FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

US equities continued their slow grind higher early in the session, only to power higher in afternoon trading to finish the day up 0.7%. Following a sharp move lower in EUR/USD overnight, the EUR began to recover lost ground early in the New York session, and headlines that Germany and France have agreed on an IMF role in Greece sent the EUR shooting briefly higher, only to settle back down towards the lows during afternoon trading. The USD came quickly off its highs against most currencies early in the US session in tandem with the move in EUR before settling back into its range from earlier in the day. Currently, EUR, GBP and JPY are down the most on the day, losing about 0.3-0.5% against the USD. Today features some notable, but ultimately uneventful economic data releases. Existing home sales fell 0.6%m/m to 5.02MM, near forecasts. However, details of the report were somewhat mixed, with single family sales slipping 1.4% on the month and months’ supply increasing from to 8.6. Note that existing home sales is not heavily impacted by seasonality as it reflects past month purchases; despite this, the increase in months’ supply may reflect some seasonal pressures. Earlier, the Richmond Fed manufacturing index for March came in at 6, a tad above expectations (Cons: 5) and with positive details as shipments, new orders, and employment all improved. Finally, the FHFA home price index fell -0.6%m/m, which was a tad less than forecast (Cons: -0.6%).

Tomorrow, a heavy data day kicks off in Europe, where we have services and manufacturing PMIs from the Eurozone and Germany. Additionally, tomorrow look out for the Norges Bank announcement where the market is currently pricing about 15bp. In addition, UK Chancellor Darling will present the pre-election budget tomorrow. Coming only six weeks before the presumed election date on May 6, the budget will probably combine a reiteration of short-term priorities (maintain current stimulus), long-term goals (vague commitment to deficit reduction), a few give-aways (funded by the bank bonus tax) but no specifics on spending cuts. Lack of clarity on the last issue may refocus the market on Labour’s refusal to downsize the public sector meaningfully, and probably weaken sterling on the crosses (CHF more than EUR, given Greece’s weight on EUR). Later in the US session we receive durable goods orders and new home sales.

Overnight news

USD: Feb existing home sales (mn, saar) came in at 5.02mn (JPM: 4.8, Cons: 5.0); The FHFA home price index fell -0.6%m/m, which was a tad less than forecast (Cons: -0.6%); Richmond Fed March manufacturing index came in at 6 (Cons: 5)

USD: The US Treasury auction of $44bn in the 2-year yielded 1.00%, with a bid/cover of 3 and 34.8% going to indirect bidders.

EUR: According to a German Finance Ministry official, Germany and France have agreed to back the International Monetary Fund’s involvement in providing aid to Greece

CAD: Canada Feb leading indicators up 0.8%m/m (Cons: 0.9)

GBP: Inflation is softer than expected, rising 0.4% m/m and 3% y/y. BBA mortgage loans rise by less than expected at 35,276.

CHF: SNB head Hildebrand comments that Switzerland has the ammunition to counter CHF strength. He adds that SNB forecasts are inconsistent with expansionary monetary policy over the medium-term.

SEK: Swedish debt offices revises down its budget deficit forecasts over the coming years.

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

NZD: 4Q current account (NZ$bn) @21:45 (JPM: -3.0, Cons: -1.6)

JPY: Feb trade balance (JPYbn, nsa) @23:50 (JPM: 730.0, Cons: 560.6)

SEK: @ 08:15 Consumer confidence for March (Cons: 13.7)

EUR: Germany PMI mfg. flash (Index, sa) (Cons: 56.8) @ 08:30; Germany PMI services flash (Index, sa) (Cons: 52.1) @ 09:00; Germany IFO business survey (index, sa) for March (Cons: 95.6) @ 09:00; PMI composite flash (index, sa) for March; PMI mfg. flash (Index, sa) (Cons: 54.0) @ 09:00; PMI services flash (index, sa) (Cons: 52) @ 09:00; ECB Stark holds speech in Germany

GBP: @ 11:00 CBI distributive trades survey for March (JPM: -16); @ 12: 30 Budget report; @ 12:30 Budget report

NOK: 13:00 Norges Bank rate announcement for March (JPM: 1.75, Cons: 1.75)

USD: Durable goods orders (%m/m, sa) for March (Cons: 1) @ 12:30; New home sales (000’s, saar) for Feb (Cons: 315) @ 14:00; Fed’s Hoenig speaks in Washington at US Chamber of Commerce

CAD: BoC Governor Carney speaks @ 16:45

Overnight price action

FX: Currently, EUR, GBP and JPY are down the most on the day, losing about 0.3-0.5% against the USD while CAD, NZD and CHF are moving higher against the USD.

FX vol: Front-end vol is down sharply.

Commodities: Oil is modestly higher and gold is flat.

Bonds: Treasury yields are about 1bp higher in the front end, and 2-4bp higher farther out the curve.

Equities: US equities are about 0.7% higher.

Technical View for the day

The short term themes remain intact as yesterday’s mixed USD performance maintains the range bias. The commodity currencies led the way yesterday and while the near term setup can allow for additional consolidation, the bullish bias remains intact. Note that both AUD/USD and USD/CAD have held key initial levels so far which seems consistent with the view that the current trends are incomplete. Again, we maintain the bullish view on CAD as the recent retracement in USD/CAD reflects a corrective bias while the breakdown below the medium term range lows argues for a test/break of the 1.00/.9975 zone. For AUD/USD, the levels remain well-defined following last week’s failure against the .9250 November downtrendline. Note that this week’s low has thus far held the uptrendline support from the February low which enters at .9085. NZD/USD looks vulnerable to additional consolidation after failing to extend through the key .7155 resistance area. Again, we see potential for the underperformance given the renewed upside potential for AUD/NZD, as well as the bearish risks for NZD/CAD. The action in EUR/USD maintains a negative bias and remains at risk of additional weakness. The focus stays on the 1.3430 support area for EUR/USD as breaks here (as well as the 81.35 area for the Dollar Index) would reassert the medium term bullish USD trend. Note the breakdown in EUR/CHF suggests a persistent risk for additional weakness particularly following the violation of the critical 1.43 support area. The range bias for USD/JPY remains firmly intact while consolidating below critical 91.00/65 resistance in the zone. Importantly, a break above this area is necessary to reassert the upside bias for a retest of the January, if not February highs. Again, the key nearby support levels continue to hold starting in the 89.75/65 area.

ENDS

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