FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

Click here for the full Note and disclosures.

View for the day

The somber tone has extended in the US session, and risk markets are down across the board including equities, commodities and FX. US equities opened lower, and weak confidence numbers are helping to reinforce this as major indices are down around 1% in afternoon trading. The USD continues to push higher against the majors (except for JPY) in concert with the general tone. Currently AUD, NZD, and CAD are down the most vs. the USD, weighed down surely by weakness in commodities: gold is down nearly 1% and oil is down 1.7%. A round of EUR/GBP strength in the overnight session has now been fully reversed as EUR/GBP trades near the lows of the day. In general, price action in the majors remains unpredictable and uncertain.

The Treasury surprised markets today by announcing that it will increase the Supplementary Financing Program (SFP) to its previous level of $200 billion. The decision would have been less perplexing except that the Treasury has offered no rationale as to the decision. Although such a move could in theory be used to drain excess reserves, which could lead to a firming of effective fed funds, the lack of signaling from the Fed makes monetary policy implications from this move fairly unlikely. Elsewhere, today’s consumer confidence number was nearly 10pts below expectations coming in at 46, down more than 10pts from last month. Although this may partially be due to the influence of severe weather conditions this month, the underlying details of the report were quite weak with current conditions and expectations indices both falling and the labor market differential worsening slightly as well. A few notable releases in the Asian session (Shoko Chukin survey in Japan) are unlikely to change the tone within risk markets and we expect USD strength to persist in the near term.

Overnight news

USD: 4Q S&P/CS HPI National composite (%oya) was -2.51%oya (JPM: -1.2, Cons: -1.2); Dec S&P/CS HPI 20-city composite (%oya) was -3.08% (JPM: -3.1, Cons: -3.1); Feb consumer confidence was much weaker than expected at 46 (index, sa) (JPM: 54.5, Cons: 55.0)

USD: The Treasury announced that it will increase the Supplementary Financing Program (SFP) to its previous level $200 billion, offering no explanation.

GBP: BoE MPC member Miles said keeping the stock of purchases in place was “on balance the right thing to do this month” and also said “if the news is that the economic outlook seems even weaker, inflation pressures lower and that moves down that profile, I think there’s a strong case for expanding the asset purchases.”

GBP: BoE Governor King said the U.K. has a “political consensus” on the need for fiscal consolidation and said he would be “immensely surprised” if the U.K.’s credit rating changed. He also added that the BoE stands “ready to do whatever seems appropriate” saying monetary policy could be expansionary or contractionary.

GBP: January BBA mortgage lending sharply fell to 35.1K vs. 43.0K expected.

EUR: February Germany IFO business survey unexpectedly fell to 95.2 vs 96.1 consensus for business climate and fell to 89.8 vs. 91.9 consensus for current conditions. Meanwhile, the expectations index was stronger than expected rising to 100.9 vs. 100.5 consensus.

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

JPY: Jan corporate service prices (%oya) @23:50 (JPM: -1.4); Trade balance (JPY bn, nsa) for January @ 23:50; BoJ Deputy Governor Yamaguchi to speak @ 01:30; Shoko Chukin small firm survey (DI) for February @ 05:00

AUD: Wage cost index (%q/q, sa) @ 07:00

Overnight price action

FX: The USD is higher across the board anywhere from 0.5% to 1.3% vs. the majors except JPY.

FX vol: Vols are higher as spot moves lower.

Commodities: Oil is down 2% and gold is down 0.8%.

Bonds: Yields are down sharply across the curve, anywhere from 4-8bp in short maturities and 10-11bp father out the curve.

Equities: equities are lower by around 1%.

Technical View for the day

The USD shifted higher yesterday with a near broad-based rally (except for USD/JPY) and in line with the prevailing medium term trends. With the action taking on a more impulsive bias and the daily patterns forming bullish reversals, the short term risks point to additional USD strength. As we have highlighted of late, we continue to see risk for the European currencies to extend their recent trends while holding current short positions in EUR/USD and GBP/USD. In a shift, yesterday’s price action was dominated by weakness in the commodity currencies led by the declines in NZD/USD and USD/CAD while suggesting a catch up trade is underway. In that regard, the impulsive decline in NZD/USD and the failure below the key .7125/50 resistance zone raises the risk that the advance from the February low is a corrective one. Moreover, yesterday’s bearish reversal/outside down day in AUD/USD from below the key .9090/.9150 resistance should allow for additional downside follow-through.

This is in line with our view for a shift in the EUR/commodity FX crosses as highlighted in Friday’s email update. Again, the trends are mature and testing critical medium term support levels including the 1.50 area in EUR/AUD and the 1.4095/1.3965 zone for EUR/CAD. The sharp reversal in USD/JPY and break of the 90.50 support area confirms another failure at the 200-day moving average and the April downtrendline (like the January high) as well as the broad range view. Also, the decline in the crosses has taken on a clear impulsive bias which fits with the view for additional weakness
ENDS

© Scoop Media