The greenback rebounded as U.S. President Obama signaled there is
some progress in the debt-ceiling negotiations. Republican House leader
Eric Cantor said the deficit reduction plan, so called Gang of Six
proposal, was constructive but more work are still needed to be done.
President Barack Obama also called the reveal of this proposal ‘good
news', his endorsement of the deficit-cutting measures was interpreted
as a step forward in raising the debt-limit so as to avoid default. His
remarks led some dollar-buying activities especially against the low
yielding currencies like yen and Swiss franc, USD/JPY rebounded from
yesterday's low of 78.82 to an intra-day high of 79.32 before retreating
again as IMF reported that Japan's economy is showing signs of
recovering from March earthquake and tsunami which shook the country and
could expand later this year especially in its manufacturing sector,
they expect Japan to show a 2.9% growth from this year's 0.7%
contraction. Meanwhile Bank of Japan deputy governor Yamaguchi said the
central bank is closely watching forex moves and will take decisive
actions as needed, Japan's MOF also commented that currency markets are
showing one-sided moves and he is carefully monitoring market moves. At
the moment, offers remain at 79.30 up to 79.50 with stops still seen
above 79.65-70, on the downside, bids are tipped from 79.00 (option
related) down to 78.80 and more buying interest is seen at 78.50-60 with
big stops remain at 78.40.
Despite yesterday's rise in euro to as high as 1.4217 before
retreating as Germany's Chancellor Merkel said Thursday meeting will not
provide any big steps to solve all the debt problems in the near
future, the pair slipped overnight to 1.4108 on dollar's broad-based
rebound after president Obama said he welcomed the ‘Gang of Six'
proposal. Traders are likely to stay on the side ahead of the special
summit tomorrow, bids from Asian and Eastern European names are reported
at 1.4100-10 and further out at 1.4070 and 1.4050 with mixture of bids
and stops remain around 1.4000-10 whilst option related offers are
located at 1.4180-00.
The British pound remained locked within narrow range as focus is on
Europe and U.S., some traders are also awaiting the release of Bank of
England MPC policy meeting minutes at 08:30GMT. The minutes are expected
to show a voting result of 7-2 with both Martin Weale and Spencer Dale
voted for an immediate rate hike whilst another committee member Adam
Posen remains supportive for an expansion of the QEP, if any more
members of the remaining 6 also favoring an increase in QE, this would
become positive news of sterling. U.S. fund and sovereign names were
seen buying cable yesterday and bids from same parties are noted at
1.6070-80, 1.6050 and 1.6000-10 with big stops remain below 1.6000. On
the upside, offers are reported at 1.6150-60 and further out at
1.1.6190-1.6200.
The Swissy also rebounded overnight on President Obama's remarks,
however, the pair ran into offers around 0.8278 and retreated,
safe-haven demand for Swiss franc are still seen with offers tipped at
0.8280-0.8300 and further out at 0.8330 and 0.8350 with stop above
whilst option-related bids are reported from 0.8200 down to 0.8170 with
stops placed below 0.8150 and further out at 0.8100.
USD/CAD Daily Outlook
Daily Pivots: (S1) 0.9450; (P) 0.9526; (R1) 0.9569;
Intraday bias in USD/CAD remains neutral as fall from 0.9912 is in
progress and should be targeting 0.9444 support next. Break will confirm
medium term down trend resumption. In that case, next near term target
is 61.8% projection of 1.0671 to 0.9444 from 0.9912 at 0.9154. On the
upside, break of 0.9635 resistance will indicates short term bottoming
and argue that consolidation from 0.9444 is going to extend further. But
before that, we'll stay cautiously bearish in USD/CAD even in case of
recovery.
In the bigger picture, medium term outlook in USD/CAD remains bearish
and the down trend from 2009 high of 1.3063 is expected to continue
lower. Nevertheless, even in that case, we'd again start to look for
reversal signal as USD/CAD approaches 0.9056 key support (2007 low). On
the upside, however, break of 0.9912 will be a signal that 0.9444 might
be the medium term bottom already and should turn outlook bullish for a
test on 1.0851 key resistance next.
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