- Higher, housing starts rise more than expected, industrial production beats expectations
- Lower, manufacturing sentiment improves along with risk appetite
- Lower, stronger US housing data, Greek debt uncertainty, bad bank loans in Italy
- Mixed, claimant count posts unexpected rise, MPC vote to hold monetary policy unchanged
- AUD & CAD lower, RBA rate hike speculation, Canadian wholesale sales rise
Overview
USD traded mixed to higher Wednesday as the EUR gave back most of Tuesday's sharp gains, the GBP was pressured by report of unexpected rise in UK January jobless claims and the MPC minutes which suggest that the UK recovery remains weak, JPY pressured by improving risk appetite as EU sovereign debt contagion fears ease and the high-yield currencies rally supported by global stock market gains with the AUD benefiting from RBA rate hike speculation. The EU has given Greece a month to show it is cutting its deficit and there is speculation that Greece will not need an immediate bailout. Diminished fear of the collapse of Greek debt sparked a sharp short covering rally in the EUR Tuesday and encouraged demand for global equities. The sharp recovery in the EUR is attributed to short covering reflecting the fact that there has been a record build up of spec short positions taken against the EUR on the IMM over the past few weeks. The EUR traded at nine month low versus the USD Monday and despite this week's rebound the EU debt situation is far from resolved. EUR price action reflects more of an adjustment than a change in negative sentiment against the EUR. There was limited reaction to report that China has cut holdings of US treasuries on concern about rising US debt. Bloomberg reports that China cut holdings of US treasuries by the most on record last month. Recent US Treasury flows data suggest strong inflows have been moving into US treasuries in particular from Japan and this may help offset the reduction in demand from China. The report on China's diminishing demand for US treasuries could ultimately become a significant negative for the USD. Today's US economic data suggest that the US recovery is gaining momentum with housing starts rising 2.8% and industrial production came in higher than expected. January building permits dropped by 4.9% and import prices came in much higher than expected. The USD traded to the day's highs after the release of the industrial production report. The EUR got hit hard near the London close pressured by concern about bad bank loans in Italy. European headline suggests that bad Italian bank loans rose by 43% in December. The trade waits for the release of the FOMC minutes later today. Today's data encourages speculation that the Fed may tighten monetary policy sooner than expected.
Today's US data:
February housing starts rose by 591k, a reading of 580k was expected. January building permits fell to 621k, a reading of 620k was expected. January import prices rose by 1.4%, a reading of 0.9% was expected. January industrial production rose by 0.9%, a 0.7% rise was expected.
Upcoming US data:
Initial jobless claims for week ending 02/13 will be released on February 18th expected at 430k compared to 440k last week along with January, PPI leading indicators and the February Philly Fed survey. PPI is expected to rise by 0.7% compared to 0.2% last month, leading indicators are expected to rise by 0.6% compared to 1.1% last month and the Philly Fed is expected at 17 compared to 15.2 last month. On February 19th January CPI will be released expected at 0.3% compared to 0.1% last month.
JPY
JPY traded at a two week low versus the USD pressured by improving risk appetite as global equity markets rally and fear of contagion of EU sovereign debt risk ease. EU officials indicate that they will deal with the Greek debt situation in March and allow Greece to take measures to begin to reduce its deficit. A report that one of the Greek unions called off a strike protesting government spending cuts reduces concern that unions will try to block spending cuts aimed at shrinking the Greek budget deficit. Optimism about the global recovery is fueled by today's report of improving manufacturing sentiment in Japan and strong US housing and industrial production data. Japan's Reuter's February Tankan manufacturing index improved to -13 from -19 in January. This marks the best level of manufacturing sentiment for Japan in 18 months and the Nikkei closed 2.6% higher. Focus turns to Wednesday's conclusion of the BOJ policy meeting. No policy change is expected. The trade will be looking to see if the BOJ makes any decisions on expanding quantitative ease. JPY price direction will continue to track risk sentiment and news in regard to the Greek debt crisis. JPY traded to the day's lows after the release of stronger than expected US housing starts report and industrial production.
On February 18th December leading indicators will be released expected at 3.3% compared to 1.7%. On February 19th December all industry activity will be released expected at 0.2% compared to 0.1% last month.
Key technical levels to watch in USD/JPY include support at 90.14 the February 17th low with resistance at 91.09 the February 4th high and 91.88 the January 21st high.
EUR
EUR traded lower Wednesday as Tuesday's short covering rally faded with focus shifting to improving US economic data. After reaching a nine month low versus the USD Monday EUR experienced a sharp short covering rally Tuesday. The rally was inspired by a statement from the Greek prime minister that Greece will not need an actual bailout. This statement appeared to reduce fears of a potential contagion from Greek sovereign debt risk and contributed to a rebound in risk sentiment and equities. The technical makeup of the EUR trade also contributes to the short covering rally. The EUR had reached extreme oversold level with report that specs have taken a record $9bln net short position versus the EUR on the IMM. Negative sentiment towards the EUR have reached the short-term extreme which made the EUR ripe for a technical correction. US economic data including today's better than expected rise in US housing starts suggest that the US recovery may be gaining momentum. The improvement in the US economic outlook contributes to demand for equities and improving risk sentiment and may fuel speculation of an earlier rate hike from the Fed. The ECB is widely believed to be restricted in exiting its extraordinary monetary policy measures because of concern about the impact of sovereign debt risk on the EU recovery. Yield and growth differential appear to be moving more in favor of the USD. There was limited reaction to report that the EU December trade surplus improved slightly to 4.4bln compared to 4bln last month. The DIHK Institute of Germany said the German economy could grow by 0.5% in Q1 but expressed concern about the impact of Greek debt uncertainty and turbulence in the Forex markets. EUR traded sharply lower into the London close pressured by concern about bad bank loans in Italy.
