Market Rumours

Look for emerging market and commodity currencies - the high-yielders - to continue outperforming, says RBS. The bank says the large growth gap between G4 and Asia-Pacific, and the higher sovereign risks now associated with G4 means investors are demanding a lower-than-normal premium for holding these currencies. "Global risk aversion must rise more abruptly to trigger an outflow from high-yield EM and commodity currencies than in the past, and they are in many ways now considered a safer bet that the G4," the bank says.

The regular end-year inflow may be helping the JPY just now, but don't bank on it, says Citigroup. "While our flows analysis does show accelerated corporate buying, we caution against positioning in anticipation for a strong seasonal rise in JPY," the bank warns.

Narrow trading ranges for the majors look here to stay. As Credit Agricole notes: "There is no real sense that we are about to explore exciting new levels on the majors." With equities failing to provide any real excitement, it looks like we are destined for an uninspiring day, barring the knee-jerk reactions to any unexpected comments, the bank says.

Even if BOJ's expansion of fund provision measure introduced in December were to be implemented at upcoming March 16-17 meeting, which would make it easier for banks to raise money and eventually cause rate falls to spread to long term JGB yields, that may have negligible impact on USD/JPY, says Mizuho Corporate Bank senior market economist Daisuke Karakama; "players are more likely to take cues from U.S. interest rates" with potential for gains amid expectation for U.S. economic recovery, while Japan's already ultra-low interest rate may limit further declines. Tokyo dealers tips USD/JPY in 89.50-91.50 range in coming week vs last 90.04.

1-month ATM USD/JPY implied volatilities edge down to 11.10%/11.80% vs 11.05%/11.75% NY overnight as narrow spot range slightly dents demand for hedges against any falls in USD, dealers say. Option prices may trend down in coming sessions if spot continues to hover around 90.00, possibly weighing on bid price to around Monday's level at 10.85%, option dealer at major Japanese bank says. USD/JPY last 89.99, in tight 89.85-90.09 band so far, vs 89.97 late Tuesday in NY.

The euro ticked up against the yen in Asia Wednesday, as Japanese importers buying the single currency on a regular settlement day set the tone of the market amid a lack of other trading cues. But further gains are far from certain, dealers said, with the euro's near-term direction resting on developments in the euro-zone's fiscal problem and upcoming economic data. As of 0450 GMT, the euro stood at Y122.44, slightly up from Y122.36 in New York late Tuesday. Against the dollar, the unit traded at $1.3602 from $1.3601. "Overall currency moves were very limited" with share markets almost unchanged and a lack of major economic data, meaning that Japanese importers' buying flows became more dominant and set the trend, said Yuzo Sakai, a foreign-exchange manager at Tokyo Forex & Ueda Harlow. Japanese importers tend to buy the currency on regular settlement days, which fall on the 5th, 10th, 15th, 20th and 25th of each month. At 0450 GMT, the Nikkei 225 Stock Average index was down 0.08%. Dealers said the European single currency could fall toward $1.3300 and Y119.00 over the next few weeks if any negative news emerges on Europe's fiscal issues, adding to concerns over its economic outlook, dealers said. The focus is on European countries' huge levels of debt, said Hideaki Inoue, a chief foreign-exchange manager at Mitsubishi UFJ Trust and Banking Corp. "Growing expectations for sovereign debt default could prompt mid- and long-term players to sell" the euro, he said. Although most players are bearish toward the euro, better-than-expected economic data could help restore investor confidence, possibly buoying the risk-sensitive euro toward $1.3700 and Y123.50, some dealers said. Investors will monitor U.S. retail sales for February and Reuters/University Of Michigan Consumer Sentiment Survey for March, both due Friday, for any hints on the health of the global economy. Elsewhere, the dollar stood at Y90.00 as of 0450 GMT, almost unchanged from its New York level of Y89.97 Tuesday. The ICE U.S. Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 80.576 from 80.580. The U.S. unit may fall toward Y89.50 in coming weeks, traders said. Japanese exporters may repatriate overseas assets as we move toward Japan's fiscal year-end on Mar. 31, which could weigh on the U.S. unit, dealers said.


