FX Daily Planet: New York Open

FX Daily Planet: New York Open

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View for the day

The European session has continued to be dominated by Greece as PM Papandreou formally asks for EU/IMF aid. EUR has been in the ascendancy for much of the morning as Greek-German 10yr bond spreads tightened amid speculation of such an announcement. However, the post-announcement price action has been muted. Our view remains that this does not represent a game-changer for EUR. Even though Greece asks for funds, this doesn't guarantee immediate disbursement of the assistance. Germany and other Euro area members still need to secure parliamentary approval for this (note suggestions that Germany may delay this until after the NRW state election on May 9). And even then the detailed terms and conditions of the loans need to be hammered out.

Though short-covering has triggered the bounce in EUR/USD we remain unconvinced that this sets the stage for a more meaningful rally in EUR. Indeed, in our view selling EUR versus Asia and versus G10 currencies whose central banks are tightening rates remains compelling. Another bright note on the Euro area economy was the release of much stronger than expected German Ifo data which supports the recent evidence that the regional economy is set for a decent bounce growth during Q2. Elsewhere in Europe, UK Q1 GDP was weaker than expected but this has had little impact on UK yield spreads over other G10 economies. The caveat to the weakness in activity in Q1 was that the poor weather probably dampened growth. This may have staved off a more meaningful sell-off in yields and GBP.

The North American trading session is full of significant data releases, not least for Canada with March CPI and February Retail sales Should Canadian CPI come in on the strong side, it will reinforce market expectations that monetary tightening is on the way. In the US, as well as a further raft of Q1 earnings , durable goods orders are released with JP Morgan looking for a much stronger than consensus outturn. Finally, G20 finance minister/central bank governor meeting will be held in Washington D.C. Considering recent comments by the authorities, today’s main topic should be financial regulations and not FX, including CNY. However, we should still watch out for the relevant sound bites.

Overnight news

EUR: PM Papandreou formally asks for EU/IMF aid. German Ifo survey is stronger than expected, rising to 101.6. Euro area industrial production is stronger than expected, rising 1.5%m/m PM Papandreou formally asks for EU/IMF aid

GBP: Advanced Q1 GDP is softer than expected at 0.2% q/q with ONS reporting poor weather hit activity.

JPY: Fitch Ratings affirmed Japan’s sovereign ratings outlook at stable while saying it sees downward pressure on Japan’s creditworthiness as government debt rises.

AUD: RBA Governor Stevens said “Our task is now to manage a new economic upswing,”, “If the economy is growing close to trend, and inflation is close to target, one would expect interest rates to be pretty close to average”

NZD: March credit card spending rose 1.2%m/m vs -0.3% in the previous month.

Today’s watchlist (all times BST; +9hrs for Sydney, +8hrs for Tokyo, -5hrs for New York)

USD: Mar durable goods orders (%m/m, sa) @13:30 (JPM: 13, Cons: 0.2); Mar new home sales (000s, saar) @15:00 (JPM: 325, Cons: 325)

CAD: Mar CPI (%oya) @12:00 (JPM: 1.7, Cons: 1.6); Mar CPI core (%oya) @12:00 (JPM: 1.9, Cons: 2.0); Feb retail sales (%m/m, sa) @13:30 (JPM: 0.6, Cons: 1.0); Feb retail sales ex autos (%m/m, sa) @13:30 (JPM: 0.1, Cons: 0.5)

Int’l: G20 meeting of Finance Ministers and Central Bank Governors in Washington D.C.

Overnight price action

FX: European currencies stage a comeback on Greece news

FX vol: Front end vol is higher

Commodities: Gold and oil are both marginally lower

Bonds: European bond futures are in negative territory as stocks move into positive territory.

Equities: European stocks bounce following Greece news.

Technical View for the day

With the Greek-German yield spread reaching levels last seen in 1998 the tension is rising further while the EUR has already broken its March low at 1.3267. Given the mounting helplessness of how this crisis could effectively be solved it looks to be a question of time only until projected price targets at 1.3093/81 are challenged. If these fail to provide support the market would indicate a straight extension to 1.2881/00 and 1.2671 where major trend line supports would open the door for a temporary recovery. In this context EUR/GBP has broken key-triangle support at 0.8677/70 what would receive additional confirmation on a break below the last low at 0.8600. Such a break would leave no doubt that the June 09 low at 0.8400 would be in focus again with a good chance to prolong the decline into key-Fib.-support at 0.8249 The picture in commodity currencies still shows an increased consolidation risk as long as key-supports at 1.3290/75 in EUR/CAD, at 1.8567/1.8247 in EUR/NZD and at 7.8417/7.8393 in EUR/NOK are not broken decisively. A similar setup is given in EUR/SEK where only a decisive break below weekly trend line support at 9.5890 (i.e. a 9.5800 print) would delay the risk of a strong countertrend rally towards 9.8560 or 9.9437 in favor of an extension to 9.3766 or 8.9300.

Research from the region you may have missed

Aussie terms of trade rose in 1Q, but the best is yet to come

https://mm.jpmorgan.com/stp/t/c.do?i=D3E43-168&u=a_p*d_402314.pdf*h_-1gc3qj5

RBA Governor Stevens reiterates growth challenges

https://mm.jpmorgan.com/stp/t/c.do?i=D3F01-168&u=a_p*d_402361.pdf*h_31uoqjlh

ENDS

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