Daily FX Summary: November 1
Commentary courtesy of Talking Forex
The pair finished the session lower on Monday amid renewed concerns over the Eurozone following reports that the ECB has pumped an estimated EUR 260bln into Ireland to help its faltering economy, as well as comments from economist Colm McCarthy who said that the IMF may need to step in by February if the Irish budget fails to convince the financial markets.
As a result, EUR not only underperformed against the USD but also against its cross border rival GBP. Tuesday sees the release of the final Manufacturing PMIs for October and there is scope for further EUR weakness if the data ends up being revised lower. There is also EUR 2.8bln in T-bills to be auctioned by the Belgium debt agency, which should the demand disappoint, would lead to fresh re-widening of the 10yr bond yield spread over German bunds and consequently weigh on the currency. In terms of technical levels, to the downside support points are seen at 1.3860/40 and then at 1.3800. On the other hand, a rebound by the pair will face resistance at the 10DMA at 1.3892 and the 21DMA at 1.3904.
Despite a stronger USD, the pair finished largely unchanged on the session on Monday after a better than expected release of the UK Manufacturing PMI for October signaled that the BoE may refrain from announcing a resumption of the asset purchase facility (APF)later on this week. The pair hit a high at 1.6090 before moving back to 1.6040 as the USD index strengthened following a better than expected ISM manufacturing report. Going forward, given a lack of UK related data on Tuesday leads to believe that the price action will largely depend on the USD flows, as well as the investor appetite for EUR which could falter given renewed concerns over the peripheral states. In terms of technical levels, major resistance is seen at 1.6100, followed by 1.6150. To the downside, supports are seen at the 21 DMA at 1.5867 and the 10DMA at 1.5830.
A sharp jump in USD/JPY was observed during early hours on trade on Monday which prompted speculation of intervention by the BoJ. However it later turned out to be a miss-hit via algorithmic trading and as a result the pair moved back to low 80.00 levels. Much of the session was spent trading within a tight range and in spite of a stronger USD, the pair failed to break out and stage a decent rally of any sort. Worth noting comments from Japanese economy minister Kaieda who said that governments should engage in currency intervention if moves in the FX markets are abrupt. There were also reports of a US based think tank opining that the BoJ will be prompt in enacting another monetary easing program if the Fed initiates a "shock and awe" version of QE this Wednesday.
The Reserve Bank of Australia is also expected to keep its key interest rate unchanged at 4.50%. It is worth noting most recent comments by the IMF Mission Chief for Australia who said that if the economic expansion in the country pans out as expected, interest rates will need to rise, but the IMF wasn't prepared to advise as to when that should happen. The IMF also said that the AUD is currently 5% to 15% overvalued, and repeated its view that house prices in Australia are also moderately overvalued. In addition to that, the RBA needs to safe guard against inflationary expectations getting anchored at too high a level. However the current annual inflation in Australia stands at 2.8%, which is still within the acceptable band and given the global economic uncertainties, suggests that the central bank may refrain from hiking rates yet again.