- G10/USD (still) content to rally on any moderately positive Greek news
The FX markets remain content to latch onto any positive catalyst they have with regard to Greece, and for a second day running. This time yesterday, it was a reaction to comments from Greek PM Papademos that a PSI+ accord may be reached by the end of the week. Today, it has been rumours of a potential Greek “deal” at some point today. G10/USD crosses have rallied led by NOK, AUD and SEK while non-core EGB bond yields have collapsed to fresh lows. The reaction continues to emphasise how bearishly positioned the market may be, continuing to underline the potential for the risk-rally to extend on any positive news. Looking ahead, the focus will be on US ADP (1315 GMT) and ISM manufacturing (1500 GMT) in light of yesterday’s disappointing Chicago PMI print. Note that our US economists have revised the ISM forecast to 54.4 from 54.7 originally (and up from 53.9 in December) due to benchmark revisions (on new seasonal factors) published yesterday.
- PMIs on the strong side except in Switzerland
Eurozone PMI’s came in pretty much as was to be expected, but with an upward surprise recorded for Italy (46.80 vs. 45.00 consensus). Stronger outturns were also recorded for Norway, Sweden and the UK, helping avert fears of a slowdown. We don’t think the stronger UK PMI will affect expectations for a new QE announcement when the BoE meets next Thursday. However, we view EURGBP continuing to move lower irrespective, targeting 0.80 in the coming months. Swiss PMI, meanwhile, slipped back suggesting that the strong CHF is having a negative impact.
- Focus back on intervention prospects in USDJPY – and in EURCHF
USDJPY holds precariously above the 76 level, with stops assumed below the figure, below the previous low of 75.57 and below large barriers said to exist at 75.00. We believe authorities will be reluctant to act while the USD is weakening broadly, but a more significant continuation of yesterday’s risk-off could see action on a break of the previous low. In EURCHF, we believe that while a test of the 1.2000 level may be inevitable at some stage, the SNB’s credibility is on the line and they will not be found wanting.
- Asian data offers no clarity on growth prospects; we remain short AUDNZD
A slew of important Asian data this morning has failed to shed much light on the outlook for global growth. The official China PMI came in stronger than expected at 50.5 – although not as strong as the 52 that had been whispered in advance. In contrast, South Korean trade numbers were disappointing, but officials said they expected a rebound in February. Data from both countries suggest Europe remains the weakest link in the global trade arena. AUD has so far managed to hold up surprisingly well. While we still like AUD and the commodity bloc in general, we think that AUD could be disproportionately vulnerable to a more significant washout of positions. As such, we would prefer focussing on bullish plays in CAD and NZD. On the latter, we hold onto our short AUDNZD position from 1.3120 targeting 1.2600 with a trailed stop-loss of 1.3067. The cross now sits just above yesterday’s 1.2835 3.5-month low; a close below 1.2917 (200-week ma) this Friday would add technical conviction to the trade.
BNP Paribas