FX Daily Planet: New York Open
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View for the day
EUR/USD has marked a new multi-month low during the European session, falling to its lowest levels since the Lehman
crisis as the sovereign crisis in the Euro area continues to weigh on sentiment. Bloomberg this morning reports that
French President Sarkozy threatened to pull out of the euro unless German Chancellor Merkel agreed on the EU backed
bailout plan at last weekend’s meeting of EU leaders. Credit and bond spreads for the European peripherals have widened
out again with the Greek/German 10yr bond spread approaching 480bps (40bps wider than the close yesterday). European
equities are deep in negative territory with the Spanish Ibex posting losses of nearly 4.5%. With risk assets under
pressure, front-end FX volatility is higher during the session, particularly for the Yen crosses. Though all of the G10
currencies are lower versus both JPY and USD, it is the European currencies that are the main under-performers during
the session though the likes of AUD, CAD and NZD have not escaped. Greece is due to report back to the EU on its fiscal
consolidation process at some point during the session though as yet there have been no news headlines. Though the US
data flow later in the session is significant (April retail sales, industrial production and May Michigan Univ. consumer
sentiment), the macro data is likely to play second fiddle to developments in the Euro area.
Overnight news
EUR: Bloomberg reports that Spanish PM told socialist politicians that Sarkozy threatened to withdraw from the euro if Merkel
refused to back EU aid to Greece. Credit and bond spreads for the peripherals widen during the session.
NZD: March retail sales weaker than expected at 0.5%m/m vs 1.1% consensus
CNY: April FDI rose at a faster than expected pace at 24.7%oya vs 21.4% consensus.
CNY: China’s current account surplus fell 48% from a year earlier to $40.9 bn in 1Q10, the State Administration of Foreign
Exchange; the regulators said the country’s foreign currency reserves in 1Q rose by $95.9 bn excluding foreign-exchange
fluctuations.
Today’s watchlist (all times BST; +9hrs for Sydney, +8hrs for Tokyo, -5hrs for New York)
USD: Apr retail sales (%m/m, sa) @13:30 (JPM: -0.1, Cons: 0.2); Apr retail sales ex autos (%m/m, sa) @13:30 (JPM: 0.2, Cons:
0.4); Apr IP (%m/m, sa) @14:15 (JPM: 1.1, Cons: 0.7); Apr capacity utilization (%bal, sa) @14:15 (JPM: 73.8, Cons:
73.8); May U. Michigan consumer confidence prelim. (index) @15:00 (JPM: 73.0, Cons: 73.5); Mar business inventories
(%m/m, sa) @15:00 (JPM: 0.4, Cons: 0.4); Fed’s Evans speaks at Illinois Wesleyan Univ. @18:40
CAD: Mar manufacturing sales (%m/m, sa) @13:30 (JPM: 2.4, Cons: 1.0); Mar auto sales (%m/m. sa) @13:30 (JPM: -4.0, Cons:
-4.0)
Overnight price action
FX: European currencies are the main under-performers versus USD and JPY as equities trade markedly lower.
FX vol: Front-end cross/JPY vol spikes as risk markets come under renewed pressure.
Commodities: Gold rallies 1% whilst oil fall nearly 2%
Bonds: European bond markets are deep in positive territory
Credit: European high yield credit widens 33bps
Equities: European equities post sharp losses led by the Spanish IBEX
Technical View for the day
Looking at the incredible recovery risk markets have performed after last week’s panic-sell-off it seems as if the
rescue package has done its trick although great scepticism remains whether the generated rally could not turn out to be
a straw fire only. As long as key-resistance at 1183/86 in the S is not broken on daily close this risk persists. Greek-German government yield spreads have in every which case been
narrowing substantially which is positive but is not eliminating general worries about the negative effects on the
economy itself, which is reflected chart wise in the risk of potentially forming the right shoulder of a broader H top in leading indices (S/ Dow/Dax). As long as the positive sentiment prevails though, particularly commodity currencies, MXN as well as BRL
remain well bid against EUR In EUR/AUD the downtrend has now even broken the 1997 low which illustrates that there is
still substantial down-potential. As for EUR/USD the down-trend remains fully intact as long as any recovery remains
below 1.2610/20 and should ultimately stretch out to projected targets in the 1.2285 and in the 1.2150 handle. Cable has
also joined the bear-party again and is now facing a test of key-support at 1.4339.
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ENDS