FX Daily Planet: View for the day

FX Daily Planet: Sydney/Asia Open

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View for the day

The bounce in risk markets following Obama’s state of the union speech proved to be very short lived as disappointing economic news has dampened bullish sentiment. Stocks are currently selling off, lower by around 1% in afternoon trading. The USD has rebounded nicely against commodity currencies and high beta, and the JPY has moved back to the top of today’s biggest-gainers list. In FX vols space, front end vols have rebounded off their lows as risk markets sell off, but remain lower on the day.

Claims fell less than forecast to 470k pushing the 4wk average to its highest level since year end This is a disappointing result, especially in light of last week’s fluke delay in claims filings. Durable goods orders increased 0.3%, and the non-defense, ex-aircraft “core” capital goods increased 2.2%. Our economics team notes that core capital goods shipments increased at a torrid 8.5% annual rate in Q4, which is supportive of a strong increase in real capital equipment spending in tomorrow's GDP release. While we may be done for the week in terms of major central bank policy meetings, there still awaits another marquee event of the week - vote to limit debate on FRB Chairman Bernanke’s re-appointment - in the US session today. While independent surveys and bookies suggest risk of reappointment to be very low, it’s still not a done deal and the market will be keen to learn the outcome. Today’s vote requires full attention as any surprise delivered may lead to volatile moves especially in the current headline sensitive market.

Overnight news

USD: Jan. 23 initial jobless claims declined less than expected to 470k (000s, sa) (JPM: 450, Cons: 450); Dec durable goods orders increased 0.3% (%m/m, sa) (JPM: 2.5, Cons: 2.0); Dec Chicago Fed nat. activity index (index) was -0.61 (Prev: -0.3)

USD: Today’s 7y Treasury auction was fairly strong, yielding 3.127%, which was quite close to pre-auction levels, with a bid/cover of 2.85 and 62.9% going to end users.

USD: 3M 4Q EPS $1.30 vs. estimates of $1.21; AT&T 4Q EPS $0.51 vs. estimates $0.51; Bristol-Myers 4Q EPS Ex-Items $0.47 vs. estimates if $0.42. Lockheed Martin 4Q EPS of $2.17 on $0.03 of IRS benefit vs. estimates of $1.98; Eli Lilly 4Q EPS Ex-items $0.91 vs. estimates of $0.91. Ford 4Q EPS Ex-Items $0.43 vs. estimates of $0.26.; Motorola 4Q EPS ex-items $0.09 VS est. of $0.08; Colgate 4Q EPS $1.21 vs. est. of $1.18; P&G 4Q EPS $1.49 VS EST. $1.36

USD: President Obama’s State of Union address did not contain any new materials or details on bank regulation to surprise the market., the president reiterated his commitment to make the bill pass saying “if the bill ends up on my desk does not meet the test of real reform I will send it back” while saying “I am not interested in punishing banks, I’m interest in protecting our economy”.

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

USD: Microsoft 4Q earnings @22:30

NZD: Dec trade balance (NZ$ mn) @21:45 (JPM: -200.0, Cons: -100.0)

JPY: Jan PMI manufacturing (index, sa) @23:15 (JPM: 54.0); Dec unemployment rate (%, sa) @23:30 (JPM: 5.3, Cons: 5.3); Dec jobs to applicants ratio (sa) @23:30 (JPM: 0.46, Cons: 046); Dec household spending (%oya) @23:30 (JPM: 0.8, Cons: 1.6); Dec Nationwide CPI (%oya) @23:30 (JPM: -1.6, Cons: -1.7); Dec Nationwide core CPI (%oya) @23:30 (JPM: -1.3, Cons: -1.3); Dec IP prelim. (%m/m, sa) @23:50 (JPM: 3.0, Cons: 2.5); BoJ minutes for Dec meeting @23:50

Overnight price action

FX: The USD has rebounded nicely against commodity currencies and high beta currencies.

FX vol: front end vols remain lower.

Commodities: oil up 0.3% and gold roughly flat on the day.

Bonds: Yields are about 4bps lower in short maturities and about flat at longer maturities.

Equities: US equities are about 1% lower on the day.

Technical View for the day

The USD pushed higher yesterday while extending through the next line of key levels highlighted by the important 1.40/1.41 zone for EUR/USD, as well as the 78.40/80 area for the Dollar Index. In turn, the near term setup can allow additional USD strength in line with the continued deleveraging and the break of these levels, which stopped us out of our long EUR/USD position. Still, the short term trends remain mature amid the current momentum extremes. However, this setup has thus far failed to register with the price action. In that regard, the decline in EUR/USD from the November peak appears close to completion (five-waves) amid an oversold and diverging momentum setup.

Similarly, note that both AUD/USD and NZD/USD are approaching key supports (.8930/00 for AUD/USD and .6975 area for NZD/USD) amid oversold frameworks, but the price action stays heavy despite the oversold setup. Moreover, we see an important test for the Scandies with both USD/NOK and USD/SEK testing the critical December highs. While these resistance levels are holding, there is still no sign of a sustained reversal. For USD/JPY, the key parameters remain intact particularly following yesterday’s failure at the 90.55 resistance area. Again, still need a break above here and the 91.88 levels to suggest a deeper retracement from this month’s high. Until then, the short term risks point lower. Also, note the crosses maintain a heavy tone particularly given yesterday’s downside reversals across the board. As such, the risks for additional downside and new lows remain intact.

ENDS

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