John J. Hardy, FX Consultant, Saxo Bank
FX Update: EURSEK tries sub-10 levels on Riksbank
Riksbank
The Riksbank left rates unchanged at 0.25% as universally expected, but raised expectations for the trajectory of its tightening regime by indicating average expected overnight rates for the next few years higher than the market was already anticipating. The Riksbank suggested that tightening could begin already this summer, rather than a the later timetable expected. It said that average repot rate would be 0.4% for this year, 1.8% for next year, and 2.8% on average in 2012. The Rikbank's Svensson wanted to cut rates to 0% at this meeting.
The Riksbank left rates unchanged at 0.25% as universally expected, but raised expectations for the trajectory of its tightening regime by indicating average expected overnight rates for the next few years higher than the market was already anticipating. The Riksbank suggested that tightening could begin already this summer, rather than a the later timetable expected. It said that average repot rate would be 0.4% for this year, 1.8% for next year, and 2.8% on average in 2012. The Rikbank's Svensson wanted to cut rates to 0% at this meeting.
Today's decision and rhetoric from the bank sent interest rates at the front end of the Swedish yield curve and the Swedish krona sharply higher. The move today may have been especially sharply as this news came at the key actual and psychological support area around 10.00. This (around 9.95 as of this writing) is the lowest level for EURSEK since the weeks after the credit crisis went into full gear in late 2008.
EU Summit in Greece
Around noon GMT today, Mr. Barroso announced that "an accord on Greece has been reached", but that the announcement on what was agreed would come later. This got the market's hope up slightly that something Euro-positive would emerge, but the later announcements that the EU was working on a lending facility for Greece, but with few specifics, this was considered Euro-negative and EURUSD and EURGB sold off sharply. As well, an official was quoted as saying that it was not yet time to begin issuing EuroBonds, increasing the idea that EuroZone states are not willing to go the route of full fiscal integration and being responsible for other nations' debt. A confirmation of the Euro-negative tilt to developments was a rewidening of Greek debt spreads after the announcement.
Around noon GMT today, Mr. Barroso announced that "an accord on Greece has been reached", but that the announcement on what was agreed would come later. This got the market's hope up slightly that something Euro-positive would emerge, but the later announcements that the EU was working on a lending facility for Greece, but with few specifics, this was considered Euro-negative and EURUSD and EURGB sold off sharply. As well, an official was quoted as saying that it was not yet time to begin issuing EuroBonds, increasing the idea that EuroZone states are not willing to go the route of full fiscal integration and being responsible for other nations' debt. A confirmation of the Euro-negative tilt to developments was a rewidening of Greek debt spreads after the announcement.
US Jobless Claims
Finally, an encouraging job claims number out of the States today, which puts the trend back on track for improvement. Remember that claims need to drop about another 100k on average in coming months for the US job market to show stabilization.
Finally, an encouraging job claims number out of the States today, which puts the trend back on track for improvement. Remember that claims need to drop about another 100k on average in coming months for the US job market to show stabilization.
Looking ahead
After the strong Australian employment data overnight and a rally in the risk appetite in general, the market has taken the action up to some key resistance areas in the higher beta FX pairs correlated with risk appetite, like AUDUSD and NZDUSD, not to mention the JPY crosses, where especially 90.00 in USDJPY is in focus. Other areas to watch on the close for the day/week are the 0.7000 area in NZDUSD and the 0.8865 area in AUDUSD (0.382 Fibo retracement of the most recent wave.) If these levels don't hold, then we could be pushing into a bout of higher risk appetite for a while. Stay tuned.
After the strong Australian employment data overnight and a rally in the risk appetite in general, the market has taken the action up to some key resistance areas in the higher beta FX pairs correlated with risk appetite, like AUDUSD and NZDUSD, not to mention the JPY crosses, where especially 90.00 in USDJPY is in focus. Other areas to watch on the close for the day/week are the 0.7000 area in NZDUSD and the 0.8865 area in AUDUSD (0.382 Fibo retracement of the most recent wave.) If these levels don't hold, then we could be pushing into a bout of higher risk appetite for a while. Stay tuned.
Tonight we have New Zealand Retail Sales and House Prices and House Sales. Tomorrow we have the estimate for Q4 European GDP and the US Advance Retail Sales for January, as well as the initial reading for the February University of Michigan Confidence.
Be careful out there. Conditions in the market have been heating up lately, so continued volatility is a significant risk.
Economic Data Highlights
- New Zealand Jan. Business PMI out at 52.0 vs. 53.0 in Dec.
- Australia Jan. Employment Change rose 52.7k vs. 15k expected and 37.5k in Dec.
- Australia Jan. Unemployment Rate fell to 5.3% vs. 5.6% expected and 5.5% in Dec.
- China Jan. Producer Price Index rose 4.3% YoY vs. 3.5% expected and 1.7% in Dec.
- China Jan. Purchasing Price Index rose 8.0% YoY vs. 3.0% in Dec.
- China Jan. CPI rose 1.5% YoY vs. 2.1% expected and 1.9% in Dec.
- China Jan. New Yuan Loans rose to 1390B Yuan vs. 1375B expected and 380B in Dec.
- Germany Jan. Wholesale Price Index rose 1.3% MoM and 1.9% YoY vs. +0.2/+0.2% expected, respectively
- Switzerland Jan. CPI fell -0.1% MoM and rose +1.0% YoY vs. -0.4/+0.8% expected, respectively, and vs. +0.3% YoY in Dec.
- Sweden's Riksbank kept interest rates unchanged at 0.25% as expected
- Canada Dec. New Housing Price Index rose +0.4% MoM vs. +0.3% expected
- US Weekly Initial Jobless Claims out at 440k vs. 465k expected and 483k last week
- US Weekly Continuing Jobless Claims out at 4538k vs. 4600k expected and 4617k last week
Upcoming Economic Calendar Highlights
- New Zealand Jan. REINZ Housing Price Index (2100)
- New Zealand Dec. Retail Sales (2145)
- Japan Jan. Consumer Confidence (0500)
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