FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

The ECB meeting was the main focus today. The main news is that the CB is reverting to the pre-crisis operating procedure for allocating 3-mth funds. In particular, the ECB is reverting to a fixed volume/variable rate from the current unlimited volume/fixed rate structure. Together with the previously announced phasing out of 12- and 6-mth operations, and the indexing of the last 6-mth operation to the average refi rate , this is another small step in a progressive normalization in the ECB's funding of the banking system. Not a major deal for the euro, especially as the change to the 3-mth was flagged in the media. None theless, its another indication that effective money market conditions can be expected to tighten through H2, as long-term funds roll-off and the ECB slowly reduces the volume of liquidity. There were no changes from the BoE, and so no market impact there at all. Despite these events, the main market mover today appears to be a surprise downgrade of Deutsche Bank to AA3/C from AA1/B, with outlook stable, news that helped to further propel EUR lower on the day. Currently, the USD is up across the board, with EUR, CHF, NOK and NZD today’s biggest losers.

In economic news today, the main event was initial claims, which fell by nearly 30k to 469k, right at expectations, bringing the 4wk average down to 471k. Although the decline in claims is a good sign, and confirms that the increase last week was at least partially due to bad weather conditions, the level remains fairly elevated. Tomorrow’s focus will be on the payrolls release. Our economics team expects that release will report a 90k drop in payrolls, an estimate which factors in a 100k drop in payrolls due to weather conditions. In view of the ADP data, and the widely anticipated weakness in payrolls due to weather problems in February, high-beta FX are likely to be well-supported in the face of all but exceptional weakness in the labor market data on Friday.

Overnight news

CAD: Jan building permits (%m/m, sa) fell 4.9% (JPM: -1.9, Cons: 0.8); Feb Ivey PMI (index, nsa) came in at 51.9 (JPM: 53.0, Cons: 56.0)

USD: Jan. 27th initial jobless claims (000s, sa) came in at 469k (JPM: 475, Cons: 470); 4Q non-farm productivity final (%q/q, saar) was revised higher to 6.9% (JPM: 6.5, Cons: 6.3); 4Q unit labor cost final (%q/q, saar) were revised lower to -5.9% (JPM: -5.7, Cons.: -4.5); Jan factory orders increased 1.7% (%m/m, sa) (JPM: 2.2, Cons: 18); Jan pending home sales declined 7.6% (%m/m, sa) (JPM: -3.0, Cons: 1.0)

GBP: BoE rate announcement left rates and QE unchanged

EUR: ECB left rates unchanged; the ECB is the 3m allocation to fixed volume/variable rate from the current unlimited volume/fixed rate structure.

EUR: Greece announced its intention to issue EUR 5bn of 10yr bonds at midswaps +310bp over Germany – newswires reports that books have already closed at EUR 16bn with a spread now likely at 300bp.

EUR: Greece’s federation of civil servants unions decided a work stoppage tomorrow beginning from midday and a protest rally in Athens to oppose the governments’s austerity measures, according to an e-mailed statement from the Athens-based group.

EUR: 4Q GDP preliminary figure printed in line with expectation at 0.1%q/q and -2.1%oya.

GBP: February Halifax HPI -1.5%m/m vs 0.1%.

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

There are no major releases in the Asian session

Overnight price action

FX: USD, JPY still firm on the day and NOK and EUR are weaker.

FX vol: no major moves in vols across the board

Commodities: oil down 0.6%, gold down 1%

Bonds: yields are about 2-3bp higher in short maturities and 1-2bp lower in longer maturities.

Equities: US equities are grinding higher in afternoon trading, making up earlier losses and currently trading up 0.2% on the day.

Technical View for the day

The USD reversed gears once again yesterday with a bullish turn as the range bias continues to develop. NZD remained the key underperformer with yesterday’s price action shifting back to key support against the USD near .6850/.6800 area. Moreover, the setup suggests an increased risk for additional weakness. Note this is in line with the continued underperformance trend particularly within the commodity currency bloc. In that regard, the breakout in AUD/NZD through the 1.29/1.30 medium term range continues to develop while maintaining the trend-like bias. Moreover, the decline in NZD/CAD maintains an impulsive tone and while the .7090/40 support area can allow for some near term retracement, the overall bearish risks remain intact. Note the broad CAD strength view remains intact with yesterday’s decline in AUD/CAD raising the risk that a deeper decline is starting with the .9200 support area now the confirming factor. Importantly, the violation of the important 200-day moving average which has been a key indicator since December is in line with this view Yesterday’s sharp reversal in USD/JPY after failing to sustain the break of the key 88.55/25 support zone should allow for additional near term upside retracement. As we have highlighted over the past few days, the 8950/90.40 levels will now define whether a deeper short term reversal is underway. In line with the range view for the USD, note the failure to extend yesterday’s rallies in EUR/USD and GBP/USD argues for additional two-sided action but still within the context of the medium term trends. Moreover, we continue to see additional GBP on the crosses.

ENDS

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