FX Daily Planet: London Open

FX Daily Planet: London Open

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View for the day

Lingering uncertainties surrounding the Greek issue has hurt investor’s risk appetites in the Friday Asian session, though there was no major news from Asian countries. Asian equities broadly declined with the Nikkei underperformance (-1.5%) standing out. Given the underperformance in equities, JPY became the strongest currency within the G-10 camp. USD, which declined 0.3% against JPY rose 0.2-0.5% against other majors, emerging as the 2nd strongest while AUD and GBP weakened the most. USD/Asia broadly traded higher with KRW, MYR and SGD underperforming (note that, these currencies had outperformed after the unprecedented monetary tightening by the MAS on Wednesday). USD/CNY NDFs rebounded modestly in the absence of major news from China. In the FX vol space, short-end USD/JPY vols traded higher by 0.2-0.3 vols with USD/JPY testing the lower-end of its trading range for the past weeks.

The relevant headlines for the Greek issue will remain the main driver of FX markets in the European session. Some soundbites are expected as the European financial ministers and central bankers’ informal meeting will be held in Madrid today and will continue through the weekend. On the economic data front, Mar. CPI from the euro area, Mar. housing starts, building permits and Apr Michigan Univ. consumer sentiment from the US are due for release.

Overnight news

CNY: The China Banking Regulatory Commission said China will crackdown on fraudulent home loans; The banking regulator also called for prudent management of property development loans and mortgage down payment ratios according to the statement published on its website today.

CNY: ADB Chief Economist Lee said “This is the time for the Chinese authorities to take action to allow great flexibility of the Chinese yuan”.

CNY: Singapore PM Lee said “I think they (China) really should revert to where they were before the crisis and allow the yuan to go up gently again”.

NZD: March REINZ housing price index rose 1.8%m/m vs 0.4% in the previous month..

USD: San Francisco Fed President Yellen said she’s increasingly certain the U.S. economy is “on the right track,” and that officials will “at some point” need to lift borrowing costs. She still said, “it’s important not to lose sight of just how fragile this recovery is,” while reaffirming the Fed’s pledge to keep the benchmark U.S. interest rate low for an “extended period”.

EUR: UK Telegraph reported that a financial institution warned that the Greek issue could prompt Germany’s eventual withdrawal from the EMU.

GBP: Two properly conducted instant polls following the debate, carried out by YouGov and ComRes both show Liberal Democrat Nick Clegg winning, Cameron second and Brown last (YouGov has NC51, DC29, GB19. ComRes has NC 46, DC 26, GB 20).

US earnings: Google Q1 10 earnings came in at $6.76 vs $6.62 estimate.

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

CHF: Mar producer and import prices (%oya) @8:15 (Cons: -0.1)

EUR: EU Finance Chiefs, Central Bankers in Madrid: informal EcoFin; Mar HICP final (%oya) @10:00 (JPM:1.0, Cons: 1.5); Mar HICP core final (%oya) @10:00 (JPM: 1.5, Cons: 0.9); Feb trade balance (EUR bn, sa) @10:00 (Cons: 3.0)

USD: Mar housing starts (000s, saar) @13:30 (JPM: 620, Cons: 610); Mar building permits (000s, saar) @13:30 (JPM: 620, Cons: 625); Fed’s Warsh speaks on ‘Beyond the Exit’; Mar U. Michigan consumer confidence (index) @14:55 (JPM: 74.5, Cons: 75.0); Fed’s Hoenig speaks on Financial Crisis @18:00; Bank of America earnings for 1Q @Bef-mkt (Cons : 0.157) ; GE earnings for 1Q @Bef-mkt (Cons : 0.096)

MXN: Banxico rate announcement @15:00 (JPM: 4.50)

Overnight price action

FX: JPY outperformed the most, rising 0.3% against the second strongest USD; AUD underperformed the most falling 0.5% followed by GBP falling 0.4% against USD.

FX vol: USD/JPY vols higher across the curve and mainly in the front end; 1m vol up 03vols.

Commodities: oil price plunged 0.8% to $84.8/barrel and gold also fell 0.4% to $1155.7/oz.

Bonds: JGB yields dropped 2-3bps in 7 to 10yr sectors.

Equities: Asian equities dropped quite sharply with the Nikkei falling 1.5% and the Shanghai falling 0.8%.

Technical View for the day

In a rather lackluster trading week so far there are a few things sticking out which could be part of a major regime change One is the general weakness of the JPY which raises the question whether we might have started a broader JPY downtrend and the other remarkable development of the last weeks is the strength of GBP across board. The JPY issue seems not to be as imminent as the GBP issue where we have already experienced major upside breaks or where confirming breaks supporting a long-term turnaround are close by. Key-barriers to watch in this respect are at 0.8743 & 0.8671 in EUR/GBP, at 1.5584 & 1.5709 in Cable, at 147.53/148.55 in GBP/JPY and at 1.6673 in GBP/CHF. Once these are broken decisively the story of a weak Pound would have most likely come to a premature end. As for EUR/USD the very short-term picture has become a bit blurry but in general the downtrend seems to be intact as long as key-resistance between 1.3769 and 1.3840 is not taken out. It however takes a break below 1.3379 to re-confirm the 1.3093/81 bear-target. For risk in general, keep an eye on a massive resistance barrier at 1215/22/29 in the S&P500 as a failure to clear the latter could be fatal as the risk of running into a major setback is fairly high underneath.

Research from the region you may have missed:

House prices in New Zealand rose unexpectedly in March
New Zealand Economic Update

ENDS

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