1) Overnight Asia Wrap
Risk off and USD buying continue…
The day starts very choppy with currencies bouncing off their lows (AUD 1.0040s to 1.0079). NZD GDP +0.1% q/q much lower then the +0.5% expectation, and kiwi gets slammed from .8060 to .8010. That was just the beginning as Asian equities start to melt and a lower than expected China Manufacturing PMI (at 49.4) push risk lower (ASX -2.7%, Nikkei – 2%, Hang Seng – 4.25%) and S&P futures -.9%. EURUSD took out stops through 1.3550 and AUD cracked parody again. USDJPY ran higher as Japanese corporates were buying (76.97 current high) before consolidating at 76.80. Risk bashing continued through the rest of the morning.
We then paused for the last 2 hours as we wait for Europe to come in and give us another push. EURUSD bids at 1.3500 (with stops underneath) looks like the next level to be tested with PMI releases out of France and Germany this afternoon.
Light flow in G10 space, as mostly USD/asia buying drove the market again.
2) Orderbook & Flow
EURUSD fairly sparse with downside stops 1.3475, 1.3300 & 1.3250
EURCHF stops below collecting around the 1.2150 handle
Topside GBPUSD stops 1.5850-1.5900
Bought a large amount of USDCNY and were buyers of USDJPY overnight.
3) USD/Asia Run
USDKRW 1181.0 (Wednesday Opening level 1151.0)
USDINR 49.03 (48.15)
USDPHP 44.01 (43.54)
USDCNY1y 6.3870 (6.3325)
USDIDR 9410 (9090)
USDMYR 3.1580 (3.1210)
USDTWD 30.34 (29.85)
USDSGD 1.2860 (1.2625)
4) Opening Levels
EUR 1.3554
GBP 1.5458
JPY 76.74
CHF 0.9030
WTI 84.5
Brent 108.6
XAU 1773.5
Silver 39.49
X-Over 737
Greece 3536
Portugal 1141
Ireland 803
Spain 432
Italy 523
UK 10y 2.25
Ger 10y 1.74
US 10y 1.82
Bund 137.80
Spain over bunds 363
Italy over bunds 399
BeBanks Index 69.76
3m Eur Xccy -95.5
5) FOMC
No ‘twist’ for FX: We maintain a defensive stance in FX amidst few surprises from the Fed
The FOMC announces much anticipated ‘twist’ operation to extend the average maturity of its balance sheet. Overall the Fed’s dovish stance reaffirms a weak growth outlook and keeps us defensive on global currencies. Our preferred trades include: CAD, NOK, CNH, THB, CZK, PEN, and gold.
To the extent that markets have had plenty of time and guidance from the Fed to prepare for today’s outcome, the immediate reaction should be rather muted. We maintain a bias against QE currencies, and in that regards, signals of further policy accommodation and support for longer-dated rates in the US to remain low over a more sustained period of time, reinforce our structural bearish view on the USD. The lack of more meaningful support to financial assets out of today’s decision is likely to keep the focus on more immediate sources of market stresses, namely Greece. While liquidity restrictions in other currencies could see the USD benefit as a temporary refuge amidst bouts of risk aversion, this unlikely to last. We expect volatility to remain high and stick to our preferred defensive trades: CAD, NOK, CNH, THB, CZK, PEN, and gold.
HSBC Global Research