USD looks set to gradually lose ground vs Asian currencies excluding JPY, as central banks in high-growth region poised to tighten this year while expectations for similar rate hikes by U.S. Fed look "overdone," says Standard Chartered in research note. Higher rates in Asia likely sooner than in U.S. in part as region "has been less affected by the crisis and therefore should not need the de-leveraging that is currently being seen in the U.S. and Europe." Says for these reasons, "strategically, we favor adding to short USD-AXJ on dips."

EUR/USD may trade in 1.3550-1.3650 band vs 1.3603 last, EUR/JPY in 121.70-122.80 range vs 122.30 in Asia, says Yasuo Nakayama, manager at Shinkin Central Bank. Says while Fitch's warning overnight that may downgrade Portugal if its debt consolidation isn't sufficient highlighted persistent EUR-negative fiscal concerns, any stock gains in Asia following Wall Street's slightly higher close may support risk-sensitive common currency. Tips USD/JPY in 89.50-90.50 range vs 89.93; says "trade should be rather directionless today as there aren't any major trading cues."

USD/JPY - to consolidate amid weaker risk sentiment as optimism from Friday's upbeat U.S. payrolls data and EU support for Greece dissipated after fresh ratings agency warnings about deteriorating credit quality in Europe, though sentiment soothed by modest Wall Street gains overnight (DJIA up 0.11%, Nasdaq up 0.36%). USD/JPY also weighed by Japan exporter sales, Japan fiscal year-end repatriation flows, lower U.S. Treasury yields; but downside limited by USD demand for import settlements. Any big surprise from China February trade balance data today may impact yen crosses. Data focus: 2350 GMT Japan February corporate goods price index, January orders received for machinery, 1500 GMT U.S. January wholesale trade, 1900 GMT U.S. February Federal budget balance, 1900 GMT Treasury Secretary Geithner testifies before U.S. House panel on FY2011 budget. USD/JPY daily chart still positive-biased as MACD & stochastics in bullish mode; 5-day moving average staging bullish crossover against 15-day. Resistance at 90.12 (hourly chart), then at 90.68 (Monday's high, near 55-day moving average); breach would expose upside to 91.18 (76.4% Fibonacci retracement of 92.14-88.10 Feb. 19-March 4 decline), then 91.29 (Feb. 23 high) and 91.88 (200-day moving average). Support at 89.60 (yesterday's low), then at 89.50 (previous cap set Feb. 26); breach would expose downside to 88.95 (Friday's low), then 88.10 (Thursday's reaction low).

EUR/USD - to range-trade. Pair undermined by renewed worries about euro-zone sovereign debt after Fitch Ratings yesterday warned Portugal remained vulnerable to downgrade, while it should not be assumed Greece would be successful in implementing its budget. But EUR/USD downside limited by improving risk sentiment from gains in stocks. Data focus: 0700 GMT German January foreign trade, February CPI, 1800 GMT ECB Chief Trichet speaks. EUR/USD daily chart mixed as MACD bullish, but stochastics neutral. Resistance at 1.3635 (yesterday's high); breach would expose upside to 1.3704-1.3712 band (Monday's-Thursday's highs), then 1.3736 (March 3 high), 1.3789 (Feb. 17 reaction high) and 1.3801 (Feb. 11 high). Support at 1.3561 (hourly chart), then at 1.3533-1.3526 band (yesterday's-Friday's lows); breach would expose downside to 1.3432 (March 2 low), then 1.3420 (May 18 reaction low) and psychological 1.3400.

AUD/USD - to consolidate with positive bias. Pair underpinned by Aussie-USD yield gap; but gains tempered by softer commodity prices (CRB spot index closed down 1.92 yesterday at 274.79). Data focus: 2330 GMT Australia March Westpac-Melbourne Institute consumer sentiment survey, 0030 GMT January housing finance approvals, 0300 GMT March DEEWR leading indicator of employment. AUD/USD daily chart positive-biased as MACD & stochastics bullish, although latter at overbought, suggesting sideways or higher AUD/USD trading near-term. Resistance at psychological 0.9200; breach would expose upside to 0.9281 (Jan. 19 high), then 0.9330 (Jan. 14 top). Support at 0.9116 (hourly chart), then at 0.9054 (yesterday's low); breach would temper near-term positive outlook, exposing downside to 0.8982-0.8976 band (Friday's-Thursday's lows), then 0.8958 (March 2 low), 0.8933 (March 1 low) and 0.8860 (Feb. 26 low).

NZD/USD - to consolidate with bullish bias as markets await 2000 GMT RBNZ interest rate decision: all 12 economists polled by Dow Jones expect central bank to keep its key interest rate at record low of 2.5%, most expect it to reiterate rate hikes will likely begin around mid-year. Pair underpinned by Kiwi-USD yield gap; but gains tempered by softer commodity prices. NZD/USD daily chart positive-biased as MACD & stochastics in bullish mode. Resistance at 0.7058 (Feb. 23 high); breach would target 0.7079 (Feb. 16-17 highs), then 0.7103 (55-day moving average), 0.7152 (Feb. 3 reaction high) and 0.7176 (100-day moving average). Support at 0.6986 (hourly chart), then at 0.6958 (yesterday's low); breach would temper near-term positive outlook, targeting 0.6940 (Monday's low), then 0.6847-0.6843 band (March 4-Feb. 25 lows), 0.6803 (5-month low hit Feb. 5) and psychological 0.6700.

GBP/USD - to consolidate with bearish bias. Pair hurt by Moody's warning it may cut ratings on some UK banks as country's bailout program winds down, continued concerns over weak UK fiscal situation, prospect of hung UK parliament after upcoming election, weak UK data yesterday: RICS UK housing market survey showed much lower than expected house price balance of +17 in February (vs +32 forecast); UK January trade deficit unexpectedly widened to GBP8.0 billion from GBP7.0 billion in December (vs forecast for GBP6.9 billion deficit). Data focus: 0930 GMT UK January industrial production & manufacturing output, 1500 GMT UK February NIESR GDP estimates. GBP/USD daily chart negative-biased as MACD bearish, stochastics reverting to bearish mode. Support at 1.4935 (yesterday's low); breach would expose downside to 1.4853 (March 2 low), then 1.4780 (March 1 low) and psychological 1.4700. Resistance at 1.5027 (hourly chart), then at 1.5067 (yesterday's high); breach would temper near-term negative outlook, exposing upside to 1.5195 (Monday's reaction high), then 1.5318 (Feb. 26 high), 1.5345 (previous base set Feb. 19) and 1.5420 (Feb. 25 high).

USD/CHF - to range-trade. Pair supported by fears of more CHF-selling FX intervention by SNB ; but topside limited by caution before SNB rate meeting tomorrow. Daily chart mixed as MACD bearish, but stochastics neutral. Support at 1.0723 (yesterday's low); breach would expose downside to 1.0672 (Monday's low), then 1.0662 (Thursday's low), 1.0644 (Feb. 17 & March 3 lows) and 1.0605 (Feb. 9 reaction low, coinciding with 38.2% Fibonacci correction of 1.0127-1.0898 Jan. 11-Feb. 19 advance). Resistance at 1.0806 (yesterday's high, almost matching Friday's high of 1.0809); breach would expose upside to 1.0889-1.0898 band (March 2-Feb. 19 highs), then 1.0934 (July 30 reaction high) and 1.1020 (June 24 reaction high).

