FX Daily Planet: New York Open

FX Daily Planet: New York Open

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View for the day

EUR/USD has marked a new multi-month low during the European session, falling to its lowest levels since the Lehman crisis as the sovereign crisis in the Euro area continues to weigh on sentiment. Bloomberg this morning reports that French President Sarkozy threatened to pull out of the euro unless German Chancellor Merkel agreed on the EU backed bailout plan at last weekend’s meeting of EU leaders. Credit and bond spreads for the European peripherals have widened out again with the Greek/German 10yr bond spread approaching 480bps (40bps wider than the close yesterday). European equities are deep in negative territory with the Spanish Ibex posting losses of nearly 4.5%. With risk assets under pressure, front-end FX volatility is higher during the session, particularly for the Yen crosses. Though all of the G10 currencies are lower versus both JPY and USD, it is the European currencies that are the main under-performers during the session though the likes of AUD, CAD and NZD have not escaped. Greece is due to report back to the EU on its fiscal consolidation process at some point during the session though as yet there have been no news headlines. Though the US data flow later in the session is significant (April retail sales, industrial production and May Michigan Univ. consumer sentiment), the macro data is likely to play second fiddle to developments in the Euro area.

Overnight news

EUR: Bloomberg reports that Spanish PM told socialist politicians that Sarkozy threatened to withdraw from the euro if Merkel refused to back EU aid to Greece. Credit and bond spreads for the peripherals widen during the session.

NZD: March retail sales weaker than expected at 0.5%m/m vs 1.1% consensus

CNY: April FDI rose at a faster than expected pace at 24.7%oya vs 21.4% consensus.

CNY: China’s current account surplus fell 48% from a year earlier to $40.9 bn in 1Q10, the State Administration of Foreign Exchange; the regulators said the country’s foreign currency reserves in 1Q rose by $95.9 bn excluding foreign-exchange fluctuations.

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

USD: Apr retail sales (%m/m, sa) @13:30 (JPM: -0.1, Cons: 0.2); Apr retail sales ex autos (%m/m, sa) @13:30 (JPM: 0.2, Cons: 0.4); Apr IP (%m/m, sa) @14:15 (JPM: 1.1, Cons: 0.7); Apr capacity utilization (%bal, sa) @14:15 (JPM: 73.8, Cons: 73.8); May U. Michigan consumer confidence prelim. (index) @15:00 (JPM: 73.0, Cons: 73.5); Mar business inventories (%m/m, sa) @15:00 (JPM: 0.4, Cons: 0.4); Fed’s Evans speaks at Illinois Wesleyan Univ. @18:40

CAD: Mar manufacturing sales (%m/m, sa) @13:30 (JPM: 2.4, Cons: 1.0); Mar auto sales (%m/m. sa) @13:30 (JPM: -4.0, Cons: -4.0)

Overnight price action

FX: European currencies are the main under-performers versus USD and JPY as equities trade markedly lower.

FX vol: Front-end cross/JPY vol spikes as risk markets come under renewed pressure.

Commodities: Gold rallies 1% whilst oil fall nearly 2%

Bonds: European bond markets are deep in positive territory

Credit: European high yield credit widens 33bps

Equities: European equities post sharp losses led by the Spanish IBEX

Technical View for the day

Looking at the incredible recovery risk markets have performed after last week’s panic-sell-off it seems as if the rescue package has done its trick although great scepticism remains whether the generated rally could not turn out to be a straw fire only. As long as key-resistance at 1183/86 in the S&P500 is not broken on daily close this risk persists. Greek-German government yield spreads have in every which case been narrowing substantially which is positive but is not eliminating general worries about the negative effects on the economy itself, which is reflected chart wise in the risk of potentially forming the right shoulder of a broader H&S top in leading indices (S&P/ Dow/Dax). As long as the positive sentiment prevails though, particularly commodity currencies, MXN as well as BRL remain well bid against EUR In EUR/AUD the downtrend has now even broken the 1997 low which illustrates that there is still substantial down-potential. As for EUR/USD the down-trend remains fully intact as long as any recovery remains below 1.2610/20 and should ultimately stretch out to projected targets in the 1.2285 and in the 1.2150 handle. Cable has also joined the bear-party again and is now facing a test of key-support at 1.4339.

Research from the region you may have missed


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ENDS

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