FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

Equities managed to rebound following Friday’s losses and are trading higher by 0.5% at time of writing, helping high beta currencies to take back much of the sharp overnight losses as a result. GBP and JPY are today’s biggest gainers, up around 0.5% against the USD. Even EUR is managing a smallish 0.2% gain on the day despite comments from German Chancellor Merkel that downplayed the prospects for agreement on aid for Greece at this week’s key summit of European Leaders (Merkel argued that Greece is not insolvent and that therefore the question of assistance should not come up). There is an increasing sense of brinkmanship between Greece and Germany ahead of the Thursday/Friday summit, which is only liable to get worse and keep EUR/USD under pressure. There have been no significant US data releases during the session. Tomorrow features the BoJ minutes in Japan, inflation data and CBI distributive trades data from the UK and housing market data later in the US session.

Overnight news

EUR: German Chancellor Merkel said EU leaders must not create illusions for markets by building expectations for Greek aid (at this week’s Leader’ summit). German government said that Merkel spoke directly to Greek PM Papandreou over the weekend. IMF’s Lipsky says ready to be helpful as Greek government deems appropriate.

EUR: Germans overwhelmingly oppose Greek aid. 40% say would be better off without the euro – FT poll.

USD: House of Representatives pass healthcare bill by 219-212.

GBP: Chancellor Darling says this week’s UK budget will be focused on growth. Emphasizes there will be no giveaways.

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

JPY: @ 23.50 BoJ releases minutes for Feb

GBP: @ 09.30 CPI (%oya) for Feb (JPM: 3.0, Cons: 3.1); @ 09:30 Core CPI (%oya) for February; CBI survey of distributive trades (%bal) for March

USD: Existing home sales (mn, saar); FHFA house price index (%oya) ; Fed’s Yellen speaks on US economy

Overnight price action

FX: High beta rebounds as US equities rally.

FX vol: Front-end vol is under pressure as risk markets rally.

Commodities: Oil is higher by 0.7% and gold is down by 0.6%.

Bonds: US yields are lower by 2bp in the front end, 5bp in the belly, and 1-3bp farther out the curve.

Equities: US equities are higher by 0.5%.

Technical View for the day

The USD traded a downside reversal day yesterday while consolidating the advance from last week’s low as equities recovered. Still, the short term themes remain intact. Again, the focus is on the key USD resistance levels following last week’s bullish shift, as these levels should define whether an extension to the medium term trends is underway. Last week’s reversals from the key USD support levels highlighted by the 79.50 area for the Dollar Index and the 1.3850 zone for EUR/USD developed in an impulsive manner while raising the risk of additional follow-through. Moreover, last week’s bullish USD reversals for both seem in line with further USD strength as well. Still, another reversal at the USD range highs would suggest an increased risk that the broader range is very much intact. GBP led the way yesterday with Cable holding nearby support levels. Note that we have exited the long EUR/GBP and GBP/CHF trades as the short term risks point to a consolidation phase. While AUD/USD held key initial support yesterday at the February uptrendline, we still see room for additional near term consolidation following last week’s test of the November downtrendline. Similarly, NZD/USD looks vulnerable to additional consolidation after failing to extend through the key .7155 resistance area. Note that we see potential for the underperformance bias to kick in again as AUD/NZD has held the 1.2860 support area while EUR/NZD is positioned for a short term corrective phase. Moreover, Friday’s bearish reversal in NZD/CAD suggests a higher risk that the corrective phase from this month’s low is now complete as we maintain short positions. Importantly, this fits with the bullish CAD view and while the near term setup suggests additional corrective work for USD/CAD, the breakdown below the medium term range low should allow for a closer test, if not break of the 1.00/.9975 support zone. The range bias for USD/JPY remains firmly intact while consolidating below critical 91.00/65 resistance in the zone. Importantly, a break above this area is necessary to reassert the upside bias for a retest of the January, if not February highs. Again, the key nearby support levels continue to hold starting in the 89.75/65 area.

ENDS

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