FX Daily Planet: London Open

FX Daily Planet: London Open

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View for the day

Despite the strong US earnings announced after NY trading hours, Asian equity markets traded with a weak tone, though the decline for the most countries was relatively modest. JPY broadly strengthened against the majors and USD appreciated against non-JPY majors while AUD underperformed the most among the G-10 currencies. RBA governor Stevens’ comments stating “rates are pretty close to average” weighed on AUD. Front end vols in JPY-crosses traded higher by 0.2-0.3 vols given the yen strength in the spot market.

The climate surrounding Greece has deteriorated further and the growing concern over the Greek issue has affected EUR negatively; EUR has been underperforming over the past few days where German-Greek spread and Greek CDS spread have been widening significantly. However, the impact of this problem on the stock market is not as clear as on EUR. Indeed, European stocks had traded firmly despite the widening German- Greek and CDS spread until early this week. In the past two days, however, deterioration in the Greek situation has hit European stocks severely (notably, European equities were sold-off yesterday despite the strong April PMI data in the region). This may imply that the Greek issue is starting to affect European equities negatively. Meanwhile, the US equities kept its firm tone supported by solid results from the US earnings. Thus, at this time, the main diver of European equities is the Greek issue while US equities take its lead from fundamentals reflected in economic data and earnings releases. Therefore, today, we should focus on the relevant headlines surrounding the Greek fiscal story and the US economic data (March Durable orders, New home Sales). We believe March durable orders to be significantly stronger than consensus.

We also have some important data outside of the US including 1Q GDP from UK, March CPI and February Retail sales from Canada, and April Ifo survey from Germany. That said judging from yesterday’s market reaction, it is unlikely to see EUR outperform even if we receive strong result from German Ifo survey. Meanwhile, if Canadian CPI comes in at a strong side, it should heighten speculation on more aggressive hikes from the BoC, which would be CAD-supportive. Finally, G20 finance minister/central bank governor meeting will be held in Washington D.C. Considering recent comments by the authorities, today’s main topic should be financial regulations and not FX, including CNY. However, we should still watch out for the relevant soundbites.

Overnight news

JPY: February all industry activity index -2.3%m/m vs -1.6% consensus.

JPY: Fitch Ratings affirmed Japan’s sovereign ratings outlook at stable while saying it sees downward pressure on Japan’s creditworthiness as government debt rises.

AUD: RBA Governor Stevens said “Our task is now to manage a new economic upswing,”, “If the economy is growing close to trend, and inflation is close to target, one would expect interest rates to be pretty close to average”

NZD: March credit card spending rose 12%m/m vs -0.3% in the previous month.

UK election: Of four surveys released immediately after the U.K. campaign’s second debate, two showed Liberal Democrat Clegg won while a pair favoured Conservatives Cameron.

US earnings: Microsoft 1Q earnings at $0.45 vs $0.42; American Express 1Q earnings at $0.73 vs $0.63 estimate; Amazon.com 1Q earnings at $0.66 vs $0.61 estimate.

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

EUR: ECB’s Gonzalez-Paramo, Fed’s Kohn speak in Frankfurt @8:00; Germany Apr IFO business survey (index, sa) @9:00 (JPM: 98.8, Cons: 98.7); Feb industrial new orders (%m/m, sa) @10:00 (Cons: 0.8); Belgium Apr BNB business confidence (%bal of responses, sa) @ 14:00 (Cons: -2.6); Portuguese March budget releases

GBP: 1Q GDP flash (%q/q, sa) @9:30 (JPM: 0.4, Cons: 0.4)

USD: Mar durable goods orders (%m/m, sa) @13:30 (JPM: 1.3, Cons: 0.2); Mar new home sales (000s, saar) @15:00 (JPM: 325, Cons: 325)

CAD: Mar CPI (%oya) @12:00 (JPM: 1.7, Cons: 1.6); Mar CPI core (%oya) @12:00 (JPM: 1.9, Cons: 2.0); Feb retail sales (%m/m, sa) @13:30 (JPM: 0.6, Cons: 1.0); Feb retail sales ex autos (%m/m, sa) @13:30 (JPM: 0.1, Cons: 0.5)

Int’l: G20 meeting of Finance Ministers and Central Bank Governors in Washington D.C.

Overnight price action

FX: JPY and USD outperformed the most while AUD underperformed the most falling 0.7% against USD.

FX vol: USD/JPY vols remained little changed while front end vols in JPY crosses slightly rose by 0.2-0.3vols.

Commodities: gold down 0.3% to $1139.1; oil down 0.1% to $83.6

Bonds: JGB yields remain broadly unchanged across the curve.

Equities: Asian equities a tad lower with the Nikkei and the Shanghai both falling 0.3%.

Technical View for the day

With the Greek-German yield spread reaching levels last seen in 1998 the tension is rising further while the EUR has already broken its March low at 1.3267. Given the mounting helplessness of how this crisis could effectively be solved it looks to be a question of time only until projected price targets at 1.3093/81 are challenged. If these fail to provide support the market would indicate a straight extension to 1.2881/00 and 1.2671 where major trend line supports would open the door for a temporary recovery. In this context EUR/GBP has broken key-triangle support at 0.8677/70 what would receive additional confirmation on a break below the last low at 0.8600. Such a break would leave no doubt that the June 09 low at 0.8400 would be in focus again with a good chance to prolong the decline into key-Fib.-support at 0.8249. The picture in commodity currencies still shows an increased consolidation risk as long as key-supports at 1.3290/75 in EUR/CAD, at 1.8567/1.8247 in EUR/NZD and at 78417/7.8393 in EUR/NOK are not broken decisively. A similar setup is given in EUR/SEK where only a decisive break below weekly trend line support at 9.5890 (i.e. a 9.5800 print) would delay the risk of a strong countertrend rally towards 9.8560 or 9.9437 in favor of an extension to 9.3766 or 8.9300.

Research from the region you may have missed

Aussie terms of trade rose in 1Q, but the best is yet to come

https://mm.jpmorgan.com/stp/t/c.do?i=D3E43-168&u=a_p*d_402314.pdf*h_-1gc3qj5

RBA Governor Stevens reiterates growth challenges

https://mm.jpmorgan.com/stp/t/c.do?i=D3F01-168&u=a_p*d_402361.pdf*h_31uoqjlh

ENDS

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