FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

Strong economic data is helping risk markets to extend their gains in the US session, as equities are currently trading higher by around 1%. Today’s ISM report was exceptionally strong, with the headline index jumping 3.5 points to 58.4, and new orders inching up 1pt to 65.9. The employment index also moved higher to 53.3, the highest level in several years. This data comes on the back European PMI releases overnight, which were universally strong, especially in Sweden and the UK. Taken together, the data send an encouraging signal about a continuing surge in global IP activity. The USD remains under pressure in New York trading and is lower following the overnight session in which the currency lost about 1% vs. the majors. The usual suspects, SEK, NOK, AUD and NZD are today’s biggest gainers. GBP has lagged the bounce in high beta vs the USD. Our view is that GBP has been artificially supported by M&A flow in recent weeks. Now that this flow is abating and the market’s focus is more squarely on fiscal stability, GBP is increasingly vulnerable to the deficit vigilantes.

For the first time in what seems a few weeks the Euro has not been the centre of attention today. Greek bonds are higher, more on the absence of negative news than any outright positive news. The EU Commission is now due to present its verdict on Greek’s fiscal plans this Wednesday and Commissioner Almunia gave a preview of what can be expected – in short, the EU will accept the plan but with a zero-tolerance policy for any implementation slippage. Of perhaps most support for EUR/USD is the 50% increase in EUR shorts last week to within a whisker of their all-time high seen in the immediate post-Lehman’s aftermath. Positioning is a meaningful barrier to an immediate extension of the EUR’s downtrend. Cable in our view is a much better vehicle to buy USD for an extension of the risk-off/stronger USD trend. Tomorrow features the first of four central banks meetings this week with the RBA rate decision Given the absence of downside surprises in Aussie inflation report, we expect a 25bp hike from the RBA.

Overnight news

USD: Dec personal income (%m/m, sa) increased 0.4% (JPM: 0.3, Cons: 0.3); Dec PCE core deflator (%m/m, sa) increased 01% (JPM: 0.1, Cons: 0.1); Dec personal spending (%m/m, sa) increased 0.2% (JPM: 0.3, Cons: 0.3); Jan ISM mfg. (index, sa) increased to 58.4 (JPM: 54.5, Cons: 55.5); ISM prices paid index came in at 70 vs. 62.4 f/c; Dec construction spending (%m/m, sa) was -1.2% (JPM: -0.2, Cons: -0.5)

EUR: 10Y Greek bond yields fall 25bp, now down 55bp from Thursday’s peak. EU Commissioner Almunia provides a preview of the EU’s formal assessment of the Greek budget plan that is now due on Wednesday – he says the plan is ambitious but achievable while putting Greece on notice that the EU will not tolerate any slippage in the implementation of the plan. The comments contradict reports in the Greek press that the EU would reject the budget proposals.

GBP: Shadow chancellor Osborne says the UK risks a Greek-style budget crisis. Conservative leader Cameron says that while his party would make a start in cutting the deficit, there would be no swinging cuts in the first year.

GBP: UK PMI much stronger than expected (56.7 vs. 53.9 consensus). Details also stronger. However, mortgage approvals unexpectedly fell for the first time in 13 months, further evidence that housing momentum is waning.

SEK: PMI surged 3.5 pts to 61.7 in January, the highest since early 2007. Data is consistent with 10% growth in IP and our view that the Swedish economy will grow briskly this year.

CHF: PMI jumped 2.3 pts in January, consistent with 2.5% q/q GDP growth.

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

AUD: NAB business confidence (%bal, sa) (JPM: 15) @ 00:30; RBA rate announcement (Cons: 4, JPM: 4) @ 03:30

JPY: Nominal wages (%oya) for December (JPM: -1.4) @ 01:30

Technical View for the day

A day of consolidation develops for the USD while attempting to retrace last week’s rout for the risk markets. Again, we see an important test this week given that the next line of important USD resistance levels are now in focus. While these levels are so far holding particularly given yesterday’s bounce in equities and high beta currencies, the jury is still out if yesterday’s retracement can extend Again, our focus will be on the 1.3830/1.3750 pivot area for EUR/USD which includes the March ’09 peak and breakout area from May, as well as the June low and 50% retracement from the March ’09 low. Moreover, the Dollar Index has quickly extended into the next line of resistance between the 79.65/80.00 area represented by the 38.2% retracement from the March high and the range highs from July/August. Note the commodity currencies are facing an important test as well with both AUD/USD and NZD/USD extending back to the December and range lows, while USD/CAD faces the 1.0750 Dec peak. Moreover, note that USD/NOK sees important resistance in the 5.94/6.01 area. The 1.4030/1.4220 levels for EUR/USD will continue to act as key short term pivots along with the 78.80/78.00 levels for the Dollar Index defining whether a deeper short term retracement can develop. The range action continues to develop for USD/JPY after holding key support in the 89.30/88.90 zone. Still, a break above the 91.88/92.05 area is necessary to reassert the upside bias. Yesterday’s price action in the crosses confirmed upside reversals while pointing to additional short term corrective work particularly after holding the next line of key supports for AUD/JPY, NZD/JPY as well as EUR/JPY.

Overnight price action

FX: . The USD remains under pressure in New York trading and is lower following the overnight session in which the currency lost about 1% vs. the majors.
FX vol: Vols cede overnight gains as risk markets rebound.
Commodities: Oil and gold are both higher by more than 2%.
Bonds: US yields are about 4-5bp higher in short maturities, and about 6-7bp higher farther out the curve.
Equities: US equities are higher by about 1%.

Research from the region you may have missed

Manufacturing ISM jumps to new cycle high
https://mm.jpmorgan.com/stp/t/c.do?i=B3445-765&u=a_p*d_368884.html*h_1dj0qaq6

ENDS

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