FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

Greece remains a focus in FX markets. Greek 10-year spreads over Bunds hit a new high and the EUR fell precipitously overnight, but both have recovered some in New York trading. Several factors resulted in the EUR regaining much of its lost ground today. Early on, generally supportive comments from Trichet included statements that "governments of EMU have to be up to their responsibilities" and that "default not an issue for Greece." Later, a Greek Finance Minister reported that the Q1 deficit is EUR4.3bn. These numbers are very constructive: the deficit at EUR 4.3bn is well below the EUR 52bn run rate that would meet Greece's target of cutting the deficit to 8.7% of GDP this year. In addition, the figure was not officially due until around April 10. The early news was likely a short-term positive EUR/USD in afternoon trading. Despite this, conflicting headlines and considerable lingering uncertainty remain a hurdle for EUR. The next test is Greece's launch of next bond issue. So far, no date has been given, but they will require EUR10bn to meet May refunding. April borrowing is already complete. In addition, next week's Ecofin meeting (April 17-18) is important for further daylight on Greece. A strong reaffirmation of Greece's intention to abide by its agreement with the European Commission and other EMU members, along with expressions of support from key Finance Ministers should help to further calm market concerns, put downward pressure on intra-EMU spreads and support EUR.

Elsewhere in markets, equities opened lower, only to rally slow-and-steady all day, currently trading up around 0.3% in afternoon trading. Yields are modestly higher across the curve, by about 1bp in the short-end, and 3bp farther out the curve, despite a fairly strong reopening in the long bond. In economic news, today’s initial claims report resulted in claims rising to 460k, a disappointing result compared to previous weeks. Despite this, Labor Department officials cautioned that seasonal adjustment of the week containing Good Friday tends to add significant volatility to the number at this time of the year. We will likely have to wait for next week to get a clearer picture of the trend in claims data. Tomorrow is a light day for economic data with no notable releases in the Asian session, trade balance data from Germany, and IP data in Sweden.

Overnight news

USD: Mar. 27th initial jobless claims increased to 460k (JPM: 435, Cons: 435)

USD: Today’s 30y bond reopening auction resulted in a yield of 4.770% which was less than 1bp higher than pre-auction level, with a bid/cover of 2.73 and with 62.3% going to end users.

EUR : ECB rate announcement left rates unchanged. Trichet reported that the ECB will maintain the minimum ratings threshold for acceptable collateral and that there will be a new scale of haircuts for BBB- rated assets.

EUR: Greece finance minister reported a Q1 deficit of EUR4.3bn.

EUR: Trichet: “Strong focus on spending reform is needed”; “governments of EMU have to be up to their responsibilities"; "default not an issue for Greece."

GBP: Halifax house price index is stronger than expected rising 1.1% m/m. Manufacturing production is stronger than expected, rising 1.3% m/m.

EUR: Greek-German 10yr bond yield spreads widened to record levels at 453bps. German industrial production is weaker than expected.

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

EUR: Germany trade balance (EURbn, nsa) @ 06:00;

SEK: IP (%m/m, sa) for March @ 07:30

Overnight price action

FX: CAD, NOK and SEK are higher by 0.3-0.4%.

FX vol: Front-end vol is slightly higher.

Commodities: gold is flat and oil is slightly higher.

Bonds: Yields are about 1-3bp higher across the curve.

Equities: US equities are higher by 0.3%.

Technical View for the day

The USD reversed course yesterday as the early strength failed to extend on the back of a recovery in equities and improvement in risk. Still, it is important to note that a number of USD pairs held key levels yesterday highlighted by the recent 1.3627 low for EUR/USD, as well as near term support for Cable at 1.5130. Moreover, USD/NOK effectively held the 6.00 short term support area. As we monitor for follow-through today, note the short term setup continues to suggest additional corrective/consolidation action. Still, we continue to see downside risk for EUR/USD despite yesterday’s test and hold of key support with the focus on the 1.31 target area.

With regards to the commodity currencies, yesterday’s reversals are in line with additional two-sided action. However, it is important to note that much like the European currencies, key near term levels held in yesterday. This setup is highlighted by the upside reversal day in AUD/USD after holding key support at this week’s breakout area near .9225. Also, USD/CAD held well below the important 1.0130/40 resistance zone which includes the downtrendline from the late-February high which should continue to hold to maintain the more immediate downside bias.

Our other key focus remains on JPY with yesterday’s price action suggesting the recent trends may still have residual strength particularly given the bullish reversals in the likes of AUD/JPY and CAD/JPY. Still, the near term risks point to additional consolidation, but still within the context of the Feb-March trends. Again, we note that the short term setup is overbought, but the lack of momentum divergences leaves the door open to an extension, as we look to yesterday’s lows as key support levels now.

For USD/JPY, the setup remains two-sided following the failure and reversal from the key 95 resistance area. Importantly, key support in the 92.90/80 area has thus far held and should remain intact if a shift back to the recent highs is supposed to develop.

ENDS

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