FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

Risk remarks are improving some in afternoon trading after retrenching further in the face of poor US economic data. High beta remains on the defensive for the most part with JPY outperforming across the board. The headlines out of Greece appear to have taken a turn for the worse. EU inspectors believe the government’s proposals will deliver only half the fiscal reduction promised by the govt. The EU has made clear that it expects the government to detail additional measures should these be needed by mid-march. These headlines suggest there is an awful lot more to do on that front. Anyone hoping for a quick resolution to these issues is likely to be disappointed.

In economic news, Initial claims jumped sharply higher today to 496k a 24k increase, although the number was distorted due to winter weather conditions according to the Labor Department. The Labor Department indicated that the recent snowstorms caused more than half the increase in claims in the latest week. In addition, claims may be additionally inflated due to the Labor Day holiday. Taken together, these factors certainly take some of the sting out of the headline number. Seasonal volatility continues to distort the trends in labor market data, but this number definitely represents a move in the wrong direction. Also out today, the durable goods report featured a strong headline number, up 3%, but fairly negative underlying details including falling core capital goods orders and core shipments. Earlier in the New York session we received the CBI distributive trades survey which showed UK retail sales rebounding strongly in Feb. The headline number was +23 in February vs -8 in January. Expectations also jumped to +16 from -1. This data indicates that it was likely the grim weather which depressed sales in Jan and is lending some moderate relief for GBP. Tomorrow features a slew of data from Japan in the Asian session, including manufacturing PMI, industrial production, construction orders and inflation data. Strong PMI data from January bodes well for Industrial Production and we are looking for a 1%m/m increase.

Overnight news

USD: Feb 20 initial jobless claims (000s, sa) increased to 496k, well above expectations but likely due partially to seasonal factors (JPM: 465, Cons: 460); Jan durable goods orders increased 3%m/m (JPM: -0.5, Cons: 1.5); Dec FHFA house price index was down 1.6%m/m (JPM: 0.4, Cons: 0.4)

USD: Fed’s Bernanke delivers semiannual monetary policy testimony before the Senate, revealing few additional details to Wednesday’s statements.

USD: Action 7-year note yielded 3.078% which was about slightly through 1pm levels with a bid/cover of 2.98 and 575% going to end users.

EUR: Germany February unemployment rate in line with expectation at 8.2%. Euro area February industrial and consumer confidences in line with expectations at -13 and -17 respectively.

EUR: Standard & Poor’s may lower Greece’s credit rating again by the end of March as a weak economy and political opposition threaten the country’s ability to cut the European Union’s largest budget deficit.

EUR: WSJ Piece: "Spain could determine whether the 16-nation currency stands or falls.The euro zone's No. 4 economy, Spain has an unemployment rate of 19%, a deflating housing bubble, big debts and a gaping budget deficit. Its gross domestic product contracted 3.6% in 2009 and is expected to shrink again this year, leaving Spain in its deepest and longest recession in a half-century."

GBP: 4Q total business investment preliminary figure unexpectedly fell by -5.8%q/q, in sharp contrast to consensus forecast of +0.1% rise.

SEK: January PPI much higher than expected rising +0.3%oya vs -1.1% consensus. February consumer confidence survey printed much stronger than expected, rising to 13.0 vs 9.0 consensus.

NOK: February unemployment rate in line with expectation at 3.2%.

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

NZD: Jan trade balance (NZ$ mn) @21:45 (JPM: -100.0, Cons: -100.0); Jan building permits (%m/m) @21:45 (Prev: -2.4)

JPY: Feb PMI manufacturing (index, sa) @23:15 (JPM: 52.5); Jan Nationwide CPI (%oya) @23:30 (JPM: -1.4); Jan Nationwide core CPI (%oya) @23:30 (JPM -1.2); Feb Tokyo CPI (%oya) @23:30 (JPM: -2.1); Feb Tokyo core CPI (%oya) @23:30 (JPM: -2.0); Jan IP prelim. (%m/m, sa) @23:50 (JPM: 1.0); Jan total retail sales (%ya) @23:50 (JPM: -0.3); @ 05:00 Construction orders (%oya) for January

AUD: @ 00:30 Pvt. Sector credit (%m/m, sa) for January

Overnight price action

FX: JPY continued to strengthen across the board against the majors; the USD, which was higher earlier is slipping some against high beta.

FX vol: FX vols are higher in most pairs across the curve.

Commodities: oil is down 2.5% and gold is up about 0.7%.

Bonds: Yields are 4-6bp lower across the curve with the belly outperforming following a strong 7y auction.

Equities: US equities remain lower despite a later afternoon rally.

Technical View for the day

The action in JPY remains the key story with the strong outperformance leading to a break of a number of important levels as the risk aversion theme prevails. With the decline in USD/JPY maintaining an impulsive bias, the short term downside risks remain intact particularly following yesterday’s break of the key 89.30 daily cloud support. In turn, we see room for a break of the 88.55 February low. Moreover, the crosses continue to decline with an impulsive, trend-like bias suggesting additional near term weakness in AUD/JPY and NZD/JPY and an increased risk that prices can see a retest, if not break of the February lows. Importantly, GBP/JPY has already broken through the Feb low as well as the next line of key support at the 135.78, 61.8% retracement from the January ’09 low. As the decline appears incomplete, we see room for additional GBP underperformance following yesterday’s sharp weakness. The violation of the key 1.5275 area for Cable is consistent with this view and in line with the bias for a test of the 1.49 support/target area. Moreover, the breakout through the important .8830/55 resistance/pivot zone for EUR/GBP suggests additional upside as we have established a new long position. The price action in AUD/USD and NZD/USD stays heavy following Tuesday’s bearish reversals. Again, we see room for additional NZD/USD weakness after failing below the key .7125/50 resistance zone. Also, the reversal in AUD/USD after approaching the key .9090/.9150 resistance should allow for additional downside follow-through with key initial support at .8800/.8785. We see an important juncture for AUD/NZD as the prices have once again tested and reversed from the critical 1.29/1.30 resistance area and medium term range highs while suggesting a short term correction is close.

ENDS

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