FX Daily Planet: London Open

FX Daily Planet: London Open

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View for the day
The Nikkei index traded firmly supported by much-stronger-than-consensus Japanese Jan. industrial production and retail sales. Many other Asian stock indices traded with a firm tone (+0.2-0.6%) as well. Although JPY was the strongest currency amongst the G-10 pair yesterday, it lost a part of its overnight gains on the back of the data strength and equities rally JPY declined 0.2% against USD and 0.3-0.6% against the other G-10 currencies. USD/Asia generally traded lower with the strength in the regional equity markets, with KRW, PHP and INR (+0.5% agt. USD respectively) outperforming. In the FX vol front, JPY-cross vols traded lower by 0.3-0.6 vols for 1-month with spot JPY rates declining. USD vols traded slightly lower as well.

General investor risk appetite, which is now driven more by macro economic figures than by Greek concern, will remain the main driver of FX market. This week, a series of weak US economic releases have boosted investors’ risk aversion, providing supports for JPY and USD. Although we do not expect the downtrend in the risk markets led by weak macro economic backdrop to be sustainable, short-term risks seem to be skewed towards further risk aversion with weak figures. Today, Q4 GDP from the UK and Feb. Chicago PMI, Jan. existing home sales from the US will be in focus. The possible impact on US rates from a series of soundbites from the Fed officials will be in focus as well.

Overnight news
JPY: Jan. IP (+2.5% m/m vs consensus of +1.0%) and retail sales (+2.6% oya vs cons. -0.2%) were much stronger than expected. January nation-wide core CPI was flat from December at -1.3%.

AUD: Jan. private sector credit was stronger than expected at +0.4% m/m (consensus +0.2%).

JPY: Fin.Min. Kan “consumer price declines are slowing somewhat, but Japan is still mired in deflation”, “expects the BoJ to make efforts towards ending deflation”.

CNY: Local media reported that China is conducting “stress tests” in the export sectors to see how much CNY appreciation firms can withstand.

USD: Data shows the Fed’s balance sheet grew in the latest week due to increases in its holdings of MBSs.

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

SEK: Jan retail sales (%m/m, sa) @8:30 (Cons: 0.8); Jan trade balance (SEK bn) @8:30 (Cons: 8.0)

GBP: 4Q09 GDP flash (%q/q, sa) @9:30 (JPM: 0.3, Cons: 0.2); 4Q09 GDP flash (%oya) @9:30 (JPM: -3.3);

EUR: Jan HICP final (%oya) @10:00 (JPM: 1.0, Cons: 1.0); Jan HICP core final (%oya) @10:00 (JPM: 0.9); Germany Feb HICP prelim. (%oya) (JPM: 0.7)

CHF: Fed KOF leading indicator (index, sa) @10:30 (JPM: 1.82, Cons: 1.80)

USD: Fed’s Evans speaks @13:00; 4Q09 GDP secondary (%q/q, saar) @13:30 (JPM: 6.0, Cons: 5.7); 4Q09 GDP price index secondary (%q/q, saar) @13:30 (Cons: 0.6); 4QGDP PCE core secondary (%q/q, saar) @13:30 (Prev; 1.4); Fed’s Duke speaks @14:00; Feb Chicago PMI (index) @14:45 (Cons: 59.7); Feb U. Michigan cons. conf. final (index) @14:55 (JPM: 74.0, Cons: 73.9); Jan existing home sale (mn, saar) @15:00 (JPM: 5.5, Cons: 5.5); US Monetary Policy forum event with comments by Fed’s Dudley and Kocherlakota @15:45 and Tarullo and Evans @18:30

Overnight price action

FX: JPY broadly weakened and USD underperformed as well. USD/Asia generally traded lower.

FX vol: JPY-cross vols lower by 0.3-0.6 vols. USD vols traded slightly lower as well.

Commodities: Oil up 0.5%. Gold was flat.

Bonds: JGB yields largely flat across the curve.

Equities: Asian equities broadly traded in a firm tone.

Technical View for the day

The newest data releases were definitely not what risk lovers expected and led to a sell-off across board. It is however important to note that only a break below key-supports at 1079, at 1061 and ultimately below neckline support at 1048 in the S&P500 would break the bulls neck in favor of a much deeper setback. Sentiment wise though, markets seem to get increasingly nervous and particularly GBP has come under increased pressure showing major breaks in Cable at 1.5274, in EUR/GBP at 08854 and in GBP/JPY at 135.78 which imply that there is a lot more to come in terms of Sterling weakness. The Japanese JPY is again profiting from the latest stock market turmoil but the upside looks to be limited to 118.49 in EUR/JPY whereas GBP/JPY and USD/JPY have a bit more room to go before hitting their 76.4 % retracement’s at 129.33 and at 86.94. As for commodity currencies the risk of a broader setback has substantially increased but requires confirmation via breaks above 1.5417 in EUR/AUD, above 1.4458 in EUR/CAD or via a break above 1.9766 in EUR/NZD.

Research from the region you may have missed

Assuming equities stabilise, month-end fix should generate USD selling
https://mm.jpmorgan.com/stp/t/c.do?i=BDD55-F7&u=a_p*d_379362.html*h_j4blmcgp

JPM FX Techs: Trade Rec - Sell AUD/NZD
https://mm.jpmorgan.com/stp/t/c.do?i=BE049-42B&u=a_p*d_379511.pdf*h_-3eu2gcl

ENDS

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