FX Daily Planet: London Open

FX Daily Planet: London Open

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View for the day

Only major mover in the Asian session was NZD, which declined 0.7% against USD on IMF estimation suggesting NZD is overvalued by 10-25%. Other majors stayed in tight ranges against USD. The March BoJ Tankan survey was largely in line with consensus confirming the modest improvement in Japan’s business sentiment. Our economists believe that the result should not have any big impact on the BoJ policy. Relatively solid results in the Tankan survey seem to have provided some support for the Nikkei which rallied by 1.3%. Interestingly, however, a broad rally in the Asian equity indices, including the Nikkei, did not lead to JPY’s underperformance. USD/Asia traded lower with the strength in the regional equity markets. The Shanghai index rallied by 1% in part because two manufacturing PMIs from the country recorded solid gains in March. However, it didn’t seem to have much effect on the speculation over the CNY revaluation with 12-month USD/CNY NDFs largely unchanged.

In the London session, manufacturing PMIs from various European countries will come in. If these figures confirm the upward momentum in the European economies, outperformance in the European currencies seen yesterday is likely to be extended. In the New York session, the focus will be on March manufacturing ISM, weekly initial jobless claims. We are slightly more bullish on the jobless claims than consensus. If this is correct, it could heighten speculation on the strong result of the non-farm payrolls and heighten an upward pressure on US equities and long-term US yields. Although it should be seen as JPY-negative, the implication for USD is mixed as higher US yields should support USD while US equity rallies should depress USD at the cost of high betas.

Overnight news

NZD: The IMF estimates that the NZD is presently overvalued by 10-25% and said “Part of the over valuation may be temporary and the exchange rate may depreciate as the interest rate differential narrow with eventual tightening by the US Federal Reserve”.

JPY: March BoJ Tankan generally in line with consensus; large mfg index and outlook in line with expectation at -14 and -8 respectively; large non-mfg index at -14 vs -18 consensus; large all industry Capex for FY2010 in line with expectation at -0.4%oya.

JPY: Foreign investors turned net sellers of Japanese equities in the latest week, net selling ¥274.4bn after net purchasing ¥127.6bn in the preceding week.

AUD: Feb trade deficit widened to –A$19.2bn vs -A$13.4bn consensus.

CNY: China March official PMI mfg almost in line with expectation rising to 55.1 from 52.0 (consensus: 55.0); March HSBC PMI mfg also rose to 57.0 from 55.8 in February.

CNY: The PBoC sold three-month bills at a yield of 1.4088%, unchanged for a ninth sale in a row.

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

SEK: Mar. PMI mfg. (%bal, sa) @6:30 (Cons: 62.0)

CHF: Mar PMI mfg. (%bal, sa) @7:30 (JPM: 58.5, Cons.: 59.0)

NOK: Mar. PMI mfg. (%bal, sa) @7:00 (Cons: 50.7)

EUR: Germany Mar PMI mfg. final (index, sa) @7:55 (JPM: 59.6, Cons: 59.6); Mar PMI mfg. final (index, sa) @8:00 (JPM: 56.3, Cons: 56.3);

GBP: Mar PMI mfg. (index, sa) @8:30 (JPM: 56.8, Cons: 56.8)

USD: Mar challenger layoffs (%oya) @11:30 (Prev: -77.4); Mar 27th initial jobless claims (000s, sa) @12:30 (JPM: 435, Cons: 440); Mar ISM mfg. (index, sa) @14:00 (JPM: 57.0, Cons: 57.0); Feb construction spending (%m/m, sa) @14:00 (JPM: -1.3, Cons: -1.0); Fed’s Bullard speaks @20:00; Fed’s Dudley speaks @21:00

JPY: Mar monetary base (%oya) @23:50 (Prev: 2.2)

Overnight price action

FX: NZD underperforming the most falling 0.7% against USD, whilst CAD outperforms the most rising 0.2% against USD.

FX vol: FX vols remained unchanged across the board.

Commodities: gold down 0.1%, oil down 0.4%.

Bonds: JGB yields slightly down in the medium to long end but only by 1-2bp.

Equities: Asian equities on rally with both the Nikkei and the Shanghai rising close to 1% on the day.

Technical View for the day

The key-theme at the moment looks to be the weakness of the JPY and the conclusive question whether we might experience a major shift in trend. As USD/JPY was the forerunner in this whole process the latter might also be the first one delivering evidence in this context by breaking above the previous top at 93.79. Equivalent break levels which would indicate a broader setback of the JPY are at 126.88/127.47 in EUR/JPY and at 143.62 in GBP/JPY. Such breaks would not deliver the final confirmation that a long-term reversal took place but would open significant down-potential for the JPY to 99.85 and 101.45/69 in USD/JPY which can be seen as the decisive resistance zone in the big picture where bulls and bears would have to fight it out. GBP on the other hand shows temporary signs of strength but would need to clear 1.5245 in Cable in order to call for a stronger consolidation up to key-resistance between 1.5424 and 1.5584. Equivalent break levels are at 0.8844 in EUR/GBP and at 1.6298/1.6316 in GBP/CHF and unless these are taken out GBP remains on thin ice.

Research from the region you may have missed

RBA to leave the cash rate steady next Tuesday

https://mm.jpmorgan.com/stp/t/c.do?i=CB39D-166&u=a_p*d_392659.pdf*h_-2po6i8m

Aussie trade deficit blew back out in February

https://mm.jpmorgan.com/stp/t/c.do?i=CB4A1-166&u=a_p*d_392746.pdf*h_-1ecs654

ENDS

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