FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The US House of Representatives approved the bipartisan bill to raise the debt ceiling by a comfortable majority of 269-161. The currency reaction was extremely muted. EURUSD traded 1.4230-1.4283 and USDJPY 76.88-77.82. The Senate is due to vote on the same Bill at approximately 1600 GMT on Tuesday. Before the House vote, Moody’s had already said that they were likely to affirm the US AAA debt rating if the debt ceiling is increased. However, the positive implications of the latest progress on the political front were offset by weaker macroeconomic data. At 50.9 (cons. 54.9, prev. 55.3) the ISM manufacturing PMI for July was considerably below market expectations. The new order component dropped to 49.2, into contraction territory. As a consequence of falling growth expectations, most global equity markets indices closed in the red. The S&P 500 ended 0.4% lower overnight and the Nikkei 225 is down 1.18% at the time of writing.
EUR
The manufacturing PMIs were released across parts of Europe and painted a mixed picture. While French and Italian numbers were stronger than the flash estimates, the Spanish PMI components were all down, with both domestic and export orders below 50. Our European economist notes that this points towards a further slowdown in Spanish industrial production.
JPY
Without citing sources, the Nikkei newspaper reported that the BoJ may take steps to ease monetary policy further at this week’s meeting. It also claimed that the government is preparing for currency intervention.
Finance Minister Noda said he is watching FX markets especially closely today, and added he is communicating closely with the BoJ and with other countries on the yen’s rise. He repeated that the yen is too strong and that moves have been one-sided.
AUD
The RBA kept the policy rate on hold and re-instated an implied near-term tightening bias, expressing ‘concern’ at the medium-term outlook for inflation. Nevertheless AUDUSD fell about 60 pips on the announcement. Our Australia economists stick to their view that the RBA is likely to hike rates again in October.
GBP
The UK manufacturing PMI was softer than consensus with the composite indicator at 49.1 and the new orders balance at 47.6. Cable fell on the release but soon reversed its losses.
TECHNICAL OUTLOOK
USDJPY 76.25 key support.
EURUSD NEUTRAL A break above 1.4454 would trigger resumption of the bull trend and open 1.4536/78 resistance area. Support lies at 1.4134.
USDJPY BEARISH The pair has key support at 76.25, a move below this would expose 75.00, psychological level. Initial resistance is at 78.17.
GBPUSD BULLISH A rise through 1.6476 would open 1.6547, a key high. Support lies at 1.6211.
USDCHF BEARISH Support lies at 0.7681, the channel lower drawn off the Feb 11 high, ahead of 0.7541. Resistance is at 0.8070.
AUDUSD BULLISH Clearance of 1.1081 would expose 1.1198. Initial support lies at 1.0911.
USDCAD NEUTRAL Resistance is at 0.9636 while support lies at 0.9486.
EURCHF BEARISH A break of 1.1000 would favour extension of losses towards 1.0920/09 area. Resistance is at 1.1452.
EURGBP BEARISH A decline through 0.8705 would pave the way for losses towards 0.8657. Resistance is at 0.8806.
EURJPY BEARISH Initial support lies at 108.71 ahead of 106.61, the key low from March 17. Resistance is at 112.25.
SCHEDULE
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