FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

Equities, Treasuries, and nearly every global currency save the USD are lower in a wild and somewhat perplexing NY session. The day began with a spectacular sell-off across the US Treasury market with yields ripping higher in morning trading, with no obvious catalysts to point to. This selling intensified following a terrible 5y auction in which 5yr notes came in 4bp cheap to pre-auction levels at 2.605%, and resulted in a bid/cover of only 2.55, which is the lowest since September. Currently, yields are 6-11bp higher in the short end, around 16bp higher in the belly, and 10-15bp higher father out the curve. The move in yields is helping to carry USD/JPY higher, with that pair hovering just over 92bp in afternoon trading. Meanwhile, the bloodshed continues for EUR, which continues to breakdown against the USD, touching new lows again in afternoon trading following Fitch’s downgrade of Portugal to 'AA-' this morning.

Earlier, we had the UK budget announcement which left us with little new information. All the criticism one could have levied against the government’s consolidation plans (insufficient urgency to cut the deficit - spending rises 2% next year in real terms; insufficient detail on spending cuts; over-reliance on over-optimistic growth forecast) remain valid. The ratings agencies will continue to tolerate the UK doing nothing, arguing that everything is up for grabs at the upcoming election. Also today, we had the Norges Bank policy rate announcement, which was more dovish than we (and markets) expected. The Norges Bank now forecasts the deposit rate level in 2010 to be 2% versus 2.25% in the October forecasts. For 2011 the average deposit rate is forecast to be 2.75% versus the prior forecast of 3.50%. Forecasts for growth and inflation were also revised lower respectively. In the accompanying statement, the Norges

Bank highlights disappointing growth in European markets, a downward revision on rate hike expectations overseas, and NOK strength for the downward revisions NOK was down sharply against the EUR following the policy announcement, and with the exception of JPY, is today’s worst currency against the USD.

In economic news today, the durable goods report featured a strong 0.5% increase in the headline orders number, a 1.1% increase in core capital goods orders and a 0.8% increase in core capital goods shipments. Separately, new home sales fell 2.2% in February to an annual rate of 308k representing a 2.2%m/m decline and worse than forecast. Despite this, following the series of dismal housing market data in recent months, bad news on that front doesn’t seem to phase the market much these days. Tomorrow the focus will be the Eurozone Leaders’ summit. Recent headlines have considerably dampened hopes for any type of resolution regarding Greece, but volatile swings across the G10 are likely regardless of the outcome.

Overnight news

GBP: Chancellor Darling presents pre-election budget, revealing little detail on spending cuts.

NOK: The Norges Bank kept rates on hold as expected at 1.75% and signaled that rates may rise again in the first half of the 2010. The statement and forecast profile were unambiguously dovish.

USD: Feb durable goods orders increased 0.5%m/m (JPM: -0.7, Cons: 0.6); Feb new home sales came in at 308k (saar) (JPM: 315, Cons: 315)

USD: The 5yr Treasury auction came in 4bp cheap to pre-auction levels at 2.605%, and resulted in a bid/cover of only 2.55, which is the lowest since September.

EUR: Euro area flash estimate of PMI is stronger than expected, rising to 53.7. German Ifo business survey is stronger than expected, rising to 98.1.

EUR: Fitch downgrades Portugal to AA- with a negative outlook.

SEK: Consumer confidence is stronger than expected at 15.5. Manufacturing confidence is weaker at +3.

JPY: February trade surplus recorded ¥651.0bn vs cons ¥560.6bn

JPY: Finance Minister Kan said he’s considering whether to set up regular meetings with the central bank and that the BoJ and the government are cooperating well.

NZD: 4Q current account deficit widened to -NZ$3.6bn vs cons -NZ$1.6bn

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

NZD: 4QGDP (%q/q, sa) @21:45 (JPM:0.6, Cons:0.8)

AUD: RBA Deputy Governor Lowe speaks @23:40

JPY: Feb corporate service prices (%oya) @23:50 (JPM: -1.3, Cons: -1.2)

AUD: RBA releases Financial Stability Review @ 00:30

JPY: BoJ’s Kamezaki to speak @ 01:30

EUR: Germany GFK consumer confidence (Index, sa) 07:00; M3 (%oya) for February @ 9:00; ECB president Trichet speaks at conference in Brussels @ 11:30; ECB’s Gonzalez-Paramo speaks in Madrid @ 11:30; European Council press conference @ 21:30

SEK: PPI (%oya) for February (Cons: 0.6) @ 08:30

GBP: Retail sales (%m/m, sa) for February (JPM: 1.5, Cons: 0.8) @ 09:30

USD: @ 12:30 Initial jobless claims (000s, sa) (Cons: 455); @ 13:10 Fed’s Pianalto speaks to Local Chamber of Commerce in Florida; @ 14:00 Fed Chaiman Bernanke testifies on exit strategy in rescheduled hearing

ZAR: @ 14:00 SARB rate announcement for Marh (JPM: 7, Cons:7)

Overnight price action

FX: EUR remains under broad based pressure as Greek worries and Portugal downgrade weigh on sentiment. JPY is sharply lower against the USD following increasing US yields.

FX vol: Front-end vol is bid.

Commodities: Oil and gold are both lower by around 1.5-2%

Bonds: US yields sharply higher across the curve.

Equities: US equities are lower by 0.4-0.6%.

Technical View for the day

The broad-based USD strength continued yesterday following the break through a number of important resistance levels. With EUR/USD violating the important range lows near 1.3430 and the Dollar Index extending through the critical 81.35 resistance area, the bullish USD backdrop remains firmly intact. In turn we see potential for EUR/USD to extend into the next line of key support near 1.3245/15 followed by the 1.3100 zone while maintaining short positions. Yesterday’s breakout in USD/JPY on the sharp backup in rates confirms the bullish USD view as the extension above a range of resistance between 91.00 and 92.16 confirms a bullish character shift. This argues for an extension of the advance that began with the November low. As such, we see prices seeking a test, if not break of the 93.79 January high. Note that the commodity currencies are still quite range-bound as the short term themes remain intact, but we are carefully monitoring for signs that the bull USD trends extends. Still, the action remains corrective and so far is holding key short term levels while maintaining the range bias. AUD/USD has pulled back into the .9073/.9055 support zone as the action is likely to be more two-sided. Again, this follows last week’s failure at the .9250 November downtrendline. NZD/USD maintains the short term consolidation phase after failing to extend through the key .7155 resistance area. The retracement in USD/CAD continues to develop following the break back above the key 1.02/1.0230 zone, but the price action reflects a corrective bias while maintaining the bullish CAD view. The 1.0320/1.0370 area will continue to act as key resistance.

ENDS

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