FX Daily Planet: London Open

FX Daily Planet: London Open

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View for the day
In the Asian session, the FX market remained very quiet. JPY extended its overnight decline in early Asian morning and EUR/JPY rose to the highest level in more than two weeks, but the rally of the pair was still just 0.3%. JPY weakness could be partly attributed to today’s Nikkei article which reported that the BoJ’s discussion on additional monetary easing at the next week’s meeting (Mar 16-17) will likely focus on a proposal to double the scale of a lending facility introduced in December to ¥20trn. Indeed our Japan economists have already changed their view on BoJ’s monetary policy on Thursday and they now see odds rising for the BoJ taking another small step for easing. However, we believe the impact from BoJ’s policy change on JPY will be limited (for detail, please see “BoJ’s monetary policy has little impact on USD/JPY” by Sasaki, Tanase and Kim on Mar. 12, 2010). Note that despite the heightening speculation over BoJ’s monetary easing, JGB10yr yield rose 3bp and reached the highest level in more than two weeks. It may suggest that the market has already priced in the further monetary easing by the BoJ. In the FX vol space, the market also remained generally quiet, with the continued softening in USD/JPY’s long-term vols.

In the European session, there’s only Euro area January industrial production to focus on the economics front. In the past two days, European currencies were generally outperforming other majors. CHF has been the strongest followed by NOK, EUR, GBP and SEK. Such movement could be partly because of position adjustment after the underperformance of European currencies in the past months. If that is the case, outperformance of European currencies may continue for a while without any specific event or news. In the New York session, the focus will be on U.S. Feb retail sales and Mar U.Michigan consumer confidence.

Overnight news

JPY: The Nikkei newspaper reported that the BoJ’s discussion on additional monetary easing at the next week’s meeting will likely focus on a proposal to double the scale of a lending facility introduced in December to ¥20trn.
JPY: Prime Minister Hatoyama said “I think we need to take firm steps against the yen strength”. BoJ governor Shirakawa said “BoJ’s commitment to very easy policy affecting FX moves”.
USD: NY Fed President Dudley said clamping down on government spending too soon could “jeopardize the recovery and push a convalescent economy into a double-dip recession”
USD: The Fed reported that US households’ net worth edged up $700bn to $54,2trn in 4Q, marking a third consecutive quarter of rising net worth.
USD: The Fed data showed that foreign central banks’ holdings of US Treasuries and agency debt at the Fed rose in the latest week by $5.39bn to $2.98 in the week ending March 10. The data also showed that the US CP market expanded in the week to $1.145trn outstanding.
CAD: BoC Governor Carney – “It’s our policy right now that the appropriate path of monetary policy through the end of June this year is to keep our target rate at one quarter of one percent”, “If the combination of the level of the exchange rate, underlying economic activity in Canada, the terms of trade of the country, are such that we’re going to miss that inflation target, we’ll take action and we’ll set policy appropriately”

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

EUR: Euro Area Jan IP (%m/m, sa) @11:00 (JPM: 1.1, Cons: 0.7)
CAD: Feb unemployment rate (%, sa) @12:00 (JPM: 8.4, Cons: 8.3); Feb employment (ch, m/m 000s, sa) @12:00 (JPM: 0.0, Cons: 15.5)
USD : Feb retail sales (%m/m, sa) @13:30 (JPM: -0.2, Cons: -0.2); Feb retail sales ex autos (%m/m, sa) @13:30 (JPM: 0.1, Cons: 0.1); Mar U.Michigan consumer conf. prelim (index) @14 :55 (JPM : 73.0, Cons : 74.0); Jan business inventories (%m/m, sa) @15:00 (JPM: 0.2, Cons: 0.1)

Overnight price action

FX: While JPY underperformed, the market was generally quiet.
FX vol: USD/JPY long term vols continued to soften.
Commodities: Oil up 0.1%, Gold up 0.3%.
Bonds: JGB 10yr yield up 3bp.
Equities: Asian stock indices were mixed; Nikkei rose 0.8%, while Shanghai fell 1.0%.

Technical View for the day

The uninspired corrective trading action of the last week seems to be prolonged for another week as markets keep on treading water across board without triggering any decisive chart levels which would indicate a change in general direction. Only equity markets remain in the trending mode but are expected to run out of steam shortly as shown structures suggest that this latest thrust could well be the completing leg of the so-called accumulation phase which started in March last year. That said volatility is expected to increase substantially the moment these markets switch to the consolidation mode. The latter is expected to be supportive for USD and JPY again where existing up-trends are still intact as key-barriers at 1.3840/71 in EUR/USD and at 125.35 in EUR/JPY have not been taken out yet. Only a sustained stock market rally would potentially lead to a break of these resistances which would call for a much stronger countertrend rally. An equivalent resistance barrier to watch is at 92.44 in USD/JPY (weekly trend line). Once taken out the upside would be open for a broader up-swing towards key-resistance at 99.85.

Research from the region you may have missed

BoJ preview: Odds are rising that the BoJ will take another small step for easing
https://mm.jpmorgan.com/servlet/PubServlet/JPM_BoJ+preview_+Odds+ar_2010-03-11_385125.pdf?ss=y&fullDocId=GPS-385125-0

ENDS

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