FX Daily Planet: London Open

FX Daily Planet: London Open

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View for the day

Asian stock markets traded firmly following the overnight rally in the Dow to the highest level in one and a half year; both the Nikkei and KOSPI traded higher on the day and Shanghai rebounded after falling in the morning session. The rates and FX markets were generally quiet; both Japanese and Australian long-term yields were almost flat after 4bp rally in US 10yr yields overnight and major currencies, except CAD traded within the range of -0.1% and +0.1% against USD. CAD slightly underperformed and USD/CAD rose +0.3% during the Asian session. In the FX vols space, while front-end vols in JPY-crosses softened with 1-month coming down about 0.2-0.3 vols, back end vols remained bid, with the consequent flattening in the curve.

Separately, today’s Nikkei morning edition reported that Prime Minister Hatoyama considered a redenomination of the yen when he took office in September, citing a person close to Hatoyama. Hatoyama asked former Fin. Minister Fujii to handle the change, but it did not realize because Fujii stepped down in January. The discussion over the redenomination sometimes comes up as a tool to stimulate economy; redenomination of a currency will sharply boost demand for printing, machine, and computer software. Some people say it may have inflationary impact because corporate and shops raise the price slightly when they adjust the price according to the redenominated currency. In addition, there is an incentive to cut “two zeros” to make Japanese currency unit in line with USD, EUR and other major currencies. However, we do not see any imminent possibility of Japanese government really going forward with the discussion over redenomination and realizing it.

The event calendar in the London and NY session is relatively light. There is no notable economic data in the Euro zone or US today, but keep an eye out for inflation and retail sales data from Canada.

Overnight news

JPY: Jan all industry activity index rose 3.8 %m/m vs. consensus 1.5% mainly driven by the sharp rise in the tertiary industry and construction activity.
JPY: The Nikkei reported that Prime Minister Hatoyama considered a redenomination of the yen when he took office in September, citing a person close to Hatoyama.
CNY: Head of the Ministry of Commerce’s department of American and Oceanian affairs said the U.S. and China can resolve their disagreement on trade as long as they don’t become “emotional” and don’t politicize the issue. He also said the pressure from the US Congress complicates the issue on CNY.
GBP: BoE board member Sentence said there is “some risk of a double-dip recession” in the U.K.

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

CAD: Feb CPI (%oya) @11:00 (JPM: 1.7, Cons: 1.4); Feb CPI core (%oya) @11:00 (JPM: 19, Cons: 1.7); Jan retail sales (%m/m, sa) @12:30 (JPM: 1.2, Cons: 0.6); Jan retail sales ex autos (%m/m, sa) @12:30 (JPM: 1.3, Cons: 0.5)
MXN: Banxico rate announcement @15:00 (JPM: 4.50, Cons: 450)

Overnight price action

FX: G-10 FX market traded in a tight range with CAD underperforming the most, falling -0.3% vs USD.
FX vol: Front-end vols. In JPY-cross softened with but backend vols remain bid.
Commodities: oil down -0.2% to $82.0/barrel; gold down 0.3% to $1124/oz.
Bonds: JGB yield curve remained little changed.
Equities: Asian stock markets traded firmly.

Technical View for the day

Given the latest failure of the EUR to break key-resistance at 1.3840/71 and it’s following sell-off the question is really arising whether we are just experiencing the delayed realization that European politicians have basically cancelled parts of the EU-stability pact as mentioned in a well regarded German newspaper two days ago. Looking at the bigger picture though, it still takes a break below the 1.3530/25 handle before a resumption of the broader down-trend would be confirmed. GBP on the other hand shows a remarkable stability while holding on to its latest gains. But as long as key-barriers at 1.5424 and at 1.5584 in Cable are still capping the upside it is rather a question of time until GBP is going to join this bear-market impulse. Commodity currencies are on the other hand facing an increased setback risk as projected targets like 1.3743/01 in EUR/CAD or 7.9158 in EUR/NOK are in close reach now. Only EUR/NZD (target 1.8567) and EUR/AUD (target 1.4146/1.4073) seem to have slightly more room but look highly stretched too.

Research from the region you may have missed

World Financial Markets: Second-quarter 2010

https://mm.jpmorgan.com/stp/t/c.do?i=C6717-225F&u=a_p*d_387921.pdf*h_-2978eha

ENDS

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