FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

Click here for the full Note and disclosures.

View for the day

Fed Chairman Bernanke’s testimony before the House Financial Services offered few new details concerning the outlook for monetary policy, but markets appear to be responding positively nonetheless. Not surprisingly, Bernanke is sticking to the recent script of low rates for an extended period, and cautioning that although conditions are generally improving, recent weakness in housing data and the elevated unemployment rate remain worrisome. In addition, Chairman Bernanke offered no additional details concerning the meaning of yesterday’s surprise announcement that the US Treasury is increasing the Special Financing Program (SPF). We were hoping that today’s testimony would help to clarify the intentions of this move; despite this, that Bernanke did not mention the SFP further reinforces our view that this move does not have any monetary policy significance.

Overall, sentiment appears to be improving some in the US session following the Chairman’s comments, with equities up about 1% and bouncing slightly in concert with the general tone. These moves are despite a very negative new home sales report today, in which new home sales plummeted more than 11% to a new all-time low SEK remains today’s best currency against the USD, up about 0.6% following the Riksbank minutes; here the main takeaway was the wide gap among the views of the board members. While Deputy governor Svensson advocated for a zero policy rate, the two members expressed a slightly more hawkish view, preferring a forecast entailing a higher probability of a rate hike in July (the current rate path if 50-50 on whether the first hike will come in July and September). With few notable economic releases in the Asian session, we expect position adjustment to remain the main driving force for G10 currencies. The market remains on edge and we expect liquidation in high-beta FX to continue in the near term.

Overnight news

USD: Jan new home sales plummeted more than 11%m/m to 309k (saar), much worse than expected (JPM: 345, Cons: 353) and a new all-time low.

USD: Fed’s Bernanke delivered his semiannual monetary policy testimony before the House, reiterating that rates would remain low for an extended period; the chairman mentioned that he is concerned over the recent weakness in housing data and elevated unemployment rate, although generally conditions are improving. Bernanke did not mention yesterday’s surprise SFP increase.

USD: Today’s $42bn 5-year auction yielded 2.395%, which was a tad cheap to 1pm levels with a bid/cover of 2.75 and 53.1% going to end users.

SEK: Riksbank minutes highlighted the wide gap between the view of deputy governor Svenssion, arguing for a zero policy rate, and the rest of the board. The two members who voted for a higher rate path expressed a slightly more hawkish view than the others.

GBP: BoE MPC member Posen said any bond investor betting on inflation being “high” in 10 years’ time “will loose money”.

EUR: Germany 4Q GDP final came in line with expectation at 0.0%q/q, while March GFK consumer confidence index printed slightly above expectation at 3.2 vs 3.0 consensus; Euro area industrial new orders for December unexpectedly rose by 0.8%m/m vs -1.0% consensus.

NOK: December AKU unemployment rate printed in line with expectation at 3.3%.

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

No major economic releases in the Asian session

Overnight price action

FX: high beta FX is making smallish gains vs the USD.

FX vol: vols remained little changed across the board.

Commodities: Oil is up about 1.3% and gold is down about 0.6%.

Bonds: Yields are lower by about 1bp in the 2y, and flat on the rest of the curve.

Equities: US equities are up about 0.5%.

Technical View for the day

The current short term themes remain intact as yesterday’s pause in the USD is consistent with the current trends. Again, the setup suggests additional strength is likely given yesterday’s corrective action, but also following Tuesday’s poor price action for the commodity currencies. We sense some catch up with the European currencies is now likely given Tuesday’s bearish reversal patterns for AUD/USD and NZD/USD. In that regard, the impulsive decline in NZD/USD and the failure below the key .7125/50 resistance zone raises the risk that the advance from the February low is a corrective phase.

Also, Tuesday’s outside down day in AUD/USD after failing below the key .9090/.9150 resistance should allow for additional downside follow-through. The bounce in USD/CAD from the 1.0370/45 support zone developed in an impulsive manner and suggests additional short term upside is likely with potential to retest the range highs near 1.0780. This is in line with a potential shift against the European currencies as outlined in the latest FXMW and last Friday’s email update.

More specifically, we noted the crosses were testing/approaching critical medium term support levels highlighted by the 1.50 area for EUR/AUD and the 1.41/1.39 zone for EUR/CAD. The subsequent price action seems consistent with a short term consolidation phase while attempting to unwind the deep oversold setup. Note the action in Cable still maintains a heavy bias as this week's high has thus far failed below the 1.56 area. With GBP underperforming, note that EUR/GBP faces an important test at the critical .8830/50 resistance/pivot zone. Breaks here would confirm a more important shift underway.

While USD/JPY found some support near the 89.65 November trendline, the short term downside risks remain intact following the violation of the 90.50 support area. Again, this confirms another failure at the 200-day moving average and the April downtrendline while reasserting the broad range view. Similarly, yesterday’s bounce in cross JPY can allow for some additional near term retracement, but the downside risks remain intact following Tuesday’s impulsive breakdown.

ENDS

© Scoop Media