Risk appetite was generally very healthy overnight in Asia and Europe (the DAX is thrilled with the goings on in the Euro and is within a stone’s throw of the high for the cycle in April). The weak Euro is a handy boost to the German export engine. But bonds were very stable to firmer and the JPY suddenly decided that it didn't like where it was after having been sold off to new lows vs. the USD and other currencies. The new high in USDJPY for the week was round rejected and AUDJPY turned tail right at the 55-day moving average again. The Euro rallied back to the head and shoulder neckline that it broke last week just under 1.2700, but then faded fast back below 1.2600.
Aussie: strong data and hawkish RBA rhetoric
Aussie got a boost overnight from a strong employment report (slightly disappointing though to see disconnect between small rise in unemployment level despite robust payroll gains) and upward revision of the March payroll data as well. Equally important for boosting the Aussie slightly was a speech from the RBA's Lowe, who was generally hawkish with a positive view on the Australia economy and expected external demand from China and India for resources to remain robust as the Australian economy risked some supply constraints (not exactly aided by the extraordinary mining tax, we might add!). The March 90-day bank bill STIR dropped 10 points as the market jiggered its view of RBA policy tightening slightly higher (in the last few trading days we have seen forward CB expectations for the Fed actually slightly higher than those for the RBA).
Aussie got a boost overnight from a strong employment report (slightly disappointing though to see disconnect between small rise in unemployment level despite robust payroll gains) and upward revision of the March payroll data as well. Equally important for boosting the Aussie slightly was a speech from the RBA's Lowe, who was generally hawkish with a positive view on the Australia economy and expected external demand from China and India for resources to remain robust as the Australian economy risked some supply constraints (not exactly aided by the extraordinary mining tax, we might add!). The March 90-day bank bill STIR dropped 10 points as the market jiggered its view of RBA policy tightening slightly higher (in the last few trading days we have seen forward CB expectations for the Fed actually slightly higher than those for the RBA).
AUDUSD managed to rally above 0.9000 on all of this, thus crossing the 200-day moving average once again, but the pair is fading fast in the early North American session back to that critical resistance level (around 0.8975 currently). We noted the odd weakness in the Aussie yesterday despite generally robust risk appetite in world markets, and again the relative weakness relative to the Aussie supportive news flow and generally high risk appetite is noteworthy here and suggests something may be afoot.
Chart: AUDJPY
JPY crosses turned tail in Europe despite the generally supportive risk environment after trying at key levels. The stronger JPY suggests a dose of nervousness in risk appetite. Remember that the recent blowout JPY rally was actually well underway before the equity meltdown materialized in the US. AUD is also curiously weak despite generally supportive data flow and risk appetite. AUDJPY turned tail right on the 55-day moving average, creating a compelling reversal formation on the daily candle chart if we close here or lower. The next target to the downside is the 200-day moving average around 81.80, which also coincides with the bottom of the daily Ichimoku cloud.
JPY crosses turned tail in Europe despite the generally supportive risk environment after trying at key levels. The stronger JPY suggests a dose of nervousness in risk appetite. Remember that the recent blowout JPY rally was actually well underway before the equity meltdown materialized in the US. AUD is also curiously weak despite generally supportive data flow and risk appetite. AUDJPY turned tail right on the 55-day moving average, creating a compelling reversal formation on the daily candle chart if we close here or lower. The next target to the downside is the 200-day moving average around 81.80, which also coincides with the bottom of the daily Ichimoku cloud.
No support for sterling
Sterling continued to suffer on a very ugly Trade Balance print that continues to show that the weak pound is not having the necessary effect on Britain's terms of trade. This and yesterday's very dovish BoE Quarterly inflation continue to rub sterling the wrong way. GBPUSD has fallen again and is looking for its lowest daily close since April of last year. The EURGBP floor below 0.8500 is looking more solid by the day.
Sterling continued to suffer on a very ugly Trade Balance print that continues to show that the weak pound is not having the necessary effect on Britain's terms of trade. This and yesterday's very dovish BoE Quarterly inflation continue to rub sterling the wrong way. GBPUSD has fallen again and is looking for its lowest daily close since April of last year. The EURGBP floor below 0.8500 is looking more solid by the day.
Looking ahead
While we have ticked slightly through the "final" resistance level in the US equity market (1169 for the S&P500), the break has not seen any follow through just yet. Also, the bond market looks stable so far today and various other risk measures and spreads (junk bonds and emerging market debt, for example) are still rather elevated. In FX, the JPY is stirring a bit and the AUD is not responding to positive news as one would expect, so there is still plenty of nervousness afoot and the bulls have plenty to prove here at this pivot point. We prefer at least a significant throwback sell-off here in risk, until proven otherwise. AUDJPY shorts look like a high beta way to play a sell-off in risk here.
While we have ticked slightly through the "final" resistance level in the US equity market (1169 for the S&P500), the break has not seen any follow through just yet. Also, the bond market looks stable so far today and various other risk measures and spreads (junk bonds and emerging market debt, for example) are still rather elevated. In FX, the JPY is stirring a bit and the AUD is not responding to positive news as one would expect, so there is still plenty of nervousness afoot and the bulls have plenty to prove here at this pivot point. We prefer at least a significant throwback sell-off here in risk, until proven otherwise. AUDJPY shorts look like a high beta way to play a sell-off in risk here.
Later today we have a parade of Fed officials, include Mr. Bernanke, who will also participate in a Q&A session at the Philadelphia Fed conference. In Asia, New Zealand is out with its Retail Sales number for March and the latest reading on non-resident bond holdings.
Economic Data Highlights
- New Zealand Business NZ PMI out at 58.9 vs. 56.7 in Mar.
- UK Apr. Nationwide Consumer Confidence out at 74 vs. 73 expected and 73 in Mar.
- Japan Mar. Adjusted Current Account Total out at ¥1773B vs. ¥1506B expected and ¥1068B in Feb.
- Australia Apr. Employment Change out at 33.7k vs. 22.5k expected and 27.7k in Mar.
- Australia Apr. Unemployment Rate out at 5.4% vs. 5.3% expected an 5.4% in Mar.
- Australia Apr. Participation Rate out at 65.2% vs. 65.1% expected and 65.2% in Mar.
- Japan Apr. Machine Tool Orders out at 220.5% YoY vs. 262.5% in Mar.
- UK Mar. Visible Trade Balance out at £7522 vs. £6407 expected and £6305 in Feb.
- UK Mar. DCLG House Prices out at +9.7% YoY vs. 7.3% in Feb.
- US Apr. Import Price Index out at +0.9% MoM and +11.1% YoY vs. +0.8%/+11.3% expected, respectively
- US Weekly Initial Jobless Claims out at 444k vs. 440k expected and 448k last week.
- US Weekly Continuing Claims out at 4627k vs. 4590k expected and 4615k last week.
Upcoming Economic Calendar Highlights
- US Fed's Kohn to Speak (1300)
- US Fed's Bernanke to Speak and participate in Q&A Session (1630)
- US Fed's Fisher to Speak (1715)
- US Fed's Kocherlakota to Speak (1730)
- New Zealand Apr. REINZ House Sales (2200)
- New Zealand Mar. Retail Sales (2245)
- New Zealand Apr. Non-resident Bond Holdings (0300)
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