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Forex − US Q3 GDP Fuels Risky Assets Higher

Fri, Oct 30 2009, 10:38 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

Forex News and Events:

US GDP’s inspiring 3.5% annualized pace of growth has reignited risk appetite that just days ago was looking weary and nervous. The effect on equity markets was immediate, as European indices turned positive and US equities surged higher; however FX markets have been far less impulsive in resuming their trademark USD-selling on good data. Certainly, commodity currencies which have been the hardest hit in the last couple of days were able to recoup their territory against the USD, but EURUSD has been tentative in its climb to 1.4850-60 levels, and USDCHF remains well supported above 1.0160. Some are perhaps waiting for the official assessment of what this GDP figure will mean for Fed policy stance going forward, but we feel that policy-makers are unlikely to put a dampener on the USD-funded asset rally just yet. For a start, the figures in Q3 are indeed encouraging, but have come about on the back of an unprecedented injection of fiscal stimulus and policy measures designed to temporarily prop up the economy. The sustainability of growth beyond the expiry of stimulus measures has yet to be proved, and in addition the US is still staring at the prospect of a dismal labour market where nearly 10% of the work force is unemployed; a significant deflationary drag. So for now we believe that a shift in the low-for-long rates policy in the US is still some way off and risk assets should continue to benefit going forward. Next week heralds the latest Non-Farm Payroll numbers, and if figures also impress it will go some way to neutralize fears that employment levels are still deteriorating, however we believe that such a development could initiate a shift in the major drivers of FX markets. As improvements in US data become more commonplace, the scope for profitability on merely selling the USD against all other currencies becomes increasingly limited. This should eventually prompt a more differentiated approach to which currencies investors favour against USD, and as we have long argued, the most likely characteristic to assess will be the diverging paths of monetary policy and interest rate differentials going forward.

Today's Key Issues (time in GMT):

10:00 EUR CPI, % y/y Oct exp: -0.1 prev: -0.3
10:00 EUR Unemployment Rate, % Sep exp: 9.7 prev: 9.6
10:30 CHF KoF leading indicator Oct exp: 1.16 prev: 0.85
12:30 CAD GDP, % m/m Aug exp: 0.1 prev: 0.0
12:30 USD PCE price index, % y/y Sep exp: -0.5 prev: -0.5
12:30 USD Core PCE price index, % m/m (y/y) Sep exp: 0.2 (1.3) prev: 0.1 (1.3)
13:45 USD Chicago Purchasing Managers Index Oct exp: 49.0 prev: 46.1
14:00 USD U/M consumer sentiment index Oct F exp: 70.0 prev: 69.4 

The Risk Today:

EurUsd After testing the downside support at 1.4684 in yesterday's Asian session, EURUSD bounced back above 1.4740 thereby completing a perfect a‐b‐c correction and the bulls are likely to gain confidence with the US GDP and other data pointing towards good economic growth. Whilst we remain above 1.4800 expect the first major resistanceat 1.4876 and thereafter at 1.4967. Weak support lies at 1.4775 and thereafter 1.4720. 

GbpUsd GBPUSD emphatically burst through 1.6484 after USD GDP, but was met with supply just above 1.6600; any further rallies should be met with fresh supply at 1.6605, whilst a break above there would target 1.6663 resistance and major downtrend channel. 

UsdJpy After narrowly missing our short entry at 92.50 with a high of 92.32 on Monday, the pair has been on a one way ticket down and has now broken the short term uptrend. The retest of the lower trendline held at 91.58, so we look to target the next downside level at 90.10 (with some support expected at 90.50). 

UsdChf The pair struggled to get above 1.0250 yesterday but since the GDP release and subsequent USD sell-off, USDCHF has held in above 1.0170 so far. Decent long interest should come in at 1.0123 with lots of support at 1.0037 below. 

Resistance and Support: 

Published on  Fri, Oct 30 2009, 10:48 GMT