FX Daily Planet: New York Open

FX Daily Planet: New York Open

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View for the day

Equities rose in Asia and Europe, helping to depress JPY after its recent run. But the main focus this morning was GBP, which continued to weaken across the board. Q4 GDP was revised a little higher than the market expected but rumors of a General Election announcement dominated and spooked traders. In the meantime, SEK strength outpaced all majors as it got additional support from much stronger-than-expected retail sales figure.

After this week’s string of poor US data, today’s round of figures has added significance. 4Q GDP (second reading), consumer sentiment (final), existing home sales, and Chicago PMI index are all due. Our US economics team anticipates an upward revision in GDP to 6.0%q/q while the street looks for no change from the advance report. We expect an upward revision in inventories to drive GDP higher by 0.3% pt. With regards to other releases, we are broadly in line with consensus. The final survey for consumer sentiment is expected to stay little changed and existing home sales should show a small increase. That said, any negative reading from the US data will reignite market concerns over fragile US recovery and drive equities lower. This in turn will be negative for commodity currencies and positive for anti-cyclical USD and JPY.

Aside from the data, the month-end fix will be in focus: assuming no major decline in stocks before the fix, equity hedge rebalancing should entail USD selling. The S&P500 has so far risen +1.5% mtd, which leaves non-US investors under-hedged due to the rise in notional value of their US portfolios. Note that USD is a clearer sell vs commodity FX than versus more liquid currencies such as EUR and JPY. We find that AUD and NZD behave as predicted more often than EUR, GBP or JPY, probably because discrete flows matter more in smaller markets (click hyperlink below for Assuming equities stabilise, month-end fix should generate USD selling for more details).

Overnight news

GBP: 4Q GDP second reading revised up 0.1%pt to 0.3%q/q overshooting consensus at 0.2%, but year on year figure was revised 0.1%pt down to -3.3%, undershooting -31% consensus.

GBP: February nationwide house prices -1.0% on the month vs 0.4% rise expected.

EUR: The EU said “if necessary, and if there is a request to that effect, support (to Greece) would be considered” but “at the moment, we have no such request”.

EUR: Euro area’s January HICP final printed in line with expectation at 1.0%oya while core HICP printed 0.1%pt below expectation at 0.9%.

SEK: January retail sales turned out much stronger than expected at 1.7%m/m vs 0.8% January trade balance printed slightly below expectation at SEK7.5bn still rising from the previous month’s SEK4.5bn.

NOK: Norges Bank said it will not purchase FX for the Government Pension Fund Global in March.

CHF: February KOF leading indicator printed above expectation at 1.87 vs 1.80 consensus.

JPY: Jan. IP (+2.5% m/m vs consensus of +1.0%) and retail sales (+2.6% oya vs cons. -0.2%) were much stronger than expected. January nation-wide core CPI was flat from December at -1.3%.

JPY: Fin.Min. Kan “consumer price declines are slowing somewhat, but Japan is still mired in deflation”, “expects the BoJ to make efforts towards ending deflation”.

AUD: Jan. private sector credit was stronger than expected at +0.4% m/m (consensus +0.2%).

CNY: Local media reported that China is conducting “stress tests” in the export sectors to see how much CNY appreciation firms can withstand.

USD: Data shows the Fed’s balance sheet grew in the latest week due to increases in its holdings of MBSs.

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

USD: Fed’s Evans speaks @13:00; 4Q09 GDP secondary (%q/q, saar) @13:30 (JPM: 6.0, Cons: 5.7); 4Q09 GDP price index secondary (%q/q, saar) @13:30 (Cons: 0.6); 4QGDP PCE core secondary (%q/q, saar) @13:30 (Prev; 1.4); Fed’s Duke speaks @14:00; Feb Chicago PMI (index) @14:45 (Cons: 59.7); Feb U. Michigan cons. conf. final (index) @14:55 (JPM: 74.0, Cons: 73.9); Jan existing home sale (mn, saar) @15:00 (JPM: 55, Cons: 5.5); US Monetary Policy forum event with comments by Fed’s Dudley and Kocherlakota @15:45 and Tarullo and Evans @18:30

Overnight price action

FX: JPY and USD broadly weakened while SEK strengthened the most.

FX vol: FX vols 0.4-0.5vols lower in the front end.

Commodities: Oil up 0.2% to $78.3 and gold up 0.4% to $1112.5/oz.

Bonds: European bonds showed little changes (Bunds 10yr yield up 1bp, Gilt 10yr yield up 3bp)

Equities: European equities traded firmly rising close to 1%.

Technical View for the day

The newest data releases were definitely not what risk lovers expected and led to a sell-off across board. It is however important to note that only a break below key-supports at 1079, at 1061 and ultimately below neckline support at 1048 in the S&P500 would break the bulls neck in favor of a much deeper setback. Sentiment wise though, markets seem to get increasingly nervous and particularly GBP has come under increased pressure showing major breaks in Cable at 1.5274, in EUR/GBP at 0.8854 and in GBP/JPY at 135.78 which imply that there is a lot more to come in terms of Sterling weakness. The Japanese JPY is again profiting from the latest stock market turmoil but the upside looks to be limited to 118.49 in EUR/JPY whereas GBP/JPY and USD/JPY have a bit more room to go before hitting their 76.4 % retracement’s at 129.33 and at 86.94. As for commodity currencies the risk of a broader setback has substantially increased but requires confirmation via breaks above 1.5417 in EUR/AUD, above 1.4458 in EUR/CAD or via a break above 1.9766 in EUR/NZD.

Research from the region you may have missed

Swedish economy looks to have started 1Q on a good note
https://mm.jpmorgan.com/stp/t/c.do?i=BE751-192&u=a_p*d_379919.html*h_-eiijh6p

JPM FX Techs: Trade Rec - Sell AUD/NZD
https://mm.jpmorgan.com/stp/t/c.do?i=BE049-42B&u=a_p*d_379511.pdf*h_-3eu2gcl

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