The US equity markets staged a strong rally yesterday, giving Asian stock markets a boost with the Nikkei rising 4.50%, as banking stocks continued to be in demand. Investors celebrated the reports that Citibank is on track to report its first positive quarter since 2007. This was seen as the first positive development in the damaged financial sector in a long, long while. The EURUSD traded in the 1.2580-1.2820 range and the USDJPY in 99.14-97.91, while Oil is at $45.29bll and gold at $903.09oz. Continued speculation regarding OPECs March 15th meeting should keep crude prices supported. Along the improved sentiment, Corporate credit also improved, tightening from 261bp to 244bp. Yesterday's UK Manufacturing production came at -2.9% m/m vs. -1.4%exp m/m and industrial production reading was at -2.6% m/m vs.-1.2% m/m. This data highlights that the pace of the decline in UK manufacturing actually increased, regardless of the weaker Sterling. In Japan, machine orders weakened dramatically to -3.2% from -1.7% m/m, prior -4.8% m/m, continuing a string of recent weak economic data. Given the current economic climate and underlying soft Japanese economy we expect significant Yen sell, with UsdJpy heading to 100.00 near term. Yesterday Fed Chairman Bernanke spoke about financial regulation and recommended an overhaul of existing regulatory policies and rules. Bernanke also stated that the stress tests for banks would include extreme events such as 10% unemployment, which he said is completely plausible given the weakness in the US labor markets. Interestingly, over the past month Russia has been on of the few markets which have recorded decent positive returns. A portion is due to the rally in commodities prices, specifically crude, but also the prospect of an economic collapse in Russia is not likely. Despite the rally we don't believe Russia is free and clear. With decline 2009 growth, pressure on employment and budget deficit we are keeping a caution tone. On this light calendar day, the market will be watching equity markets performance intently. While the FX and equity correlation has lessened, it still remains a core driver.
Today Key Issues (time in GMT):
- 09:00 GBP Trade balance, £bn Jan 4.6 exp, -7.4 exp, -7.4 prior
- 11:00 EUR New manufacturing orders, % m/m (y/y) Jan -2.2 exp, -6.9 (-27.7) prior
- 18:00 USD Budget balance, $bn Feb -200.0 exp, -175.6 prior
- 20:00 NZD RBNZ interest rate announcement, % Mar 2.75% exp, 3.50% prior
- 23:50 USD real GDP, second preliminary, % q/q saar Q4 -13.4 exp, -2.3 prior
The Risk today:
EurUsd Break above 21d MA suggests continued trend upwards, however failure to close higher and rejection of highs, point to renewed selling. We have yet to see a decisive breakout we had hope for. Trend support at 1.2575 will provide a base, while 1.2822 resistance should cap any upside rally.
GbpUsd Sterling sell-off continued yesterday. Convincing close below 1.3920 should trigger renewed weakness with target 1.3503 trend lows. Upside break of 1.3925 will open the way to 1.4000.
UsdJpy Bearish divergance on daily charts points to a short term top. A slight correction to 97.20 is expected before ralling above 98.51 ahead of psychological 100.00. Intraday support stands at 97.20 & 96.55
UsdChf Failed to break swing target support at 1.1425. Lack of direction gives the pair a neutral tone. Expect range bound between 1.1425 to 1.1885 baring any event at the SNB meeting tomorrow.
Resistance and Support
|1.2995 M||1.4385 M||100.55 S||1.1925 S|
|1.2822 M||1.4000 S||100.00 S||1.1885 M|
|1.2755 S||1.3925 P||99.70 M||1.1725 M|
|1.2575 S||1.3620 M||97.20 M||1.1510 S|
|1.2424 S||1.3503 S||96.55 M||1.1425 M|
|1.2330 S||1.3380 S||95.00 P||1.1315 S|
|S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot|