Lookout, this could get messy!
Iran says warships headed close to US borders
Online Forex Trading - Thoughts from our Strategy Team
Remained under pressure, following Friday's fall because of the weak January US non-farm payrolls. Bad weather cannot be blamed for the weak result; it was simply a soft number, particularly the 29,000 fall in public sector employment. The USD is likely to remain heavy early in the week ahead of FOMC chair Janet Yellen's testimony to the House on Tuesday. Another downward influence on the USD is the expiration on Friday of the US Federal government's debt ceiling. The US Treasury is now using its "extraordinary measures" to skirt the debt ceiling. In a letter to the House speaker on Friday, US Treasury Secretary Lew estimated the extraordinary measures will be exhausted by late February-early March. The last time the debt ceiling was a focal point for market participants (September-October 2013), the USD weakened.
In US rates, the weaker than expected non-farm payrolls print induced only a mild rally in rates. The rally in rates was restrained by the defiance of equity markets. The rally in US treasuries was most acute in the 5-year note, (ending the day down 5bps in yield), but is still considered a subdued reaction given the miss in payrolls to economist expectations. The stubbornness of the US Treasury market to the payrolls print suggests yields will continue to grind higher this week. The market now looks to reassuring comments from new Fed Chair Janet Yellen on Tuesday.
Has drifted lower back to where it was following Friday's RBA Statement on Monetary Policy. Housing finance data for December is released tonight, with CBA's economists expecting a much weaker than consensus outcome (-3.0% vs +0.7% consensus). We do not expect the housing finance data to meaningfully impact the AUD. In our view, the AUD is likely to be firmer early in the week, reflecting a heavy USD. Locally, the January Australian Employment Report (Thursday) will be the next major domestic economic data release influencing AUD direction in the forex trading markets.
Was weaker into European session, after receiving a boost post-payrolls boost on Friday. On Wednesday, the BoE release their quarterly Inflation Report. The report is expected to contain a upward revision to the UK's GDP forecasts. The report will update (and may even recommend ending) the BoE's forward guidance on interest rates; something the NIESR recommended on Friday. While we think the BoE is more likely to adjust its forward guidance framework than walk away from it, we doubt the BoE will be able to drastically alter market expectations for future rate hikes. This should prove to be GBP supportive. We expect GBP to strengthen this week, with a lift back above 1.6500. GBP/AUD is likely to grind up to the 30 day moving average of 1.8552.
Remained firm, after enduring some intra-day volatility on Friday following a complaint about the legality of the ECB's OMT program to the German Constitutional Court was referred to the European Court of Justice. Further developments on this subject matter are likely to occur over coming months. EUR/USD was also supported by the weaker non-farm payrolls print, but continues to find resistance towards its 50-day moving average (1.3653). The EUR-centric focus comes later this week with the release of the first estimate of Q4 2013 Eurozone GDP (Friday). The partial data suggests that Eurozone economy expanded modestly in Q4, but growth is likely to have been slightly below the 0.2% (QoQ) projection implied in the ECB's current forecasts. Coincidentally, 0.2% (QoQ) is also the consensus expectation. USD softness may keep EUR/USD supported early this week, but a weaker than expected Eurozone GDP print, combined with the risk of dovish comments from the ECB members speaking (including Chief Economist Praet (Wednesday) and President Draghi (Wednesday) may weigh on EUR later on.
Weakened modestly. Today's Japanese December balance of payments data revealed a record monthly current account deficit. The adjusted current account deficit in December was larger than expected coming in at JPY -196.7bn. This is Japan's 4th consecutive monthly adjusted current account deficit. Significantly, over the December quarter Japan recorded an adjusted current account deficit equal to 0.3% of GDP. Further illustrating the deterioration and structural shift in Japan's balance of payments is the fact that in 2013 Japan recorded a current account surplus of just 0.7% of GDP. This is down from 1.1% of GDP at the end of 2012, and 3.3% of GDP averaged between 2000 and 2011. The collapse of Japan's current account surplus is the main reason we remain confident of a weaker JPY over the course of 2014. AUD/JPY is likely to remain in a relatively tight range, but grind higher toward the 200 day moving average of 92.57 this week.
