FX Daily Planet: London Open

FX Daily Planet: London Open

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View for the day

A firm tone in the risk markets which was seen in the overnight session on Thursday due to an improvement in the market sentiment to the Greek issue was carried over into the Friday Asian session. However, the spill-over of the firmness in the equity markets into the currency market was limited. The BoJ left monetary policy unchanged as broadly expected, but the statement unexpectedly revealed that the governor Shirakawa has instructed staff to examine and report on another occasion on possible ways to support private financial institutions in terms of fund provisioning with a view to strengthening the foundations for economic growth. Although the details are not clear at this stage, it may suggest that additional easing measures will come in soon But it only had little impact both for rates and FX markets. The next immediate focus will be the release of the BoJ Outlook Report at GMT0600. We believe that growth rate and inflation forecasts to be revised upward with the most important point being the magnitude of modification made in CPI forecast for FY2011. We expect it to be revised up to +0.1% from -0.2% in the previous Outlook Report.

The negative impact of Greek concerns in investors’ risk appetite seems to have receded recently. However, the situation is still far from clear and investors’ risk appetite influenced by this issue remains the main factor driving the currencies. We should pay attention to the decision that will be made by EU and IMF regarding the Greek rescue program which will be announced soon. Media reports that Greece will impose austerity measures such as 3 years of salary cuts for Greek public sector employees and raising VAT. On the economic data front, April HICP flash will be released from Euro Zone and US real GDP, April Chicago PMI, consumer sentiment will be announced from US during London and NY session.

Overnight news

JPY: April PMI advanced to 53.5 vs previous 52.4; March household spending at 4.4%m/m vs 0.7% consensus; March unemployment rate at 5.0% vs 4.9% cons. and job-to-applicant ratio 0.49 vs 0.48 cons; April Tokyo CPIs, both headine and core, stronger than consensus (headline -1.5% vs cons. -2.1%, core -1.9% vs cons -2.1%) while nation-wide figures for March were in line with consensus. March IP weaker at +0.3% vs +0.8% cons with production forecasts at +3.7% m/m for April and -0.3% for May.

JPY: Japanese investors turned net sellers of foreign bonds, net selling ¥100.6bn, after three consecutive weeks of large scaled net buying, while also net selling Japanese stocks by ¥34.9bn.

JPY: Finance Minister Kan said “(subsidy on high school tuition) should have impact of pushing down over-year-ago CPI by roughly 0.5% point for the next 12 months”

JPY: The BoJ left monetary policy unchanged by a unanimous vote as broadly expected but the statement unexpectedly revealed that the governor Shirakawa has instructed staff to examine and report on another occasion on possible ways to support private financial institutions in terms of fund provisioning.

EUR: European Commission President Barroso said he is confident that a rescue package for the Greek government will be completed “in days”.

AUD: March private sector credit growth slightly higher at 0.5%m/m vs 0.4% consensus.

GBP: April Gfk consumer survey -16 vs -15 consensus.

US earnings: Metlife earnings for 1Q at $1.01 vs $0.98 estimate

UK election: Three instant-reaction polls showed Conservative leader Cameron won the final debate of the U.K. election campaign; YoGov Plc poll showed 41%, Comres Ltd. 35% and ICM Ltd. 35% of the viewers favouring Cameron.

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

NOK: Apr unemployment rate (%, sa) @8:00 (Cons: 3.0)

EUR: Apr HICP flash (%oya) @10:00 (JPM: 1.6, Cons: 1.5); Mar unemployment rate (%, sa) @10:00 (JPM: 10.0, Cons: 10.0)

CHF: Apr KOF leading indicator (index, sa) @9:30 (JPM: 2.00, Cons: 1.99)

USD: 1Q10 GDP advance (%q/q, saar) @13:30 (JPM: 3.0, Cons: 3.3); 1Q10 GDP personal consumption advance (%q/q, saar) @13:30 (JPM: 3.1, Cons: 3.1); 1Q10 GDP price index advance (%q/q, saar) @13:30 (JPM: 0.5, Cons: 0.9); 1Q10 GDP PCE core advance (%q/q, saar) @13:30 (JPM: 0.6, Cons; 0.4); 1Q10 employment cost index (%q/q, sa) @13:30 (JPM: 0.4, Cons: 0.5); Apr Chicago PMI (index) @14:45 (Cons: 60.0); Apr U. Michigan cons. conf. final (index) @14:55 (JPM: 71.0, Cons: 71.0)

CAD: Mar Industrial PPI (%m/m) @13:30 (JPM: -0.5); Feb monthly GDP (%m/m, sa) @13:30 (JPM: 0.2, Cons: 0.4)

Overnight price action

FX: G-10 FX trading in tight ranges with AUD outperforming the most rising 0.3% against the most underperforming USD

FX vol: no notable move in implied vols across the board with 0.2-0.3vols decline in NZD/USD and AUD/USD front end vols being the biggest move

Commodities: gold up 0.4% to $1173.4/oz; oil up 0.4% to $85.5/barrel

Bonds: JGB yields remained broadly unchanged across the curve

Equities: mixed performance in Asian equities with the Nikkei rising 1.4% and the Shanghai falling 1.0%

Technical View for the day

Within 48 hours the turmoil around the downgrading of Greece, Portugal and Spain dissolved and markets returned to their risk-positive trading behavior as if nothing had happened. The European markets which are naturally underperforming under given circumstances are lagging behind but are being dragged by the US markets which are still in good shape with key-support in the S&P500 at 1169 untouched so far. That said the resumption of the prevailing trends looks like a done deal but is still facing the residual risk that the 76.4 % retracement of the latest down-consolidation (i.e. 1211 in the S&P500) are not taken out A failure to do so could deliver fresh support for the idea that markets have switched to the consolidation mode what would put renewed pressure on CE3.- and potentially also on commodities currencies which traded rock-stable during the latest risk sell-off. As for EUR/USD chances of performing a stronger bounce towards 1.3674 have surely improved after having basically reached a projected target cluster at 1.3093/81 but as long as first resistance at 1.3330 is not taken out, uncertainty still rules and 1.3081 remains at risk. Below the latter the EUR bears would have taken over full control again looking for a straight extension to 1.2888/1.2799 and potentially 1.2671.

Research from the region you may have missed

European Banks : Greek Sovereign Risk - Potential implications for European Banks

https://mm.jpmorgan.com/stp/t/c.do?i=D817D-10C&u=a_p*d_406346.pdf*h_-1b1a6fm

ENDS

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