INFORMATION TECHNOLOGY

Monday, November 1, 2010

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FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)

USD

The last data to be published ahead of the FOMC decision is likely to cause less of a market reaction than usual. But nonetheless: a bad ISM result today (due to the end of the summer time due at 15.00h CET / 14.00h UK time) might put further pressure on the greenback. In the end all of this is a matter of interpretation. An index level around 53 (as our economists expect) is of course disappointing compared to recent data. But the latter was distorted by the immediate end of the recession and particularities of the inventory cycle. While the ISM index remains between 50 and 55 it does not send out any economic warning signals. At least a collapse, which could be deducted from a comparison of the ISM components, would be off the agenda.

EUR

We have changed ourr forecast for the timing of the first ECB hike. We see it coming no earlier than Q3 2011, one calendar quarter later than forecast previously. The rational is that Eurozone growth may be adversely affected by the euro's appreciation, and the ECB will hardly want to start hiking before the Fed. Our US economists currently expect the Fed to start hiking the Fed Funds target in Q3 2011.

The public finances of peripheral Eurozone nations continue to draw unwanted attention, and sovereign bond spreads over bunds remain elevated. Ireland's Prime Minister Cowen said the government is taking all necessary steps to address economic problems. The Irish 2011 budget, which is still being framed, is scheduled to be put to a parliamentary vote on Dec. 7. In Portugal, the minority Socialist government and opposition Social Democrats reached an agreement on the 2011 budget on Saturday. A first vote in parliament is scheduled for Wednesday.

SNB Chairman Hildebrand said that the global economy is not in the midst of a "currency war".

JPY

USDJPY suddenly spiked 80 pips before falling again. Reuters reported that Director General Nakao of the MoF's International Bureau declined to comment on the price action.

Economics Minister Kaieda said that the government would "take steps against steep rises of the yen", but warned that it is also important for the private sector "to transform its structure" to adapt to a stronger yen. He said that markets should decide FX rates, but that "if an inflow of speculative money" were to cause "a drastic change, like a 10-yen move in a month, we need to intervene in the market".

As part of its regular monthly disclosures, the MoF confirmed that no FX intervention took place between Sept. 29 and Oct. 27 inclusive. This strongly suggests that Japan's latest intervention campaign has so far been confined to a single day on Sept. 15.

TECHNICAL OUTLOOK

EURUSD BULLISH Break of 1.4159 would trigger another bullish run towards 1.4373. Support holds at 1.3698

USDJPY BEARISH Outlook is bearish; next big support below 79.75 lies at 77.91. Resistance at 81.99

GBPUSD BULLISH Focus is on 1.6107; move above the level would expose 1.6276 and 1.6458. Support comes in at 1.5878 ahead of 1.5606

USDCHF BEARISH Bounce-off from 0.9463 found resistance at 0.9929. Near-term support at 0.9703.

AUDUSD BULLISH Pullback from 1.0004 holds above 0.9542 reaction low. Move below the level would expose 0.9387

USDCAD BEARISH As long as 1.0380 continues to cap the upside, expect decline towards 1.0154 ahead of 0.9981

EURCHF BULLISH Momentum is positive; expect acceleration of gains towards 1.3924. Near-term support at 1.3456 ahead of 1.3265

EURGBP BULLISH While support at 0.8636 holds, view pullback as correction. Resistance at 0.8772

EURJPY BULLISH Break through 111.56 exposes 107.73 with scope for 105.44 next. Upside capped at 113.78 ahead of 115.68

SCHEDULE

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DISCLAIMER: GCI’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be U.S.ed as investment advice. GCI assumes no responsibility or liability from gains or losses incurred by the information herein contained.