FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

Markets remain caught in the cross currents of impending financial regulation and sovereign debt concerns, balanced by strong earnings and economic data. German Chancellor Merkel held a press announcement on Greece this morning in which she stated that further savings measures would be needed from Greece and that Germany will launch the aid process only when Greece meets that condition. It seems that Germany is continuing to play hardball, with Merkel adding that Greece will have to accept tough conditions for a number of years. EUR has remained under pressure overnight and in the NY session and Greek bond yields have widened versus Germany to new multi year highs while Greek 5yr CDS are all also higher. GBP also remains higher in NY trading as solid overnight data from UK housing supports the recent widening of rate differentials in favour of GBP. In addition, weekend opinion polls have broadly indicated that the Conservative Party is in the lead, but this is still not enough to form a Government. However, the latest sound bites from the Liberal Party suggest that they are not averse to forming a coalition with the Conservative Party which has provided another positive boost for GBP. A few notable events after the close are likely to set the tone in Asia, with Texas Instruments reporting earnings, and a vote in the Senate to begin debating a financial regulatory overhaul bill. Tomorrow’s focus will remain on Capital Hill, as Wall Street executives testify before the Senate Permanent Subcommittee on Investigations.

Overnight news

USD: Apr Dallas survey (index) increased to 21.1 (Cons: 9.8); Caterpillar reported 1Q earnings of $0.65 @ (JPM: 0.660, Cons: 0.390)

EUR: German Chancellor Merkel held a press announcement on Greece. Comments from Merkel were less than supportive for Greece or EUR, stating that further savings measures would be needed from Greece and that Germany will launch the aid process when Greece meets those conditions. Merkel also stated that Germany feels a sense of obligation for the stability of the EUR

HUF: NBH keeps rates unchanged as expected (JPM: 5.25, Cons: 5.25)

Israel: BOI rate announcement leaves rates unchanged at 1.50% (JPM: 1.75, Cons: 1.75)

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

USD: Texas Instruments for 1Q @ Aft-Mkt (JPM : 0.520, Cons : 0.504); The Senate will vote to begin debating a financial regulatory overhaul bill @ aft-mkt

AUD: PPI (%q/q, sa) for 1Q10 (JPM: 0.6, Cons: 0.6) @ 02:30

JPY: Shoko Chukin small firm survey (DI) for April (JPM; 44) @ 06:00

EUR: Germany GFK consumer confidence (Index, sa) for May (Cons: 3.3) @ 07:00; Spain releases March Budget; Spain to sell 3,6month bills; ECB’s Tumpel-Gugerel speaks in Paris; ECB’s Orphanides speaks in Cyprus; ECB’s President Trichet speaks in Chicago

SEK: PPI (%oya) for March @ 08:30

GBP: BBA mortgage lending (ch GBPbn, sa) for March (JPM: 2.6) @ 09:30; CBI April distributive trades (Cons: 54.0) @ 11:00

USD: S&P/CS HPI (%oya) for March (JPM: 3.2, Cons; 3.6) @ 14:00; Consumer confidence (Index, sa) (Cons: 54.0) @ 15:00

USD: Wall Street executives testify before the Senate Permanent Subcommittee on Investigations.

Overnight price action

FX: GBP has maintained its earlier gains while EUR remains under pressure.

FX vol: Front-end vol is broadly stable.

Commodities: Gold is up slightly while oil is down more than 1%.

Bonds: Yields are lower by about 2bp in the front end, and about flat farther out the curve.

Equities: US equities are down about 0.5%.

Technical View for the day

Yesterday’s strength in NZD was the key development in an overall mixed day. The push through a number of key resistance levels highlighted by the breakout above the October trendline resistance for both NZD/USD and NZD/JPY suggests an extension of this outperformance trend is likely to develop over the short term. Moreover, AUD/NZD now faces an important test at the 1.2820/1.2760 support zone with a growing risk of a downside break.

The two-sided action for AUD/USD continues to develop following the test of the key .9390/.9407 medium term range. However, Friday’s bullish reversal and yesterday’s upside follow-through seems consistent with another run at these key resistance levels. The .9315/40 levels will now act as the key pivots for this week and should help define whether an upside extension is underway. Other USD pairs remain mixed despite Friday’s reversal particularly for EUR/USD and USD/CHF, as well as the DXY. Importantly, the lack of follow-through implies that the current ranges are intact, but still with an upward bias for the USD. In that regard, EUR/USD stays vulnerable to additional weakness as there is little evidence of a sustained reversal at this point. Moreover, EUR/commodity FX crosses can sustain additional weakness despite the deep oversold setup as key resistance levels are holding.

We maintain a bearish view for JPY as our focus remains on USD/JPY. Last week’s advance through the key 93.75/80 resistance area suggests a higher risk of a retest of the 94.80/95.10 resistance zone. Moreover, we still see room for additional upside for cross JPY particularly for AUD/JPY and CAD/JPY following yesterday’s strength through the early-April highs and in line with the medium term bullish bias.

ENDS

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