On February 19th, February manufacturing and services PMI will be released. The manufacturing PMI index is expected at 52.8 compared to 52.4 last month and the services PMI is expected at 52.7 compared to 52.5 last month.
The technical outlook for the EUR is negative but the EUR is ripe for a more extensive short covering rebound due to oversold technical conditions. Expect EUR support at 1.3635 the February 16th low with resistance at 1.3789 the February 17th high.
GBP
GBP traded mixed initially pressured by report of an unexpected rise in UK claimant count and the release of the MPC minutes for February. The MPC minutes state that the BOE expects a weak UK recovery. UK January claimant count rose by 23,500, a 9k decline was expected. UK claimant count is at its highest level since April 1997 and the report suggests that the UK labor market may be continuing to weaken in the face of tight credit and slow growth. The MPC voted unanimously in February to hold monetary policy and quantitative ease unchanged. The MPC minutes were seen as dovish as the MPC see the risk of a protracted recovery and there may be need for future rate cuts in the UK and expansion of quantitative ease should the recovery remain weak. GBP downside was limited by report that no MPC member voted to expand quantitative ease and economist Martin Feldstein suggested that Greece should temporarily reintroduce the drachma and re-enter EMU at a later date. EUR/GBP traded lower in reaction to Feldstein's comments that suggest that Greece should temporarily leave the EMU. A poll released today said the Dutch want Greece to leave the EUR.
On February 18th January money supply will be released expected at -0.8% compared to -1.1% last month along with January net public-sector borrowing expected at 16bln compared to 15bln last month and January CBI orders expected at -36 compared to -39 last month. BOE policy minutes will also be released on February 17th. January retail sales will be released on February 19th expected at 0.6% compared to 0.3% last month.
The technical outlook for GBP is negative as GBP trades below 1.5700. Expect near-term support at 1.5580 the February 12th low with resistance at 1.5920 the February 4th high.
CAD
CAD initially traded higher supported by improving risk sentiment sparked by a rally in global equity markets. CAD rally stalled and the CAD turned lower after the release of Canadian wholesale sales and a barrage of stronger than expected US economic data. Canada's December wholesale sales rose by 0.7%, a 0.5%% rise was expected. This marked the highest level for Canadian wholesale sales since December of 2008. The Canadian wholesale sales report was overshadowed by report of stronger than expected US housing starts and industrial production data. Although the stronger US data contributes to demand for equities and should be a positive for Canada's export outlook, CAD weakened as US bond yields rose in reaction to the stronger US economic data. Last week the BOC reaffirmed its commitment to maintain steady rate policy. In its quarterly report the BOC reaffirmed its low rate pledge and made no change in growth or inflation forecasts. Speculation that improving US economic data may bring the timeframe for Fed tightening of monetary policy forward supports the USD. Commodity prices were mixed with the price of crude drifting lower as the USD rallied and metals prices a bit firmer. CAD will continue to track risk sentiment and the direction of crude. CAD is also pressured by report that sales of existing homes weakened in January. Focus turns to Thursday's release of Canada's CPI. BOC policy is closely tied to Canada's inflation outlook. The BOC has pledged to maintain low yields as long as inflation remains in check.
On February 18th January CPI will be released expected at -0.1% compared to 0.3% last month along with December net foreign investment and January leading indicators. Net foreign investment is expected at 6bln compared to 10.5bln last month and the leading indicator is expected at 1.6% compared to 1.5%. On February 19th December retail sales will be released expected at 0.6% compared to -0.3% last month.
The technical outlook for CAD is mixed to positive as USD/CAD trades below 1.0500. Look for near-term support at 1.0380 with resistance at 1.0580 the February 12h high.
AUD
AUD traded higher supported by improving risk appetite and RBA rate hike speculation. Speculation that the EU plans a firewall for Greek debt helped to fuel today's equity market gains and risk appetite. Firmer global equity market trade and diminished fears of an imminent collapse of Greek debt sparked demand for high yield currencies. AUD was also supported by the release of the RBA policy minutes. The RBA minutes suggest that the RBA is considering future rate hikes. RBA watcher McCrann says that he expects the RBA to hike interest rates 100 to 200 basis points this year with a 25 bps rate hike expected in March. Today's Australian economic data added to demand for the AUD and contributes to RBA rate hike speculation. Westpac December leading economic index projects 6.2% GDP growth and Australia's skilled vacancies rose by 5.2%. In addition, New Zealand reported that its Q4 growth was the fastest in five years. AUD gains were limited by mixed commodity price action and rising US bond yields. US bond yields rose after the release of report of stronger than expected US housing and industrial production data. AUD should remain well supported on breaks by RBA rate hike speculation and improving outlook for the global recovery.
There are no major Australian economic ports scheduled for the week.
The technical outlook for the AUD is positive as the AUD trades hold above 9000. Expect AUD support at 8920 with resistance at 9093 the January 22nd high.
|
