FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

Equities tumbled today on weak economic news, and fears surrounding regulatory reform. Today’s press conference from President Obama is fuelling fears over further government regulation of the financial industry. Currently, equities are down 1-2% in afternoon trading. The USD moved lower temporarily, but remains higher following strong overnight gains. JPY is today’s clear winner, gaining anywhere from 1-2% against the majors. Separately, today featured the BoC’s Monetary Policy Report, which was not as optimistic towards growth as the first headlines would suggest. The BoC sees excess capacity (the GDP gap at about 3.25% of potential). Growth on their forecast runs above/close to 4% saar throughout 2010. And with financial conditions stable at a highly expansionary level and a 10% increase in commodity prices projected over 2010-11, we would be surprised to see economic growth in Canada slow to 2% saar by late 2011 without significant BoC policy tightening. The message might be a bit hidden in the details. But we still see the prospect of the BoC beginning policy normalizing in July as bullish for CAD.

Today’s US economic news was disappointing, but not as bad as headlines would suggest. Jobless claims were higher than expected, but were accompanied by remarks from officials that the rise in claims was "administrative, not economic." The reason for this appears to be that certain states filed claims late as staffers of the state labour office were on vacation. Despite this, the Philadelphia Fed survey was also disappointing as the index declined to 15.2 this month from 22.5 in December. Worse still, the new orders component slipped to a barely-positive 3.2 in January from to 8.3 in December and 13.1 in November. In the Asian session features export and import prices from Australia and the all sector activity index in Japan. Also, after-hours in the US session today Google releases Q4 earnings.

Overnight news

USD: Goldman Sachs 4Q earnings was better than expected with 4Q EPS of $8.20 vs. estimates of $5.18.

USD: Initial claims increased to 482k, much higher than expected (JPM: 435, Cons: 440), however, the release was accompanied by statements that the number was "administrative, not economic." Jan Philadelphia Fed index (DI, sa) came in at 15.2, lower than expected (JPM: 20.0, Cons: 18.0)

CAD: BoC Monetary Policy Report was slightly more constructive than the BoC's policy announcement.

EUR: Euro area flash estimate of manufacturing PMI is stronger than expected at 52. Service sector PMI is weaker at 52.3.

GBP: PSBR is less than expected at £15.7bn. Provisional M4 is weaker than expected falling 1.1%. CBI Industrial Trends survey is weaker than expected at -39

JPY: Nov leading index final at 90.7 vs 91.2 in Oct; Nov coincident index at 96.0 vs 95.9 in Oct.

JPY: In the latest week, foreign investors continued to net purchase Japanese equities to the tune of JPY611.9bn, albeit down from the previous week’s post-Lehman high net purchase of JPY733.7bn.

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

USD: Google 4Q earnings @Aft-mkt

AUD: Export price index (%q/q) for Q409 @ 00:30 (JPM: -4, Cons: 2.8); Import price index (%q/q) for Q409 @ 00:30 (JPM: -1, Cons: -2)

JPY: All sector activity index (%m/m) @ 04:30 (Cons: 0.1)

Overnight price action

FX: The USD sold off temporarily but remains near its highs against many currencies.

FX vol: FX vols are firmer on the day.

Commodities: Oil decreased $1.54 to $76.08, a 1.98% move. Gold decreased $17.45 to $1098.00, a 1.56% move.

Bonds: US Treasuries rallied on the day. Overall, yields fell by an average of 4.63 bps

Equities: Equities post sharp losses.

Technical View for the day

The USD trades a wild day after approaching the next line of key levels. As the focus remains on EUR/USD, note the next line of key supports in the 1.40/141 zone are thus far holding. We sense a short term retracement is underway given the proximity of these levels and the current oversold setup particularly as the decline from the December high appears mature. In turn, we have entered a new long position. Moreover, we note other USD pairs are holding key levels including the 1.0510/1.0580 area in USD/CHF and the .9000 breakout zone from January for AUD/USD. In that regard, note the Dollar Index is struggling to extend through the key 78.45/55 resistance zone given the potential downside reversal day. Again, this area includes the 200-day moving average and the December high and should be where prices attempt to consolidate/retrace. With the poor performance in risk and equities breaking the key 1130 support area, note that JPY staged a bullish shift yesterday highlighted by the sharp outside day down in USD/JPY and the impulsive declines in the crosses. We see another important juncture as USD/JPY retests the key 90.00 support area which should hold to define the potential short term range. Moreover, EUR/JPY is retesting the critical 127 medium term range lows and suggests an important test. However, note the price action remains heavy with little evidence of a reversal yet and is unlike previous tests of this important support area

ENDS

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