Currency Tech

R 2. 0.8960
R 1: 0.8928
CURRENT: 0.8803
S 1: 0.8735
S 2: 0.8645

R 2. 1.0720
R 1: 1.0640
CURRENT: 1.0604
S 1: 1.0547
S 2: 1.0465

R 2: 128.35
R 1: 126.98
CURRENT: 126.33
S 1: 125.80
S 2: 124.40

R 2: 13.105
R 1: 12.975
CURRENT: 12.947
S 1: 1.8295
S 2: 12.800

Market Brief

Risk correlated trades were weaker in the Asian session, as New Zealand labor market reports surprised to the downside. The Q4 Employment fell by 0.1% q/q and the unemployment rate climbed to 7.3% (a 10-year high) from 6.5%. While the employment data was relatively inline with market expectations, the jump in unemployment sent risk seekers running for the exits. The market had been aggressively pricing for RBNZ hikes as early as March, so these negative figures weigh heavily on the NZD. On the figures the NZDUSD gapped down to 0.7005, paused briefly, then took another leg down to 0.6960 (triggering stops below 0.7000). The USD has been gaining prior to the poor Kiwi numbers, as worries over the fiscal health of Greece and a blow out in Portuguese CDSs to a record wide 196 and stronger than expected US ADP report gave the greenback the advantage. In Australia, Retail Sales ex-inflation data for Q4 were slightly stronger, rising 1.1% q/q, while building approvals data came in significantly higher, up 2.2% m/m. The retail sales figures suggest that even with the withdrawal of government fiscal stimulus GDP, the growth in Q4 remains strong. As we have stated numerous times after the surprise RBA rate decision, we believe the central bank is underestimating the momentum in the Australian economy and will be forced to raise rates in March. In this environment, we believe the AUD should outperform.Today's Bank of England meeting will take on a greater significance than those in the previous couple of months, as the MPC must finally announce their decision on whether to extend the QE program or allow it to expire. With the ongoing improvements in the global economy, coupled to persistent GBP weakness, it has been increasingly speculated that the central bank will decide not to extend their asset purchase target beyond the current GBP200bn. However, whilst the latter scenario would be broadly positive for GBP, the enthusiasm for bets on the UK economy has waned significantly since last week's extremely mediocre Q4 GDP print, and the murmurs of possible UK credit rating downgrades to come. As such, we feel the bias of risks is to the downside in GBP, as the cessation of QE will struggle to neutralize pervading negative sentiment surrounding the UK, but the possibility of a further extension to the stimulus measures would be severely negative on the currency.

Overall, we expect the ECB meeting to be a non-event, but perhaps the post meeting press conference might produce some fireworks. Markets are unanimously expecting the ECB to hold rates steady at 1.00% with no change to economic outlook or exit strategy. Given that it has been only three weeks since its last meeting, there has been little change which might convince Trichet and gang to move from its loose monetary policy. Undoubtedly, there will be a question in the press conference regarding Greece and recent moves in Sovereign CDS spreads. We would expect another absurd rebuttal but anything less will have serious consequences for the EUR.