The USD followed through on its smart little technical reversal yesterday with follow-up strength today, but will the currency follow through to the strong side here, or is this simply another modest consolidation that will fade to yield further gains for the greenback like all previous attempts by the currency to make a stand?
UK BRC Sales
The UK Like-for-Like sales number for February were very weak (though overall sales did rise +1.1% YoY) and suggests rather weak end demand from consumer. This makes sense in light of the austerity descending on the British population since the first of the year. The weak demand wasn't as evident in January due to pent up demand from historically disruptive winter weather that kept people pinned up in their homes in December. Continued weak demand will be an interesting possible theme for the UK in coming months.
Riksbank
The Swedish Krona caught a bit of a bid today despite generally souring risk markets and despite dovish talk from the Riksbank Deputy Governor Svensson. He was out arguing for a “lower repo rate path” and for a focus on employment as well as inflation. Sounds like Mr. Svensson needs to join the Bernanke Fed. Another Riksbank member is out speaking later today.
Chart: EURUSD
EURUSD is reversing after its extensive grind higher all the way from the . So far, we can only speak of an orderly consolidation. The key is whether the sell-off cuts deeply through the 1.3860 area support provided by the previous high, a move that would weaken the uptrend. Note that the recent test above 1.40 just barely took out a falling trendline - a tease that proved a false break. Round numbers have often been important in EURUSD's history and that 1.40 level remains the key upside resistance for now as we inch close to the EU summit later this month.
Chart: AUDUSD
The technical situation in AUDUSD is becoming a farce, with an ever-shrinking range between 1.02 and higher and higher lows. The nominal technical formation is an ascending triangle, normally considered a bullish formation, but the longer the pair dallies, ironically, the weaker the formation becomes as an indicator of future direction. Parity is the key downside support beyond the tactical 1.0075 level.
Chart: AUDNZD
A large scale reversal in AUDNZD, which shows the most significant crack in the uptrend in over a month. This may be the beginning of the end of the uptrend - as valuation here is extreme and there is only so much an earthquake can do to a country's currency. Longer term fair value lies closer to 1.30 if not 1.25 for the pair.
Looking ahead
The USD has followed through a bit stronger today, a development presaged by yesterday's neat technical reversal in key USD crosses. The question now is whether we follow through and move back through more strategic resistance levels for the greenback. To take three USD pairs, that would be on the order of 1.3860 in EURUSD, parity in AUDUSD and 1.6000 in GBPUSD. Certainly from a contrarian perspective, there are grounds for further USD strength as USD shorts are out there in record swarms by some measures. Again (as we discussed yesterday), a continued rally in fixed income (which should tend to favor the USD in interest rate spreads), a easing off of crude oil prices and another couple of percent of downside for equities could prove powerful medicine for the greenback in coming days.
For USDJPY, we await today's 3-year auction with interest. Expectations are relatively low after last month saw a very anemic auction despite relatively high yields (if you can call 1.25% a high yield - but that was higher than the 0.45% the 3-year debt was yielding around the time of Bernanke's official QE2 announcement). The 3-year debt is yielding about the same now as it was at last month's auction - so this will be an interesting one to see whether recent events and disruptions in equity markets see a stronger bid coming into the market.
The rest of the week's calendar is fairly heavy for Australia, with Consumer Confidence and Home loan data tonight, and the employment report tomorrow night. Seems like by this time next week, we are either trading above 1.0200 or below parity.
Economic Data Highlights
- New Zealand Feb. QV House Prices fell -1.7% YoY vs. -1.5% in Jan.
- Japan Jan. Adjusted Current Account Total out at ¥1089B vs. ¥1167B expected and ¥1519B in Dec.
- UK Feb. BRC Like-for-Like Sales out at -0.4% YoY vs. +0.7% expected and +2.3% in Jan.
- UK Feb. RICS House Price Balance out at -26% as expected and vs. -31% in Jan.
- Australia Feb. NAB Business Conditions out at -2 vs. -6 in Jan.
- Australia Feb. NAB Business Confidence out at 14 vs. 4 in Jan.
- Switzerland Feb. Unemployment Rate fell to 3.4% as expected and vs. 3.5% in Jan.
- Germany Jan. Factory Orders rose +2.9% vs. +2.5% expected and -3.6% in Dec.
- US Feb. NFIB Small Business Optimism out at 94.5 vs. 95.0 expected and 94.1 in Jan.
- Canada Feb. Housing Starts out at 181.9k vs. 174k expected and 170.6k in Jan.
Upcoming Economic Calendar Highlights (all times GMT)
- US Fed Nominee Diamond to Testify (1500)
- Sweden Riksbank's Ekholm to Speak (1500)
- US Fed's Krieger to Speak (1620)
- US Weekly API Crude Oil and Product Inventories (2130)
- Australia RBA Assistant Governor Lowe to Speak (2230)
- Australia Mar. Westpac Consumer Confidence (2330)
- Japan Jan. Machine Orders (2350)
- UK Feb. BRC Shop Price Index (0001)
- Australia Jan. Home Loans (0030)
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