FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

Equities traded sideways today, managing to hold within fairly narrow ranges despite mixed economic news. The EUR remains subject to broad weakness as Greek 10yr bond yield spreads over Germany widen back to the highs seen last week. There have been no significant developments or news flow during the overnight session to drive this move though there remains some concern that the Greek funding may be subject to legal action in Germany. GBP has been the best performing European currency despite softer than expected consumer confidence data. An opinion poll published in the Daily Telegraph suggests that the Conservative Party is currently 12% ahead in key marginal seats where the election will be won and lost. GBP continues to be driven by the ebb and flow of opinion flows and that is likely to intensify in the next 24 hours as this evening’s live TV debate of the leaders of the major parties will likely be followed by a number of polls.

On the economic data front today, weekly initial jobless claims increased to 484k, considerably worse than expectations. Despite this, the print was accompanied by statements that the recent increase in claims is attributable to an administrative backlog. All-in-all, this leaves us with a fairly murky picture in claims and we will likely have to wait a few weeks for clarification. Later we received Industrial production which disappointed by increasing 0.1% versus expectations for a 0.7% increase. The regional manufacturing surveys released today, the Empire Manufacturing Index and the Philadelphia business conditions index both increased. The Empire State survey increased to 31.9 from 22.9 in March and the Philly index moved to 20.2 from 18.9. These healthy increases continue to point to healthy expansion in manufacturing and business activity. Finally, the NAHB index increased nicely by 3pts to 19. Tomorrow features a light data calendar until the US session when housing starts, building permits and consumer confidence are all due.

Overnight news

USD: Apr 10th initial jobless claims increased to 484k (JPM: 440, Cons: 460); Apr Empire state mfg. survey (DI, sa) was 31.86 (JPM: 20.0, Cons: 24.0); Mar IP increased 0.1%m/m (JPM: 1.2, Cons: 0.6); Mar capacity utilization was 73.2% (JPM: 73.6, Cons: 73.3); Apr Philadelphia Fed index (DI, sa) increased to 20.2 (JPM: 17.0, Cons: 20.0); Apr NAHB housing market index (index, sa) increased to 19 (JPM: 16.0, Cons: 17.0); Google reports Q1 EPS (non-GAAP) of $6.76, better than forecast.

EUR: Greece-German 10yr bond yield spread widens to over 400bps. WSJ reports that Greece may scrap its global USD bond issue due to lack US investor interest.

GBP: The Daily Telegraph reports that the Conservative party currently has a 12% lead in key marginal seats.

SEK: Swedish government revises down its growth projections for 2010 but raises its forecasts for the report rate from 0.5% to 1%.

Today’s watchlist (all times BST; +9hrs for Sydney, +8hrs for Tokyo, -5hrs for New York)

CHF: Producer and import prices (%m/m) for Feb

EUR: EU Finance Chiefs, Central Bankers in Madrid: informal EcoFin @ 08:30; HICP final (%oya) for March (Cons: 1.5, JPM: 1.5); HICP core final (%oya) (Cons: 0.9) @ 10:00

USD: Housing starts (000s, saar) (Cons: 610); Building permits (000s, saar) for March (Cons: 623) @ 13:30; Fed’s Warsh speaks on ‘Beyond the Exit’; UMichigan consumer confidence (index) (Cons: 75) @ 14:55

CAD: Retail sales (%m/m, sa) for Feb (Cons: 0.9) @ 13:30

Overnight price action

FX: EUR is under broad based pressure while GBP rallies. The USD is broadly higher.

FX vol: Front-end vols continue to despite USD and JPY rebound.

Commodities: Oil is slightly lower and gold is about flat.

Bonds: Yields are lower by 4-5bp in the front end, and 2-4bp farther out the curve resulting in a slight steepening of 2/10s to 2.82.

Equities: US equities are about flat on the day.

Technical View for the day

The action in the USD stays mixed after yesterday's upside retracement. While the bounce raises the risk of additional strength, we note that Monday's key pivot levels held during yesterday action. Again, the 80.75/80.87 area for the DXY which includes Monday’s gap down should now define whether a deeper retracement of the decline from this month’s high can develop. Moreover, upside breaks suggest the consolidation phase below the March high is still firmly intact. Similarly, EUR/USD held the key 1.3500/20 zone which was Monday’s breakout area. Despite the sharp advance in EUR/USD, the 1.3770/1.3850 resistance zone remains the critical test in terms of defining whether a deeper extension is underway. Note that GBP/USD continued to push higher as the short term rally phase remains intact while approaching the next line of key resistance in the 1.5575/1.5620 zone. Again, while above the 1.5377 support area, the near term risks suggest a slight positive bias. In turn, the impulsive reversal in EUR/GBP suggests a closer test of the .8743/.8670 targets.

The short term range continues to develop USD/JPY, while the setup suggests additional two-sided action is likely following the failure and reversal from the key 95 resistance area. The 92.60/55 area will act as key support now and should continue to hold to maintain the potential for a more immediate push higher. Still, we continue to focus on US2s and the key 1.00% area which should continue to hold to argue for a deeper backup in rates and bullish shift for USD/JPY.

For the commodity currencies, the focus remains on AUD/USD as the critical levels remain well-defined. After holding the .9225/00 support area and prior week breakout zone, prices have shifted back to the .9407 November peak and medium term range high. Again, while this support area holds, the more immediate setup suggests additional upside. We see an important test for NZD/USD as well with prices pausing against the .7185/.7200 resistance zone. Again, this area includes the March high and 61.8% retracement from the January peak and will define whether a deeper retracement is underway.

ENDS

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