FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

Risk markets managed to shrug off mixed economic news and are moving higher in afternoon trading. US equities are currently up by about 0.7% and the USD has retreated against the majors for the most part. NOK remains today’s main underperformer, stopped in its tracks by very poor GDP figures (see below). The bullish structural argument for NOK is that it is a safe-harbor from sovereign risk. With today's GDP figures, however, the cyclical case for NOK appreciation looks less overwhelming. The data relaxes the pressure on the NB to hike aggressively (once per quarter, tops); in addition to which it will make the NB more sensitive to NOK appreciation (Q4 exports were weak). NOK should still rally versus EUR but increasingly this looks like a grind rather than a race. The data should also reinforce the downward bias in NOK/SEK, although it has to be said that the market is in danger of getting carried away with SEK at present. The details of the CPI figures released this morning deliver early signs that Swedish core inflation has peaked, potentially more rapidly the Riksbank is anticipating. Given this, our economists continue to doubt whether the Riksbank can deliver on its projection to tighten by late summer.

Today’s news on the economic front featured a disappointing jobless claim report. Claims increased fairly sharply to 473k, well above consensus and almost fully reversing last week's decline. It’s hard not to suspect that some of this increase is due to recent extreme weather conditions on the East Coast in the US, but there have been no comments from the labor department so far. Today also featured producer prices and the headline number increased 1.4%m/m, well above consensus due to a sharp increase (5%) in energy prices. The core number increased a more modest 0.3%. Data volatility like this is obviously not conducive to clean trending markets, either in equities or FX. We are still inclined to be long dollars here, both against European FX but also commodity FX in view of the not terribly convincing bounce in stock markets. Investors have been quick to re-buy AUD in particular this week but momentum is stalling and stops are likely to be fairly tight.

Overnight news

CAD: Jan CPI came in at 2%oya (JPM: 1.9, Cons: 1.8); Jan CPI core was 1.9%oya (JPM: 1.9, Cons: 1.9)

USD: Jan PPI was up 0.8%m/m (JPM: 0.9, Cons: 0.8); Jan PPI core was up 0.3%m/m (JPM: 0.2, Cons: 0.1); Feb 13th initial jobless claims came in at 473k (000s, sa) (JPM: 450, Cons: 435); Jan leading indicators (%m/m, sa) increased 0.3% (Cons: 0.5); Fed Philadelphia Fed index (DI, sa) was 17.6 (JPM: 15.0, Cons: 17.0)

GBP: Public sector finances were worse than projected in Jan – a borrowing requirement of £4.3bn vs a forecasted surplus of £2.6bn. Mortgage applications were very weak (49K in Jan from 60K in Dec) but the presumption is that these figures were adversely affected by bad weather. CBI industrial trends survey showed a further modest improvement in conditions.

GBP: Hard to see credit flowing while banks are worried about regulatory change – BoE’s Barker.

NOK: 4Q GDP much weaker than forecast. Mainland 0.3% vs 0.8% forecast; Q3 revised down by 0.3%. Statistics Norway also published its revised macro forecasts. 2010 GDP cut from 2.2% to 2.0%. 2011 unchanged at 2.7%. 2010 core CPI increased from 0.7% to 1.0%; 2011 1.3%. Money market rate projections were trimmed - 2010 at 2.6% vs 2.7%; 2011 at 3.4% vs 3.8%.

SEK: January headline CPI printed much softer at 0.6% vs 1.0% consensus forecast while core CPI printed in line with expectation at 2.6%oya; January unemployment was a 0.1% higher than consensus forecast at 9.4%.

Gold: IMF says it will conduct on-market gold sales, in a phased manner over time. The IMF has so far sold 212 tonnes of gold to central banks and has a remaining 191 tonnes to go.

CHF: January trade surplus rose to CHF 2.4bn from CHF 1.4bn in the previous month.

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

JPY: @ 04:30 All sector activity index (%m/m, sa); BoJ monthly report @ 05:00

Overnight price action

FX: NOK is down 0.6% vs the USD. CAD is up 0.6% G3 currencies consolidating.

FX vol: Short maturity vols are little changed in most cases.

Commodities: Gold is about flat, oil is up 2%.

Bonds: Yields are up 2bp in short maturities, and up 5-7bp farther out the curve.

Equities: US equities are up about 0.6-0.7%.

Technical View for the day

The USD extended higher yesterday while attempting to follow-through to Wednesday’s bullish reversals. While the current themes remain intact, we see an important test for the continuation of the bull trend as a number of important resistance levels are now in focus. Note the Dollar Index is once again testing the key short term range highs near 8075, while both EUR/USD and GBP/USD are retesting the near term consolidation lows. While these levels have thus far held, the setup continues to imply additional USD strength is likely particularly as the important support levels are intact. In that regard, the 79.50 area for the Dollar Index and the 1.3850 for EUR/USD and the 1.5850 level for Cable will maintain the short term bias for additional USD strength. The price action for AUD and CAD maintains a bullish bias against the USD and on the crosses. As the near term setup can allow for additional pause for both AUD/USD and USD/CAD, the action suggests that the reversals from the February USD highs can continue. While the crosses are approaching important support levels including the 150 area for EUR/AUD and the critical 1.3965/1.4095 zone for EUR/CAD, there is still no sign of a base. Note that these levels are ideal support zone for some short term pause though. Finally, we also see an important test for USD/JPY as yesterday’s follow-through strength has led to a test of the key 91.40 resistance zone which includes the daily cloud resistance. Note that the February low effectively held the important daily cloud support. Still, an upside break here is necessary to confirm an extension of this rally phase into the next line of key levels starting at the 92.30, 200-day MA and extending to the 93.79 January high.

ENDS

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