USD/CAD - to consolidate with bearish bias. CAD sentiment helped by Canadian Finance Minister Flaherty yesterday saying CAD strengthening reflects USD weakness and Canada's "fiscal probity", country's economy and government's fiscal position "looks very good" vs other major countries and Canada is "the envy of the U.S., the U.K. and other western developed economies". But USD/CAD downside limited by softer commodity & oil prices (Nymex crude settled down 38 cents yesterday at $81.49/barrel). USD/CAD daily chart negative-biased as MACD & stochastics bearish, although latter at oversold, suggesting sideways or lower USD/CAD trading near-term. Support at 1.0233 (yesterday's low); breach would target 1.0222 (Jan. 14 reaction low), then 1.0204 (14.5-month low when hit Oct. 15), psychological 1.0100 and parity. Resistance at 1.0320 (yesterday's high); breach would target 1.0331-1.0339 band (Friday's-Thursday's highs), then 1.0365 (March 3 high), 1.0442 (March 2 high) and 1.0510 (previous base set Feb. 24,25,26).

EUR/JPY - to consolidate. Cross undermined by renewed investor concerns over euro-zone sovereign debt after Fitch's warning about Portugal; but downside limited by improving risk sentiment from gains in stocks. EUR/JPY daily chart mixed as MACD in bullish mode, but stochastics neutral. Resistance at 122.80 (hourly chart), then at 123.14 (yesterday's high); breach would expose upside to 123.89 (Monday's high), then 124.56 (Feb. 23 high), 125.23 (Feb. 22 reaction high, roughly coinciding with 38.2% Fibonacci correction of 134.39-119.63 Jan. 11-Feb. 25 decline) and 126.97 (Feb. 3 reaction high, roughly matching 50% correction). Support at 121.75 (hourly chart), then at 121.44 (yesterday's low); breach would expose downside to 120.85 (Friday's low), then 120.24 (Thursday's low) and 119.73 (March 2 low).

EUR/GBP - to trade with risks skewed higher. Daily chart positive-biased as MACD bullish, stochastics revert to bullish mode at overbought. Resistance at 0.9097-0.9102 band (yesterday's-March 2 highs); breach would expose upside to 0.9148-0.9153 resistance band (March 1-Nov. 30 highs), then 0.9239 (Oct. 26 reaction high) and 0.9412 (Oct. 13 top). Support at 0.9042 (yesterday's low); breach would temper near-term positive outlook, exposing downside to 0.8993 (Monday's low), then 0.8979 (Friday's low), 0.8964 (March 1 low) and 0.8866 (Feb. 26 low).

Dollar higher against euro, U.K. pound but ceded some gains on shift into riskier assets. Pound, euro managed partial rebound on losses after ratings agencies warned about Europe's deteriorating credit quality. Without significant data releases currency markets took direction from broader shift in investors' attitudes toward risk. "Given the lack of economic data or news to trade off, the forex markets are squarely focused on fluctuations in stocks, commodities and risk appetite in general," said Omer Esiner, senior currency market analyst at Travelex Global Business Payments in Washington, D.C. Dow's stronger afternoon trading performance, rebound in crude oil futures compelled dollar to give up some gains, Esiner said. Late Tuesday GBP/USD at 1.4999 vs 1.5063 late Monday, EUR/USD at 1.3603 vs 1.3630, USD/JPY at 90.01 vs 90.26, EUR/JPY at 122.43 vs 123.09, USD/CHF at 1.0753 vs 1.0736, US Dollar Index at 80.526 vs 80.404. Stocks rose slightly led by telecommunications companies as Cisco unveiled smarter, faster router. AT&T +1.1%, Verizon Communications +0.9%, Cisco flat. Boeing +0.8% after as only bidder to build Air Force's aerial-refueling planes. Kroger fell 2.4% on low 4Q earnings; Texas Instruments down 2.0% on unimpressive 1Q guidance. Dow +0.1%, Nasdaq +0.4%. Treasury prices clung to small gains as concern over fiscal, debt problems in euro zone spurred safe haven flows into low-risk U.S. government debt; 2-year yields down 2.0 bps to 0.871%, 10-year yields fell 0.7 bps at 3.701%. Crude-oil prices remain at eight-week high, as traders bet seasonal factors will sustain prices. April Nymex crude ended 38 cents down at $81.79.91/bbl. Gold futures closed lower after pressured early on strong U.S. dollar, a Chinese official comment seen as hint Chinese gold purchases might be less robust than expected; April Comex gold down $1.70 to $1,123.30.