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 data, in the absence of negative news from Washington, was able to propel risk markets higher in the US session, with equities up 1.3% and yields rising across the Treasury curve. The JPY was the clear loser against this backdrop, down some 0.8% against the USD in afternoon trading. Elsewhere, commodity currencies were able to push higher against the USD with the biggest moves in CAD and NZD, while the EUR continued to push lower all day. ISM manufacturing index came in at 60.4 (Cons: 60) and all forward looking details were quite positive. New orders increased to 65.7 and production rose to 66.9 while inventories fell slightly to 49.4, leading to a corresponding increase in the orders to inventories gap (the new orders/inventories spread rose from 6.2 to 16.3, the widest level since January). Additionally, the employment index crept higher to 58.5 from 55.1 previously. All in all, these are positive indications for continued growth in manufacturing output in coming months. Construction spending increased 0.2% much better than forecast (Cons: -0.5%). Despite this, back revisions led our economics team to revise the Q1 GDP estimate downward slightly to 3%saar. Earlier personal income and spending came in exactly as expected, increasing 0.3%m/m and 0.6%m/m respectively. The PCE deflator was also as expected, increasing 0.1%m/m. Also out today, the senior loan officer survey showed credit standards easing somewhat, all while loan demand continued to decline. The easing in lending standards was mostly attributable to large banks, while smaller banks continued to tighten. These results are not particularly surprising given the mounting political pressure on large financial firms.

This is a heavy week for policy events. Tomorrow, the RBA rate decision is the focus, and we expect a 25bp hike which is mostly priced. Offshore events are the main deterrent to a move (as they were in February), but with the economy expanding at trend and rates still below average, cash rates are likely to trend higher this year. On Wednesday, the Norges Bank should hike 25bp, consistent with their rate projections. The chief risk is that the accompanying statement reads dovish given NOK strength the growth risks from fiscal stress in Europe. We took profits on a NOK/SEK call spread this week and see no reason to position around the meeting. Finally, on Thursday, the ECB will keep rates unchanged.

Overnight news

USD: ISM manufacturing index came in at 60.4 (Cons: 60), the new orders sub-index increased to 65.7 and production rose to 66.9 while inventories fall slightly to 49.4 and the employment index crept higher to 58.5; Personal income and spending came in exactly as expected increasing 0.3%m/m and 0.6%m/m respectively; The PCE deflator increased 0.1%m/m as forecast.

USD: Today, the Fed released the Senior Loan Officer Survey which showed credit standards are easing slightly, all while loan demand continues to languish. The easing in lending standards was mostly due to large banks, while smaller banks continued to tighten.

CNY: PBoC on Sunday announced an increase in the Reserve Requirement Ratio by 50bp from May 10th.

EUR: The EU, IMF, and Greece all agreed on the terms of the bailout for Greece, as was widely expected. The total package is EUR 110bn. Separately, the ECB announced that it would suspend collateral requirements for Greek government debt, thus allowing Greek banks to continue accessing ECB repo facilities for funding. The move can be seen as pre-emptive: if Moody's and Fitch had downgraded Greece to junk as S&P did last week, Greek banks would have been unable to secure ECB funding until and unless the ECB changed its ratings requirement. Even if/when those downgrades occur, Greek banks will retain funding access.

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

CNY: HSBC PMI mgf (index, sa) for April @ 03:30

AUD: RBA rate announcement for April (Cons: 4.5, JPM 4.5) @ 05:30

GBP: M4 final (%oya) for March @ 09:30; net consumer credit (GBP bn, sa) for March (Cons: 0.4) @ 09:30; PMI mfg (index, sa) for April @ 09:30

EUR: PPI (%oya) for March (Cons: 1.0)

USD: Factor orders (%m/m, sa) for March @ 15:00; Pending home sales (%m/m, sa) for March (Cons: 3.1) @ 15:00

Overnight price action

FX: EUR weakens across the board along with JPY.

FX vol: vols are slightly higher in short maturities.

Commodities: Oil and gold are both about flat.

Bonds: Yields are about 4bp higher at the front end, 5bp higher in the belly, and 1-4bp higher at the long end.

Equities: US equities are higher by 1.3%.

Technical View for the day

In line with the recent two-sided action over the past few weeks, most markets reversed course yesterday despite Friday’s bearish risk-off trade. Importantly, the key levels are so far holding, but we are closely monitoring for any signs of a shift particularly against the important 1180/1170 support levels for the S&P. Although light volumes, yesterday’s shift points to a continuation of the recent ranges, as we monitor the critical levels. In that regard, we see a critical test for USD/JPY, as yesterday’s impulsive rally and bullish reversal day approached the key 94.80/95.10 resistance zone We continue to expect additional upside, but the 94.80/95.10 resistance zone remains the important hurdle. Above should allow for a closer test of the 97/98 zone which is in line with our overall bearish view for JPY as the upside risks for cross JPY remain intact.

The other key focus is NZD as the outperformance bias remains intact. The short term setup suggests this view can extend over the short term timeframe in line with the bullish breakout against the USD through the October downtrendline. Moreover, the action in the crosses is consistent with this view given the sharp breakout in NZD/CAD through the recent range highs, as well as the breakdown in AUD/NZD below the important 1.2800/1.2750 support area. Note that prices are now testing the next zone of key support near 1.2590 (200-day moving average), but keep in mind that the 1.2800 area will maintain the more immediate downside bias. Also, note that EUR/NZD is extending below important support near 1.82 which includes the lows from Oct ’07 and Feb ’08.

The setup in EUR/USD is in line with this view, as yesterday’s bearish reversal should allow for additional downside follow-through. Again, the very short term setup suggests additional weakness particularly against the 1.3415/1.3475 resistance zone.

We are also closely monitoring the setup in USD/CAD as Friday’s rally has positioned prices for a closer test of important resistance in the 1.0217/1.0250 zone as breaks here would imply a deeper short term retracement is likely. Still, we note that this would be viewed within the context of the medium term downtrend.

Research from the region you may have missed

SLOOS gets a bit loose, but not wildly so

https://mm.jpmorgan.com/stp/t/c.do?i=D986D-76F&u=a_p*d_408129.html*h_abdr6r4j

Keep an eye on the average workweek

https://mm.jpmorgancom/stp/t/c.do?i=D983F-76B&u=a_p*d_408121.pdf*h_-1bqv1vi

ENDS

© Scoop Media