FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The USDJPY rally that began three days ago reversed completely overnight. Falling US Treasury yields in the aftermath of the dovish FOMC meeting were to blame. USDJPY had been following gradually ever since, and fresh long positions put on just ahead of the meeting finally had their stops triggered overnight. RBNZ Governor Bollard provided some more colour on his decision earlier this week to keep rates on hold. He said the OCR has not been raised since the emergency rate cut in March 2011 because of ongoing aftershocks in Christchurch which have delayed the reconstruction effort. The “deepening Euro crisis” also contributed to the decision to keep rates on hold.
Australia‘s debt management office announced plans to issue A$700 mn of 2022 bonds on Feb 1, and another A$700 mn of 2018 paper on Feb. 3. These are the first Australian commonwealth bonds to be issued this year, and given overseas investors continue to show a keen appetite for Australian debt, we would not be surprised to see some AUD inflows on the back of this. In Europe, there are some signs of healing in the Italian bond market, and the 10y yield slipped back below 6% yesterday for the first time since early December.
The focus has now shifted towards whether the ECB is willing to participate in the Greek debt swap, and European legislators are keen to point out that the boost to sentiment would be very strong, at very little financial cost to the ECB. Newswires reported that the IIF will meet with the Greek government on Friday to discuss ‘legal and technical issues’. EURUSD traded 1.3078-1.3153 and USDJPY 76.90-77.51.
EUR
The Wall Street Journal reported that private sector creditors are willing to accept a coupon rate of below 4% on the new Greek bonds involved in the debt swap. Without naming sources, the story originates from local newspaper Ethno, which states that the IIF “will submit a new improved offer with an average interest rate of 3.75%”.
Dow Jones reported that Greece will continue debt talks with creditors on Friday. A senior official said discussions will continue on a ‘technical and legal’ level, without giving details.
Eurogroup Chair Juncker said that even if the ECB took Greek debt losses (by participating in debt-swap talks) they would be small. However, he also stressed that the Eurogroup and the IMF are not pushing for the ECB to take any such losses.
Dow Jones reported that the IMF is to seek a Saudi contribution to the Eurozone bailout fund. Despite a lot of talk about expanding both Eurozone and IMF resources to tackle the debt crisis, so far there has been very little tangible progress by non-European G20 governments to contribute. Canadian Finance Minister Jim Flaherty said that Europe can solve its debt crisis ‘without new IMF aid’.
On Thursday the German GfK consumer confidence survey came in slightly better than expected at 5.9. On Friday import price figures are due.
JPY
Prime Minister Noda said the Japanese government would work together with the BoJ to tackle yen strength, but the yen did not react to his remark.
GBP
The headline CBI reported sales balance was -22 in January, down from +9 in December. This marks the worst reading since March 2009.
Given the soft GDP report this week and the BoE minutes, our UK economist notes that the stage is set for more QE. However he has lowered his expectation for the size of the next QE installment and is now calling for a GBP 25 bn-50 bn increase in the asset purchase target in February – down from a GBP75 bn expansion previously.
AUD
Australia’s debt management office announced plans to issue A$700 mln of 2022 bonds on Feb 1, and another A$700 mln of 2018 paper on Feb. 3. These are the first Australian commonwealth bonds to be issued this year, and given overseas investors continue to show a keen appetite for Australian debt, we would not be surprised to see some AUD inflows on the back of this.
NZD
RBNZ Governor Bollard said he has not raised the OCR again since the emergency rate cut in March 2011 because of ongoing aftershocks in Christchurch which have delayed the reconstruction effort. The “deepening Euro crisis” has also contributed to the decision to keep rates on hold.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURUSD BULLISH Focus is on 1.3197, a break here would open 1.3244 next. Support lies at 1.3090.
USDJPY BULLISH Key resistance is at 78.29, a rally through this level would open the way for further gains towards 79.53. Support lies at 76.87.
GBPUSD NEUTRAL Near-term resistance is at 1.5728 ahead of the bull trigger at 1.5780. Support lies at 1.5517 ahead of 1.5451.
USDCHF BEARISH Next supports are at 0.9112 and 0.9066. Resistance is at 0.9339 ahead of 0.9413.
AUDUSD BULLISH Key resistance is at 1.0765; a rally through which would open the way for gains towards 1.1081. Support lies at 1.0428.
USDCAD BEARISH Near-term Support lies at 0.9975 ahead of 0.9892, the October 2011 low. Resistance is at 1.0049.
EURCHF NEUTRAL Support lies at 1.2058 while resistance is at 1.2133.
EURGBP BEARISH Initial support lies at 0.8310 ahead of 0.8273. Key resistance is at 0.8422.
EURJPY BULLISH Focus is on 102.54, a clearance of this level would pave the way for gains towards 104.32. Support lies at 100.98.
SCHEDULE
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