USD/CADWas little changed, following a volatile session on Friday which was driven by the weaker US non-farm payrolls and firmer Canadian labour market report. The forex trading currency pair USD/CAD weakened on the mismatch. Bank of Canada (BoC) Deputy Governor Murray will speak at a local Chamber of Commerce business lunch today (12:50pm). In a general speech outlining the BoC's role in the economy, Murray will provide an overview of the BoC's global and Canadian economic outlook, but this is not expected to provide any new information relative to the BoC's Monetary Policy Outlook. With limited top tier economic data scheduled this week, USD/CAD is likely to be driven by USD direction. We remain of the view that the medium term direction is for the USD/CAD to push higher, given the BoC's shift to an easing bias and a firmer USD.
Upcoming Economic Calendar Highlights Important for Exchange Rates
- USD – Retail sales (Thursday), industrial production (Friday). Speeches: Yellen (Tuesday and Thursday), Plosser (Tuesday), Fisher (Tuesday).
- AUD – housing finance (Tuesday), China trade (Wednesday), Employment (Thursday), China CPI (Friday). RBA speeches: Kent (Friday).
- JPY – Q4 GDP (17 February).
- GBP – Bank of England Inflation Report (Wednesday).
- EUR – industrial production (Wednesday) and GDP (Friday). ECB Speakers: Praet (Wednesday), Draghi (Thursday) and Coeure (Thursday).
- CAD – BoC's Murray (today).
Forex Trading - Thoughts from the Team
20 tic ranges in G10 as $ slightly weaker v majors & slightly stronger v EM as market awaits Yellen on Tuesday.
€UR (Euro Member Countries):
- Small probe higher from 1.3630 to 1.3650, before drifting back to 1.3630s again.
- Expect the going to be sticky from 1.3655-90. Support coming in at 1.3580.
JPY (Japan Yen):
- US$ 20 tics lower along with general weakness v G10.
AUD (Australia Dollar):
- Quiet along with other pairs. London witnessed a short term stop loss run through 0.8920 to a low of 0.8907 before recovering to 0.8930
NZD (New Zealand Dollar):
- Very quiet, came off in sympathy with Aud, in an even tighter morning range. 0.8275-0.8257
ZAR (South Africa Rand):
- Leading the pack from the outset, I sense that there was a buying program circulating given the lack of interesting news and the violent nature of the move higher from 11.0625 to a high so far of 11.1645. USDZAR not really respecting any short term technical levels, we broke convincingly the uptrend in place since Mid-December, but have failed to remain below it. I think the range for the time being will play out to be 10.9350 to 11.2175.
TRY (Turkey Lira):
- Following USD/ZAR higher this morning after what proved to be a pretty lacklustre reaction to the Fitch news late Friday that Turkey was effectively on negative watch. S&P followed this morning, taking Turkey from Stable to "Horse has bolted", noting that Turkey is suffering from a degradation of governance standards, institutional checks and balances, - particularly in relation to the independence of the CB. If we break back over 2.2395 then I think we could see a test of 2.2695 at least. Downside support lies somewhere between 2.2200 and 2.2000
AUD & NZD Today
- AUD (Australia Dollar) - lower this morning falling victim to lower equities. Short term accounts were buyers in early Asia looking for another chance to crack 90c but a turn around in risk pressured AudJpy lower dragging AudUsd with it and taking out stops through 0.8920. With little in the way of data, keep an eye on equities today for direction. Buyers await a dip below 0.89 with bids 0.8890-8875, topside is clear until a break of 0.90c as corporate offers remain stacked 0.9000-0.9020.
- NZD (New Zealand Dollar) - after failing to trade above 0.83c once again, macro accounts were sellers overnight. NY walks in to lackluster moves as direction will largely be determined by equities and risk sentiment today. Decent corporate bids today 0.8240-0.8220 should provide first layer of support, plenty of selling interest remains ahead of 0.8300.