL A move above 0.8895 would trigger a bull trend. Support lies at 0.8798.
EURJPY BEARISH A decline through 111.46 would expose 110.66. Resistance is at 113.66.
SCHEDULE
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