FX Daily Planet: London Open

FX Daily Planet: London Open

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View for the day

JPY and USD broadly weakened against the majors by 0.3 to 0.6% amid a broad rally in the Asian equity market (the Nikkei up 1.6%, Shanghai up 1.5%). Although Asian FX traded higher against USD with the firmness in the regional equity markets, the magnitude of appreciation was quite modest (less than 0.3%). USD/CNY 12-month NDF is trading slightly lower at 6.6720. Economic releases delivered during the session (Feb. trade balance from NZ and Feb. core CPI from Japan) had little market impact.

The US long-term yield is clearly the main driver for FX markets at this time and the near-term focus is whether the 10-year US Treasury yields can extend its upside to above 4% or not. However, we may need to wait for the result of some key US releases next week, including Mar. manufacturing ISM and non-farm payrolls, before finding out whether the yield can rise further to above 4% as US releases and events scheduled for today should not be enough to push the yields higher (4Q GDP and Mar. Michigan consumer sentiments are 3rd and 2nd estimations respectively). Although we have speeches by some Fed officials scheduled for today, it’s unlikely to have any new information adding to Bernanke’s testimony on the Fed’s exit policy yesterday. As any brutal move in US long-term yields is not expected today, the main short-term risk should be the Greek related headlines. According to the media reports, the euro zone leaders seem to have reached an agreement on a safety net for Greece that would involve bilateral loans and money from the IMF. However, it does not mean the end of the game, as the package will be triggered only when the Greece fails to gather money necessary to finance its debt from the markets. On net, uncertainties surrounding the issue remain intact.

Overnight news

JPY: National Strategy Minister Sengoku said raising the limit on deposits at the nation’s postal bank may hurt confidence in financial markets.

JPY: February nationwide CPI, core CPI and core core CPI all in line with expectation at -1.1%, -1.2%, and -1.1% respectively (all in %oya); March Tokyo CPI -1.8% vs -1.7% consensus.

CNY: PBoC adviser Fan wrote “China may resume a managed float of its exchange rate, particularly if the uncertainty of the overall post-crisis economic situation diminishes,” in an opinion piece published today. He warned that “If the adjustment came abruptly, Chinese companies would suffer a sudden loss of competitiveness and no longer be able to export.”

CNY: The Securities Daily newspaper reported that China’s government has ordered nine departments, including the central bank, the securities and bank regulators, the finance ministry, the tax bureau, and the land ministry to coordinate efforts to rein property prices.

NZD: February trade balance rose from the previous month to NZ$3.2bn vs NZ$4.3bn consensus.

Others: OECD chief economist Padoan said Japan’s annual average potential growth rate will be 0.9% between 2011 and 2017, the lowest among the G-7 countries while the U.S. has the highest speed limit in the G-7 at 22%.

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

EUR: EU Summit in Brussels (final day); ECB’s Bini Smaghi holds speech in Italy @7:30; European Council press conference @12:00; ECB President Trichet speaks in Germany @16:00

SEK: February trade balance (SEK bn) @8:30 (Cons: 8.5)

GBP: 4Q09 business investment final (%q/q, sa) @9:30 (Prev: -5.8)

USD: 4Q09 GDP third (%q/q, saar) @12:30 (JPM: 5.5, Cons: 5.9); March U. Michigan consumer confidence final (index) @13:55 (JPM: 75.0, Cons: 73.0); Fed’s Warsh speaks @15:30; Fed’s Bullard and ECB’s Papademos speak in Washington @20:00; Fed’s Tarullo speaks in Washington @22:00

Overnight price action

FX: USD underperforming the most with NOK, GBP rising 0.6% against USD; JPY also underperforms against all majors but USD.

FX vol: mixed performances in vol with 1m vol in EUR/JPY and GBP/JPY falling 0.4-0.5vols.

Commodities: oil up 0.5%, gold up 0.3%.

Bonds: JGB yields for 5yr to 10yr rising 2bp while other sectors remain mostly unchanged.

Equities: Asian equities rally with the Nikkei up 1.6% and the Shanghai up 1.5%.

Technical View for the day

In line with new price highs in US stock markets the USD managed to extend its gains even further and doesn’t show any sign of weakness yet as setbacks are usually very short-lived and key-supports not even touched. That said the EUR/USD downtrend remains fully intact as long as key-resistance at 1.3463/73, equivalent to key-support at 81.474 in the USD Index, is not taken out. The next projected target is still in the 1.3100 handle from where a temporary bounce could unfold before ultimately heading lower to monthly trend line support at 1.2650. GBP is not expected to perform much better than the EUR but requires a break below key-support at 1.4820/1.4783 to deliver a fresh sell-signal for a test of the decisive T-junction at 1.4339. Meanwhile the JPY is weakening across board and already delivered a sell-signal against USD on the break above key-resistance at 92.46 for a potential rally into the 99.85 handle. EUR/JPY is also preparing for a potential upside breakout at 125.22/38 what would increase the down-pressure on the JPY further with a projected, immediate price target around 130 and the option to extend the upside to the last major top at 134.57.

ENDS

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