FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

With hardly any data releases hitting the tape, and Fed Chairman Bernanke steering clear of monetary policy, markets retreated from risk in the US session. US equities fell broadly in afternoon trading, commodities slipped across the board and GBP led the way lower for high-beta currencies while the KRW and JPY outperformed. The EUR weakened further, approaching its November 2008 vs the USD amid broad underperformance of the European currencies. Despite the narrowing of bond and credit spreads, the underlying sense of nervousness over the commitment and resolve of member states to make significant inroads in consolidating fiscal positions remains a key stumbling block for sustained EUR appreciation. Significantly weaker than expected trade data, with a large widening of the deficit dragged down the GBP, which also has been weighed down by Con-Dem coalition’s less market-friendly than expected policy posture.

NZD retail sales is the only major release slated for the Asian morning. A solid print, in line with the consensus forecast should reassure markets that RBNZ tightening, while not immediately around the corner, is not too far away. April retail sales top a crowded US release schedule later in the day. Our retail sales forecast is for a small decline, but on the whole a morning of solid data should help to underpin market sentiment.

Overnight news

USD: Initial jobless claims close to expectations at 444K, while continuing claims rise by 12K. Import prices rise 0.9% m/m, close to expectations.

USD: Fed’s Bernanke: forcing swaps activities out of banks would weaken financial stability; Fed focused on lending constraints facing small businesses.

GBP: March trade deficit is much wider than expected at £7.5bn.

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

COP: BCC rate announcement @23:00 (JPM: 0.50, Cons: 0.50)

NZD: Mar retail sales (%m/m, sa) @23:45 (JPM: 0.9, Cons: 1.1)

USD: Apr Retail sales (%m/m, sa) @13:30 (JPM: -0.1%, Cons: 0.2%); Apr Industrial production (%m/m, nsa) @ 14:15 (JPM: 1.1, Cons: 0.6); Apr Capacity utilization (%, sa) @ 14:15 (JPM: 73.8, Cons: 73.7); May U Michigan consumer sentiment (index) @ 14:55 (JPM: 73.0, Cons: 73.5); Mar Business inventories (%m/m, sa) @13:30 (JPM: 0.4%, Cons: 0.4%); Fed’s Evans speaks @ 18:40

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

Overnight price action

FX: The EUR continues to slide; high-beta FX on the defensive, led by GBP, while SEK, KRW and JPY outperform

FX vol: EM and G7 vols slide further

Commodities: Gold about flat, but other commodities broadly lower, including oil at -2.4%

Bonds: Yields mostly lower but Greek spreads 13bps wider, as ECB pares back bond purchases.

Equities: North and South American fell across the board; European equities mixed, with some markets are closed for Ascension Day.

Technical View for the day

The short term themes remain intact as the bullish action in the commodity currencies contrasts with the struggling European currencies. With the gradual improvement in risk, this setup is expected to continue as there is still little evidence of a reversal, or sustained base. In that regard, we continue to see potential for the EUR/commodity FX trends to extend. We added a short EUR/AUD position yesterday as the breakdown below the key 1.40 support area should allow for additional downside follow-through. This is consistent with the view that medium term decline in EUR/CAD is extending following the violation of the key 1.33 support zone. Again, the bullish framework for CAD remains intact highlighted by the breakdown in AUD/CAD below the key medium term range lows near .9200/.9180, as well as the upside extension above the important 5.99 long term range highs for CAD/NOK. Also, the setup for GBP/CAD should allow for additional weakness after violating the key 1.5130 support area.

The setup in CAD/JPY has improved with the push above the key 92.00 resistance zone. While some near term pause seems likely to develop given yesterday’s whipsaw, the additional upside seems likely given the negative JPY bias. Similarly, yesterday’s choppy action around the key 93.00/55 resistance zone for USD/JPY can allow for some additional two-sided action as well, but we continue to see potential for additional upside. Also, keep in mind that the focus is on the 85.00 area for AUD/JPY as the ability to push through here should reassert the bullish setup for a retest of the April peak which is the preferred view.

Note that in line with the improved risk sentiment, we continue to monitor the action in equities. While the reversal above the key 1150/1160 resistance zone suggests some improvement, a sustained break above the important 1180 zone is necessary to suggest another run at the highs.

As this week’s bullish action in precious metals has offered a measure of safety, the near term setup can allow for some pause. This is in line with the test of the key 1248/1250 area for Gold. Still, the overall setup suggests additional upside beyond any near term pause that can develop.

ENDS

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