FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

Another strangely quiet day in the US session, with a slow grind steadily higher for US equities which are currently trading around 0.5% higher in afternoon trading. This is helping high beta FX to take back some of earlier losses against the USD. GBP, however, remains today’s worst currency and continues to under-perform the majors over the past few weeks. Earlier UK trade data is likely weighing on that currency in addition to comments from Fitch that the UK fiscal adjustment was proceeding at a pedestrian pace. Indeed, the ratings agencies were vocal during the European session with Portugal also being singled out on the progress it is making on fiscal adjustment. EUR has consequently also come under pressure with Fitch asserting that it is possible to have a sovereign default in the Euro area. With little in the way of meaningful data over the coming days, we suspect that FX markets will drift within recent ranges. Swiss rates also moved higher today as the rates market prepares for the SNB, and should keep pressure on EUR/CHF. Today featured no economic releases of note in the US session, and a fairly benign Treasury auction in the 3y maturity faired to inspire any large moves. Tomorrow features Westpac consumer confidence from Australia, and Japan machinery orders in the Asian session.

Overnight news

USD: 3-year note Action ($4bn) resulted in a yield of 1.437% and a bid/cover of 3.13 with 51.8% going to indirect bidders; Feb NFIB small business survey came in at 90 (index, sa) (Prev: 89.3)

GBP: February RICS house price index was much weaker than consensus at 17% (cons 30%). Visible trade deficit widens to £8bn

CHF: Swiss CPI is slightly weaker than expected, rising 0.9% y/y

Fitch: Fitch ratings agency comments that UK fiscal consolidation is “pedestrian”. Adds that Portugal ratings are at risk on speed of fiscal adjustment and that it is possible to have a sovereign default in the Euro area

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

AUD: Mar Westpac consumer conf. (%m/m, sa) @23:30 (JPM: -3.5)

JPY: Jan machinery orders (%m/m, sa) @23:50 (JPM: -6.0, Cons: -3.5); Feb domestic CGPI (%oya) @23:50 (JPM: -1.5, Cons: -1.5)

Overnight price action

FX: High beta taking back some of its earlier losses against the USD. GBP continues to lag following poor trade data and Fitch comments.

FX vol: Front-end vols are broadly stable

Commodities: Oil down 0.5%. Gold down is down 0.3%.

Bonds: yields are about 1-2bp lower across the curve.

Equities: Equities are about 0.3% higher on the day.

Technical View for the day

The USD sees another mixed day with commodity currencies outperforming in line with the better action in equities. As the current short term themes continue to play out, we see a number of important tests for the commodity currencies which should define whether the short term trends can extend. In this regard, AUD/USD extended higher with a closer test of the key .9155/75 resistance zone. Again, this resistance area will define whether a deeper test of the January high is underway. Moreover, the action in USD/CAD remains an important focus with yesterday’s decline staging a deeper test of the critical 1.0205/1.0235 support area and medium term range lows. Again, we still sense some pause/retracement from here is likely over the near term, but note the odds for a downside break are increasing beyond any near term bounce that develops. The range bias remains firmly intact for the European currencies, as we continue to monitor key near term levels for signs that the underlying trends are resuming. Note that the 1.3530 area will be key for EUR/USD and define a retest, if not break of the lows. Moreover, the bounce for GBP/USD from last week’s low retains a corrective bias which seems consistent with the view for new lows. Note that the action on the crosses remains quite heavy with the likes of EUR/AUD extending lower following the break of the 1.50 support despite early signs of a bounce. Similarly, EUR/NZD looks vulnerable to new lows given the recent corrective range above the 1.9265 support area. USD/JPY and cross JPY retraced lower yesterday while consolidating last week’s sharp rallies. The focus remains on last week’s breakout levels which should continue to hold to argue for additional upside follow-through. Note that EUR/JPY and GBP/JPY have violated these levels, while the same levels for AUD/JPY and NZD/JPY are intact.

ENDS

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