FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

Click here for the full Note and disclosures.

View for the day

Strong economic news is helping equities higher in afternoon trading, and the USD is broadly weaker against the majors. Today’s economic reports were positive, with initial jobless claims continuing their march lower, non mfg. ISM making strong gains, but construction spending remaining weak. Against this backdrop, SEK, CAD, and GBP are leading the way higher while JPY and NZD are today’s underperformers. CHF is also sharply higher against the majors following another round of SNB intervention at mid-day in the NY session. NZD is lower in the aftermath of the IMF comments which estimated that the NZD is presently overvalued by 10-25% and that “Part of the over valuation may be temporary and the exchange rate may depreciate as the interest rate differential narrows”. NZD remains lower by about 0.5% against the USD in afternoon trading.

Initial jobless claims declined to 439k, near the 440k forecast and continuing claims came in at 4662k. This brings the 4week moving average of initial claims to 447k from 454k last week. All in all, results quite close to expectations and having little impact on global markets. ISM was stronger than expected, rising 3pt to 59.6. The new orders index edged up 2pts to 61.5, and inventories made a large 8pt move higher to 55.3, leaving the orders/inventories ratio down at 1.11. That ratio was as high as 1.5 at the end of last year, indicating that although growth in manufacturing remains very robust, momentum is likely to slow to some extent in the months ahead. Finally, the employment index was down 1pt to 55.1. All in all, the details of the report are mixed, but not enough to take away from a very strong headline index. Also out today, construction spending is down 1.3%, slightly worse than expected, chronicling continued weakness in residential and non-residential construction.

Tomorrow the focus will be US payrolls. Following a weak ADP report, a number of major forecasts have pared expectations for a strong print tomorrow but consensus remains elevated at 184k for non-farm payrolls; JPMorgan expects a print of 150k. Prior to the ADP report, the market was likely setting itself up for a disappointment, but expectations seem to have softened considerably and now the risks seem skewed towards the upside for payrolls. Note that equity markets are closed tomorrow in the US, and with the bond market only on half-day, liquidity will likely be limited and there is potential for large moves as a result if payrolls surprise markets in either direction.

Overnight news

USD: Mar 27th initial jobless claims came in at 439k (JPM: 435, Cons: 440); Mar ISM mfg. (index, sa) came in at 61.5 (JPM: 57.0, Cons: 57.0); Feb construction spending (%m/m, sa) was down 1.3% (JPM: -1.3, Cons: -1.0)

CHF: CHF is also sharply higher against the majors following another round of SNB intervention at mid-day in the NY session.

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”.

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

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

USD: @ 12:30 Nonfarm payrolls (ch m/m000s, sa); @ 12:30 Average hourly earnings (%m/m, sa) for Mar; Unemployment rate (%, sa) (JPM: 9.7, Cons: 9.7)JPY: Mar monetary base (%oya) @23:50 (Prev: 2.2)

Overnight price action

FX: The USD is broadly lower. NZD continues to under-perform in the aftermath of the IMF comments.

FX vol: Vols are down in short maturities.

Commodities: Oil rises over 1% and gold trades 1% higher

Bonds: US yields are higher following strong data.

Equities: US equities trade higher.

Technical View for the day

The USD maintained the mixed performance yesterday as we head into Friday’s payroll data in the USD and the holiday weekend. Despite the choppy action, there are a few key themes that continue to develop. Again, our focus remains on the bearish setup for JPY as the underperformance trend extended yesterday. Importantly, USD/JPY pushed above the important 93.79 January high adding to the overall breakout phase. In turn, the upside risks will remain intact particularly with a weekly close above this area which should set the stage for a test of the 95 area, if not the critical 97/98 zone. We continue to see confirmation in the crosses in line with this week’s base breakout in EUR/JPY through the key 125.50 area. Moreover, AUD/JPY pushed through the 86.23 January high yesterday while raising the risk of an extension. Importantly, the rally in CAD/JPY stays resilient while positioning for a closer test of the 95/97 medium term targets. This rally is also in line with the overall bullish case for CAD with yesterday’s decline in USD/CAD raising the risk that prices can see a closer test, if not break of the 1.00/.9975 key support zone. We do see a number of important tests for the USD particularly into tomorrow’s data. In that regard, note the pullback in the Dollar Index highlights the key 80.30 uptrendline from the December low, while the recent bounce in EUR/USD faces an important test at the 1.3620 downtrendline from the late-2009 peak. Moreover, we continue to closely monitor the .9235/55 resistance zone in AUD/USD as breaks here are necessary to reassert the upside bias for a closer test of the .9330 January high, if not the .9407 November peak. The action in NZD/USD still remains quite range-bound, but we see room for additional underperformance given this week’s advance in AUD/NZD which now seems set for a rest, if not break of the March high. Also, yesterday’s decline in NZD/CAD points to a resumption of the medium term decline and higher risk of a break of the .7065 support area.

Research from the region you may have missed

Claims make another move in the right direction

https://mm.jpmorgan.com/stp/t/c.do?i=CB989-764&u=a_p*d_393020.html*h_2nfl758c

ENDS

© Scoop Media