FX Daily Planet: London Open

FX Daily Planet: London Open

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View for the day

Asian equities have been posting sharp losses of over 2%, moves reminiscent of European and US market overnight. A country leading this region wide downfall is Taiwan which is currently trading 4.6% lower on the day resembling Spain, where equities fell as much as 5.9%. The Shanghai and the Nikkei are no exception, dropping 1.8% and 2.8% respectively as of writing. In the FX market, most dramatic move was seen in EUR/CHF. The pair plummeted to mid-1.45, the lowest level since October 2008 only to suddenly spike up to 1.48s around the mid-day. The market suspects there had been intervention by SNB (note that SNB Governor Hildebrand reaffirmed SNB’s stance to control excessive move in CHF last month). CHF has pared some of the earlier losses thereafter, with EUR/CHF now trading at mid-1.47s. Despite the broad and sharp deterioration in the risk market, JPY – which was the major outperformer in the previous trading - was another currency that registered most losses among the majors. Both CHF and JPY are currently trading 0.7% lower vs USD whilst AUD and NZD trade 0.2-0.3% higher also vs USD. EM Asian currencies have been falling sharply on the back of weakness in regional equities with IDR, PHP, MYR, INR all dropping over 0.6% whilst KRW makes the biggest loss of 1.8% all against USD. In FX vols space, vol curves in JPY cross pairs flattened as front end vols rose more sharply than longer end vols; for EUR/JPY, 1m vol climbed 1.1vols to 15.60% and 1yr vols rose 025vols to 15.75%.

Today is a big day in the US, as we receive January payrolls data, for which we look for slightly more bullish than consensus rise of +20.0K (consensus forecast: +15.0K) along with unemployment rate on which we are in line with consensus expecting the rate to have hovered at 10.0%. Utterly pessimistic jobless claims yesterday should have been enough to smash market expectation for strong payrolls the market had been building since ADP employment report and Challengers layoff figures out on Wednesday. With under the current market environment where sell off pressure in risk market has gained momentum, we should watch out for investors risk appetite deteriorating further on weak result. This should support USD and JPY at the cost of high beta currencies.

Meanwhile we should continue to remain alert on volatile market moves on ugly headlines coming from Euro zone where Greece no longer seems to be the only country of concern. Separately, G7 meeting starts today and we should watch out for any headlines or comments on CNY, which could possibly drive market expectation for CNY revaluation higher.

Overnight news

AUD: RBA Monetary Policy Statement, showed central forecast for the economy to grow at around 3.25-3.5% in 2010 and 2011 while expecting underlying inflation to continue moderating reaching a low of a little under 2.5% in the 2nd half of 2010 and said “With inflation moderating as expected, interest rates no longer at exceptionally low levels, and relatively little information available as to the impact of the recent increases, the Board judged it appropriate to hold the cash rate steady for the time being.”

JPY: both leading index prelim and coincident index for Dec printed slightly higher at 93.5 vs cons. 94.0 for the former and 97.3 vs cons. 97.6 for the latter.

JPY: BoJ Deputy Governor Yamaguchi shrugged off a ruling party lawmaker’s call for further monetary easing, saying the central bank has already taken bold steps to combat deflation.

USD: White House econ adviser Summers said “We’re not going to be out of the woods by any stretch, but I suspect six months from now people are going to fell that this recovery is better established than they do today”, adding the nation’s not “too far” fro the beginning of a rebound in jobs

USD: US Senate Banking Committee Chairman Dod said it will be hard to write a bill to curb proprietary trading by banks as specific as the White House proposed in its so-called “Volcker rule”.

USD: Kansas City Fed President Hoenig said US interest rates cannot remain at their current lows indefinitely, “I don’t know what normal is, but it’s not zero”

USD: FRB data showed that the US CP market shrank in the latest week as financial institutions issued less short-term paper.

CHF: Reuters reported there had been SNB intervention in EUR/CHF market citing multiple sources.

CNY: A Foreign Ministry spokesman said “wrongful accusations and pressure will not help solve this issue (of CNY revaluation)”, reacting to US Presdient Obama’s remark that CNY is kept at an artificially low level to give China an unfair advantage in selling its exports.

CNY: State Administration of Foreign Exchange said China’s current account surplus fell 35% last year as exports accounted for a smaller percentage.

Int’l: French Finmin Lagarde – “The consensus we have is that we all want stability of the currency systems and we all want to avoid by any means volatility and particularly excessive volatility”

Today’s watchlist (all times GMT; +11hrs for Sydney, +9hrs for Tokyo, -5hrs for New York)

NOK: Dec IP (%m/m, sa) @9:00 (Cons. 0.4)

GBP: Jan PPI input (%oya) @9:30 (JPM: 5.2, Cons: 6.5); Jan PPI output (%oya) @9:30 (JPM: 3.2, Cons: 3.7)

EUR: Germany Dec IP (%m/m, sa) @11:00 (JPM: 0.5, Cons: 0.6)

CAD: Jan unemployment rate (%, sa) @12:00 (JPM: 8.4, Cons: 8.5); Jan employment (ch, m/m 000s, sa) @12:00 (JPM: 25, Cons: 15)

US: Jan unemployment rate (%, sa) @13:30 (JPM: 10.0, Cons.: 10.0); Jan nonfarm payrolls (ch m/m 000s, sa) @13:30 (JPM: 20, Cons: 15); Jan average hourly earnings (%m/m, sa) @13:30 (JPM: 0.1, Cons: 0.2); Fed’s Bullard speaks @22:15

Int’l: G7 meeting (to Feb. 6)

Overnight price action

FX: CHF, JPY weakening the most falling 0.6% against USD; USD/Asia rising with KRW making the sharpest fall of over 1.8%.

FX vol: vols remain well bid with vol curves in cross JPY flattening as front end vols rise more sharply.

Commodities: gold and oil both up 0.2-0.3%.

Bonds: JGB yields remain flat in shorter maturities but a tad lower in longer maturities.

Equities: Asian equities plunging sharply by 2-3%.

Technical View for the day

The renewed sell-off in risk markets is almost a logical consequence of the key-reversals we have seen in major-stock market indices last month as such strong reversal signals almost never fail to generate follow-up in form of new lows afterwards. The more exciting question arising now is whether decisive T-junctions at 1043 in the S&P500, at 5025 in the FTSE 100, at 5494 in the Dax, at 1.3735/00 in EUR/USD or at 1.5709 in Cable can be defended. A failure to do so would more or less open Pandora’s Box as it would rip the downside wide open for a broad consolidation based on the whole accumulation phase starting in March last year. That said the 50 % retracement in stock market indices (i.e. 909 in S&P500) would be the next bigger target whereas EUR/USD would face a decline into the 1.31 handle and Cable into 1.5275 once the mentioned key-supports would give way. With key US data releases in the pipeline, today could really turn out to be judgment day for risk markets.

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Employment scorecard and preview

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ENDS

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