FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

The slow steady grind higher continues for US equities, which are up about 0.6% in afternoon trading. The successful 7y bond issue by Greece was oversubscribed which is certainly a good sign, and is helping support the positive tone in markets today. High beta FX is higher for the most part, with AUD today’s clear winner, up 1.3% against the USD in afternoon trading. Rate differentials continue to move in favour of AUD Following a hawkish set of comments from the RBA overnight. AUD 2yr swap yields over a weighted average of G10 swap yields have widened to 412bps. This is closing in on the high of 481bps which was set in March 2008.

In US economic news today, the PCE report featured personal income flat on the month, and real consumption rising 0.3%. Real consumer spending in Q1 is running near our forecast for 3% growth. The core PCE price index was flat on the month, which is an oya rate of 1.3% PCE based inflation measures are clearly all running below the Fed’s target. Tomorrow features building permits in New Zealand, unemployment and industrial production data from Japan, and home prices and consumer confidence numbers in the US. We expect the string of monthly increases in home prices to continue tomorrow, with the S&P/Case-Shiller index rising 0.1%m/m which will bring that index to an oya rate of -0.9%. We expect confidence numbers to retake some of their losses in February, buoyed by recent equity market strength.

Overnight news

USD: Apollo Group releases 2Q10 earnings of $0.88 (Cons: 0.82); Feb personal income was flat (%m/m, sa) (JPM: -0.1, Cons: 0.1); Feb personal spending, came in at 0.3%m/m (JPM: 0.4, Cons: 0.3); Feb PCE core was flat (%m/m, sa) (JPM: 0.0, Cons: 0.1); Mar Dallas Fed survey was 7.2% (index) (Prev: -0.1)

CAD: BoC Senior Deputy Governor Jenkins spoke today, saying that Canada’s exporters have to adapt to a strong USD

EUR: Greek 7yr bond issue today was oversubscribed. The EUR 5bn issuance has been priced at midswaps +310bps.

EUR: European Commission confidence data in line with expectations

GBP: February mortgage lending data is stronger than expected at £1.6bn; mortgage approvals fall to 47.1k

SEK: Retail sales are weaker, falling 1% m/m.

JPY: February retail sales much stronger at +0.9% m/m vs -1.2% consensus.

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

NZD: Feb building permits (%m/m, sa) @ 21:45 (JPM: 2.0)

JPY: Feb unemployment rate (%, sa) @ 23:30 (JPM: 5.0, Cons: 4.9); Feb jobs to applicants ratio (sa) @ 23:30 (JPM: 0.47, Cons: 0.47); Feb all household spending (%oya) @ 23:30 (JPM: 1.2, Cons: 1.5); Fed IP prelim. (%m/m, sa) @ 23:50 (JPM: -1.0, Cons: -0.5)

NOK: Retail sales (Vol, %m/m, sa) for Feb @ 08:30

GBP: GDP final (%q/q, sa) (JPM: 0.3, Cons: 0.3) @ 08:30; Current account for 4Q09 (GBPbn, sa) (JPM: -5.7, Cons: -4.8) @ 08:30

CAD: Industrial PPI 0%m/m, nsa) for Mar (Cons: 0.0) @ 12:30

USD: S&P/CS HPI (%oya) (JPM: -0.9, Cons: -06); Consumer confidence (index, sa) @ 14:00 (Cons: 50); SAIC releases earnings for Q110 @ aft-mkt (JPM: 0.32, Cons: 0.323) @ 12:00

Overnight price action

FX: Commodity currencies are in the ascendancy as equity markets rally.

FX vol: Front end vols are lower.

Commodities: Oil is up around 3% and gold is up 0.5%.

Bonds: Yields are higher by about 1-3bp across the curve.

Equities: US equities are higher by 0.6%.

Technical View for the day

The USD shifted lower yesterday while following through to Friday’s decline. The near term setup suggests some consolidation is likely in line with the DXY reversing below the 81.35 breakout level and EUR/USD pushing back above last week’s 1.3465/75 breakdown area. However, we still sense the medium term USD bull trend is intact. However, AUD/USD led the way yesterday with the bounce highlighting the importance of the .9000/.8980 support area. In turn, the decline from the March high is left with a corrective signature suggesting additional upside and outperformance is likely. The action in the crosses reflected this while suggesting additional strength as well with AUD/NZD shifting higher as well as for AUD/CHF (unfortunately for our current short position). Note that AUD/JPY extended the overall rally phase as well with the push above the 84.00/35 resistance zone as the focus turns to the 86.26 January high which is in line with our overall JPY underperformance bias. While CAD/JPY is struggling to extend through the key January high, the risks continue to point to an eventual breakout. The action in EUR/JPY suggests a potential base and inverse head and shoulders pattern. The key test enters at the 125/125.25 resistance zone as breaks here should confirm an extension initially into the 131 area. As we highlighted in the latest FXMW, we continue to see additional upside for USD/JPY after last week’s impulsive breakout through the key 91/92.15 resistance zone, as the setup suggests a closer test, if not break of the 93.79 January high/target.

ENDS

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