FX Daily Planet: New York Open

FX Daily Planet: New York Open

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View for the day
The overnight rally in risk markets led by the Nikkei report on BoJ’s possible extension in QE continued into the European session. European equities made modest gains and commodity currencies continued to grind higher with CAD lagging behind. That said, without any market moving news or release, G-10 currencies trade in tight ranges ahead of payrolls, moving less than 0.5% The long-awaited meeting between the Greek Prime Minister Papandreou and German Chancellor Merkel ended as a non-event. Notably, the 2yr Greek bond yield sharply dropped 74bp (but began rising as the result of the meeting hit the wires albeit still 49bp lower on the day).Despite the tightening in German-Greek spreads, EUR continued to range trade along with other majors. The odd disconnect in EUR reflect a reluctance to take positions ahead of payrolls.

In Asian morning, the Nikkei Newspaper reported that the BoJ is now considering a further implementation of QE in April. While the news contributed to the rally in the Nikkei and underperformance in JPY, this should not come as a surprise. Indeed, our Japanese economics team has been highlighting the possibility of further easing in the face of further deterioration in the stock market and appreciation in JPY. We believe that it should not have any significant impact on JPY due to following reasons: (1) experience in the previous QE period (Mar 01 to Mar 06) suggests that downward pressure on JPY from QE would be limited, (2) current real interest rate in Japan is higher than the level during the previous QE period, and (3) the MoF is highly unlikely to conduct JPY-selling intervention (during the previous QE period, the MoF sold JPY42 trillion in total between 2001 and 2004).

The main focus in the US session will be on the payrolls release. Our economics team expects a more bearish-than-consensus drop of 90K (consensus: -68K). That said, any downside surprise from today’s payrolls should not be as harmful to risk markets as they would be in the usual time, given the most weakness will be attributable to weather. In addition, White House Summers has already signaled that the recent snowstorms may shave approximately 100K from the payrolls number. Therefore, the near-term risks seem to be skewed towards the strong payrolls further lifting risk markets at the cost of USD and JPY.

Overnight news

EUR: German Chancellor Angela Merkel said that Greek Prime Minister George Papandreou has “taken the bull by the horns” with the government’s announcement of additional budget-deficit cuts. The Greek program is showing results and the bond issue yesterday “gives us cause for optimism,”
EUR: Juncker, who heads the group of European Union euro-area finance
ministers, said he’s “very happy” with Greece’s proposals to reign in its budget deficit
EUR: ECB President Trichet said a “very large majority” of Greeks is backing the government’s plans to cut spending. He said, “It’s very important that the Greek government took this decision, which was courageous but absolutely necessary”.
EUR: January Germany factory orders 4.3%m/m vs 1.3%.
GBP: February PPI input 7.8% vs 6.9%, PPI output 4.0%oya vs 4.1%.
GBP: The U.K. government may chose to hold an election on April 15, almost a month earlier than most strategists have forecast, the Scotsman reported, citing unidentified people in the ruling Labour Party.
SEK: February budget balance recorded surplus of SEK 43.9bn vs prev. SEK 46.6bn.
NOK: January IP 0.3%m/m vs prev. -0.6%.
JPY: The Nikkei Newspaper reported this morning that the BoJ is likely to consider further monetary easing through April.
CNY: Chinese Premier Wen reaffirmed “appropriately easy monetary stance and active fiscal policy” and that China would seek to keep CNY basically steady at a reasonable and balanced level.
USD: Fed’s Evens said that monetary tightening is still quite a ways away.
USD: Fed’s Bulllard said that he doubts whether the Fed should continue to commit to hold rates exceptionally low for an extended period. He also commented, “I do think the Europeans will come to a good solution on Greece”.
Today’s watchlist (all times GMT; +11hrs for Sydney, +9hrs for Tokyo, -5hrs for New York)
US: Feb unemployment rate (%, sa) @13:30 (JPM: 9.9, Cons.: 9.8); Feb non-farm payrolls (ch m/m 000s, sa) @13:30 (JPM: -90, Cons: -68); Feb average hourly earnings (%m/m, sa) @13:30 (JPM: 0.1, Cons: 0.2); Jan consumer credit (ch m/m, US$bn) @ 20:00 (Cons: -3.8)

Overnight price action

FX: G-10 currencies traded in tight ranges with high beta currencies outperforming (with the exception of CAD) and JPY underperforming the most
FX vol: vols remained unchanged across the board ahead of non-farm payrolls.

Commodities: Oil up +0.6% to $80.7/barrel, gold up +0.2% to $1135.8/oz
Bonds: German-Greek 2yr bond spreads tightened 54bp (10yr bond spread tightened 6bp); bond market remained quiet elsewhere.
Equities: European equities made gains of around 0.5%.

Technical View for the day
With the S&P500 tackling its key-T-junction at 1125 the bulls and bears are currently in the ring trying to turn the odds in their favor. Below 1125 and as long as no decisive daily close above (i.e. above 1130) is displayed the bears remain in a favorable position as a stronger sell-off inclusive a potential break below neckline support at 1049 should be the logical conclusion. A decisive break above 1125 would on the other hand only be bullish short-term as projected targets for a major cycle top are already cutting in at 1178 and at 1215/22/28. Taken together, a stronger risk consolidation is still looming with equivalent consequences for FX markets in terms of a stronger USD and a mildly stronger JPY. Commodity currencies look to be set to extend their recent consolidation whereas EUR/USD and GBP across board seem to perform a temporary consolidation only. For the latter to change its nature it would require a break above 1.3840/71 in EUR/USD and above .15354/1.5424 in Cable.
Research from the region you may have missed

What not to do at 8:35 tomorrow morning

https://mm.jpmorgan.com/stp/t/c.do?i=C1387-3A1&u=a_p*d_382601.pdf*h_-2jg4e06

China: a fairly balanced government work report as expected; emphasizing policy continuity and flexibility

https://mm.jpmorgan.com/stp/t/c.do?i=C164D-155&u=a_p*d_382819.html*h_2tauoi4b

JPY: The story on the budget has nothing to do with the possibility of intervention

https://mm.jpmorgan.com/stp/t/c.do?i=C1357-128&u=a_p*d_382590.html*h_ur91v8j6

Nikkei newspaper reports further easing by the BoJ. Any implications for JPY?

https://mm.jpmorgan.com/stp/t/c.do?i=C15F9-128&u=a_p*d_382795.pdf*h_3bdduqnp

ENDS

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