FX Daily Planet: New York Open

FX Daily Planet: New York Open

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View for the day

It has been a quiet start to the new trading month in the FX markets. European equities are trading higher though the performance of both USD and JPY has been mixed. CAD has shone once again Whilst NZD remains under pressure. A report by the IMF estimates that NZD is overvalued by 10-25%. European PMI releases were broadly stronger than expected, with the UK in particular posting its highest levels in 15 years. EUR/CHF has fallen to another lifetime low as Swiss manufacturing PMI also surprises on the upside and reinforces the view that the SNB will be amongst the second wave of central banks to hike rates. In FX options, front-end vol is relatively stable though cross/JPY has softened.

In the New York session, the focus will be on March manufacturing ISM, weekly initial jobless claims. We are slightly more bullish on the jobless claims than consensus. If this is correct, it could heighten speculation on the strong result of the non-farm payrolls and heighten an upward pressure on US equities and long-term US yields. Although it should be seen as JPY-negative, the implication for USD is mixed as higher US yields should support USD while US equity rallies should depress USD at the cost of high betas.

Overnight news

SEK: Manufacturing PMI is weaker than expected, falling to 61.1 from 61.5.

GBP: UK manufacturing PMI rises to its highest levels in 15 years at 57.2

EUR: Final Euro area PMI rises to 56.6

NZD: The IMF estimates that the NZD is presently overvalued by 10-25% and said “Part of the over valuation may be temporary and the exchange rate may depreciate as the interest rate differential narrow with eventual tightening by the US Federal Reserve”.

JPY: March BoJ Tankan generally in line with consensus; large mfg index and outlook in line with expectation at -14 and -8 respectively; large non-mfg index at -14 vs -18 consensus; large all industry Capex for FY2010 in line with expectation at -0.4%oya.

JPY: Foreign investors turned net sellers of Japanese equities in the latest week, net selling ¥274.4bn after net purchasing ¥127.6bn in the preceding week.

AUD: Feb trade deficit widened to –A$19.2bn vs -A$13.4bn consensus.

CNY: China March official PMI mfg almost in line with expectation rising to 55.1 from 52.0 (consensus: 55.0); March HSBC PMI mfg also rose to 57.0 from 55.8 in February.

CNY: The PBoC sold three-month bills at a yield of 1.4088%, unchanged for a ninth sale in a row.

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

USD: Mar challenger layoffs (%oya) @11:30 (Prev: -77.4); Mar 27th initial jobless claims (000s, sa) @12:30 (JPM: 435, Cons: 440); Mar ISM mfg. (index, sa) @14:00 (JPM: 57.0, Cons: 57.0); Feb construction spending (%m/m, sa) @14:00 (JPM: -1.3, Cons: -1.0); Fed’s Bullard speaks @20:00; Fed’s Dudley speaks @21:00

JPY: Mar monetary base (%oya) @23:50 (Prev: 2.2)

Overnight price action

FX: NZD continues to under-perform in the aftermath of the IMF comments.

FX vol: Cross/JPY vol continues to soften

Commodities: Oil rises over 1% whilst gold trades 0.7% higher

Bonds: European bond futures are mixed

Equities: European equities trade higher

Technical View for the day

The key-theme at the moment looks to be the weakness of the JPY and the conclusive question whether we might experience a major shift in trend. As USD/JPY was the forerunner in this whole process the latter might also be the first one delivering evidence in this context by breaking above the previous top at 93.79. Equivalent break levels which would indicate a broader setback of the JPY are at 126.88/127.47 in EUR/JPY and at 143.62 in GBP/JPY. Such breaks would not deliver the final confirmation that a long-term reversal took place but would open significant down-potential for the JPY to 99.85 and 101.45/69 in USD/JPY which can be seen as the decisive resistance zone in the big picture where bulls and bears would have to fight it out. GBP on the other hand shows temporary signs of strength but would need to clear 1.5245 in Cable in order to call for a stronger consolidation up to key-resistance between 1.5424 and 1.5584. Equivalent break levels are at 0.8844 in EUR/GBP and at 1.6298/1.6316 in GBP/CHF and unless these are taken out GBP remains on thin ice.

Research from the region you may have missed

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Aussie trade deficit blew back out in February

ENDS

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