FX Daily Planet: London Open

FX Daily Planet: London Open

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View for the day

USD weakened broadly against the majors (excluding JPY) amid modest gains in Asian equity markets. GBP, which rose 0.5% against USD, was the strongest currency among the G-10, though in view of its sharp underperformance this week, today’s rebound should not be overstated. Although Australian GDP expanded 0.9% q/q, the highest q/q growth since 1Q08, the outcome was largely in line with consensus and the market impact was limited. USD/Asia generally traded lower. KRW(+0.6% against USD) and MYR (+0.4%) outperformed in the region. In FX vol space, JPY cross vols traded 0.2-0.3 vols lower at the 1-month while 1-month USD/JPY vol traded in a bid tone.

Today is another big day for Greece as PM Papandreau is scheduled to announce a new austerity package after a cabinet meeting which will start on 0700 GMT. Media report suggest the plan would amount to about EUR4 bln and would include a hike in VAT, public sector pay cuts, a pension freeze and higher duties on fuel, tobacco, alcohol and luxury goods. Such headlines could well heighten near-term market volatility. However, as the possible contents for the new plan have already been reported and the market has been less sensitive to headlines from Greece recently, the market impact may be muted in the lack of positive surprises.

Interestingly, the recent solid tone in the risk markets has not hurt JPY much; JPY has been the strongest currency in the G-10 as well as CAD in the past week. Two drivers could explain. First, seasonal JPY-buying into the Japanese fiscal year-end likely supported JPY. Second, given the negative correlation between US long-term yields and JPY, the downward trend in the US long-term yields has largely offset JPY-selling pressure amid the global equity rally. Regarding US rates, the Feb. ADP job report, non-mfg, ISM from the US, soundbites from several Fed officials and Beige Book will be in focus today. Outside of the US, Jan. retail sales from Germany and the euro area are due for release.

Overnight news

AUD: 4Q GDP growth rate was in line with consensus at +0.9% q/q.

JPY: Monthly wages per regular worker edged up 0.1%oya in January, the first rise since May 2008.

USD: Fed’s Fisher said that the Fed will not need to raise rates for some time.

USD: The White House has contacted MIT professor Peter Diamond about joining the Federal Reserve’s board of governors.

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

SEK: 4Q current account (SEK bn) @8:30 (Prev: 53.1)

EUR: Germany Feb PMI services final (index, sa) @8:55 (JPM: 51.7, Com: 51.7); Germany Jan retail sales (%m/m, sa) @7:00 (JPM: -0.7, Cons: -0.6); Fed PMI services final (index, sa) @9:00 (JPM: 52.0, Com: 52.0) ; Fed PMI composite final (index, sa) @9:00 (JPM: 53.7, Cons: 53.7); Jan retail sales (%m/m, sa) @10:00 (JPM: -0.3, Cons: -0.3)

GBP: Feb PMI services (index, sa) @9:30 (JPM: 55.5, Cons: 55.0)

USD: Feb challenger layoffs (%oya) @12:30 (Prev: -70.4); Feb ADP employment report (ch m/m, 000s) @13.15 (Cons: -20); Fed’s Rosengren speaks @14:15; Feb ISM non-mfg. (index, sa) @15.00 (JPM: 51.0, Cons: 51.0); Fed’s Lockhart speaks @18:00; Fed releases Beige Book @19:00

Overnight price action

FX: USD broadly weakened against the majors while GBP outperformed. USD/Asia generally traded lower with KRW and MYR outperforming.

FX vol: JPY cross vols traded lower by 0.2-0.3 vols for 1-month while USD/JPY 1m vols traded in a bid tone.

Commodities: Oil and Gold were largely flat.

Bonds: There were no major moves in JGB yields.

Equities: Most of major Asian equity indices posted modest gains between +0.1%-+0.8%.

Technical View for the day

That said, EUR/USD is still trading well below key-resistance at 1.3840/71 and as long as the latter is not taken out the EUR bears remain in control still shooting for a new base around 1.3100. Stock markets on the other hand are still clinging on to their positive bias but face key-barriers like the 1125 Fib.-resistance in the S&P500 which needs to be broken decisively on close (say above 1130) to call for a minor new top above 1150. Such a break would only buy little time as a new top would still inherit a great risk of running into a major setback. Commodity currencies are under the given circumstances still hanging on to their positive bias with GBP/CAD being the most dynamic while focusing on a Fibonacci-projection at 1.5130 next. As for Sterling in general we still expect lower levels across board towards 0.9220 in EUR/GBP, to 1.5833 in GBP/CHF and towards 1.4339 in Cable whereas the latter requires a break below weekly trend line support at 1.4755 to be confirmed.

ENDS

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