FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

Generally negative economic news weighed on risk markets early in the session, with equities opening lower only to rally in to about flat on the day. The USD generally weakened against the majors, with CHF, NOK and SEK today’s biggest gainers. The JPY remains under pressure against the USD and is lower across the board and in excess of 1% versus most of the major currencies. Fixing flows at month and quarter end are likely responsible for a large amount of the FX price action, with the Scandinavian currencies and GBP all performing strongly.

Back to economic news, the ADP employment report showed private payrolls falling 23k, much less than expected. This is certainly a disappointment as the market was setting up or a very good jobs number this Friday, especially as the ADP report has proved to be a better predictor of payrolls in recent months. Our economics team is not changing their call for a 150k increase this Friday, but today’s number certainly redistributes the balance of risk to the downside. The Chicago PMI also disappointed today, coming in at 58.5 vs. expectations of 61. Details of the report were poor as well, with new orders down slightly to 61.8, inventories rising to 52.4, and employment unchanged at 53.1. Separately, factory orders increased 0.6% on the month, a tad better than expected. Core capital goods orders (previously reported in the durable good report) were revised up to a 2%m/m rate although core capital goods shipments were revised down to a 0.6%m/m rate. Finally, Canada’s monthly GDP increased 0.6%m/m (Cons: 0.5%). Canadian GDP is now running at 4.4% annualized in Q1, compared with roughly 4.6% (revised) in Q4. There is little indication that the economy is losing momentum from the stronger than expected growth that we saw in 4Q. This number lines us up for the policy decision and monetary policy report in 3 weeks' time where we could see the BoC move to a more hawkish stance with clear upside to their policy rate guidance.

There are a number of important economic releases globally tomorrow, with the Tankan survey from Japan, trade balance data from Australia and PMIs from China and a number of Eurozone countries. Later in the US session the ISM mfg. index and initial jobless claims are due. Despite this, technical flows related to month-end and quarter-end are likely to continue to dominate FX markets in the run up to Friday’s payrolls and USD selling remains likely.

Overnight news

CAD: Canada monthly GDP increased 0.6%m/m (Cons: 0.5%)

USD: Dollar General released earnings of 0.51 (JPM: 0.450, Cons: 0.425); Rite-Aid releases earnings of -0.1 (JPM: -0.220, Cons: -0.194); Mar ADP Employment report showed private payrolls falling 23k (Cons: 40); The Mar Chicago PMI (index) came in at 58.8 (Cons: 61.0); Feb factory orders (%m/m, sa) increased 0.6% (JPM: 0.4, Cons: 0.5)

EUR: Euro area flash estimate of HICP rises to its highest levels since 2008 at +1.5% y/y. NAMA reports that Irish banks may have a €32bn cash shortfall.

CHF: KoF leading indicator is stronger than expected at 1.93 from 1.90.

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

USD: Research In Motion releases earnings Q410 @ Aft-Mkt (JPM: 1.290, Cons: 1.274)

JPY: 1Q BoJ Tankan mfg. (index) @23:50 (JPM:-12.0, Cons: -14.0); 1Q BoJ Tankan non-mfg. (index) @23:50 (JPM:-18.0, Cons: -18.0)

AUD: Trade balance (AUD, bn) for Feb (JPM: -13.4) @ 00:30

CNY: PMI mfg. (Index, sa) for Mar (Cons: 55) @ 01:00; CLSA mfg. PMI (index, sa) for Mar @ 02:30

SEK: PMI mfg. (%bal, sa) for Mar (Cons: 61.7) @ 06:30

CHF: PMI mfg. (%bal, sa) for Mar (JPM: 58.5, Cons: 59) @ 06:30

NOK: PMI mfg. (%bal, sa) for Mar @ 07:00

EUR: Germany PMI mfg. final (index, sa) for Mar (Cons; 59.6) @ 07:55; PMI mfg. final (index, sa) (Cons: 56.3) @ 08:00

GBP: PMI mfg. (index, sa) for Mar @ 08:30 (Cons: 56.8)

USD: Challenger layoffs (%oya) @ 11:30; initial jobless claims (000s, sa) (JPM 435, Cons: 445) @ 12:30; Construction spending ($m/m, sa) for Feb (JPM: -1.3, Cons; -1.0) @ 14:00; @ 14:00 ISM mfg. index (sa) for Mar (JPM: 57, Cons: 57)

Overnight price action

FX: JPY remains under pressure on month-end flows with Scandinavian currencies performing strongly along with CHF and GBP.

FX vol: Vols are mixed in short maturities. 1-month USD/JPY risk reversal nearing zero.

Commodities: Oil prices are higher by more than 1%. Gold is up by about 0.6%.

Bonds: US yields are down by about 4-5bp across the curve. 2/10s curve is 281bp.

Equities: US equities are down about 0.5%.

Technical View for the day

The USD sees a mixed performance to close out the month and quarter with the focus on JPY and CHF. Starting with JPY, the underperformance trend extended yesterday and is expected to continue as the breakout phase for USD/JPY remains intact. Again, a break of the next key line of resistance at the 93.79 January high would add to the bearish JPY theme while suggesting a closer test of the 95/97 targets. Note the action in the crosses continues to affirm this view following yesterday’s breakout in EUR/JPY through the key 125/125.40 resistance area. As such, we have entered a new long position in line with this basing pattern, or inverse head and shoulders breakout. In turn, we see potential for a test of the 131 resistance zone. Moreover, the trending bias for CAD/JPY remains intact following the bullish breakout through the key 90.63 January high. As we’ve mentioned of late, some pause to the one-way rally seems close, but the overall upside bias suggests a closer test of the 95/97 zone. We also see an important test approaching for AUD/JPY as the rally seeks the 86.23 January peak. Similarly, we see room for some near term pause/retracement from here, but the medium term trend continues to point higher. On the flip side, CHF was the main outperformer and we see a number of important tests highlighted by the setup for USD/CHF. Note that prices are testing (and so far holding) the key 1.4880/1.5025 support area which includes the uptrendline from the November low While additional pause seems likely here, the action in the crosses argues for additional CHF strength. Note that EUR/CHF stays heavy with the extended breakdown, while AUD/CHF remains in position for additional downside with yesterday’s bearish reversal. Also, the impulsive rally in CHF/JPY pushed into key 88.80/89.10 resistance area which should define whether a return to the January high is underway.
ENDS

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