Currencies: Overnight, the clear outperformer was the GBP, boosted by a hawkish BoE inflation report. The Canadian dollar underperformed giving up some of its recent gains. NZD was weighed by dovish rhetoric by the RBNZD governor. EUR/CHF is sagging towards its low since early-’09 ahead of the SNB decision.

EUR/USD. Consolidating gains above 1.35.

EUR/USD (1.3657) is up slightly overnight but continues to trade sideways, consolidating just above 1.35. On the weekly chart, the price action remains within the downtrending channel since Dec.

Key headline: Economist Martin Feldstein opined that Euro’s declines are a result of panic selling over Greece. Perhaps so, but perhaps underappreciated are the woes of Spain and Italy, not to mention the credit crunch the German government has warned that companies in that country face. At some point, perhaps after the euro has rallied, those factors will weigh on the currency.

Technicals:

  • Trend: Daily higher; Weekly down.
  • Overbought/Oversold (stochastics): Daily neutral; Weekly oversold.
  • Support / Resistance Levels: Support for EUR/USD lies at 1.3436 (Mar2 low), 1.3424 (May18 low), 1.3405 (61.8% Fibonacci retracement of Oct’08 to Nov’07 rally), 1.3330 (Jan27’09 high). Resistance lies at 1.3777 (downtrend from Dec), 1.3736 (Mar3 high), 1.3788 (Feb 17 high), 1.4026 (Feb3 high), 1.4194 (Jan25 high), 1.4579 (Jan13 high) and 1.4626 (Nov low).

Positioning:

  • The CFTC net non-commercial positioning has moderated slightly to -61.6K, but remains near the recent record low. This is strongly suggestive of EUR/USD either being near a bottom or collapsing from some new sovereign default problems.
  • The risk reversal (3m, 25delta) is very low near the Dec’09 low, but rising, suggesting a stabilization in the currency.
  • Implied Vol (3m) remains subdued as EUR/USD holds 1.35.

Cross-asset valuation: EUR/USD has strong correlations with crude oil (positive) and 2yr spread (positive). The correlation with the S&P has diminished.

GBP/USD. Holding 1.50

Cable (1.5038) is up overnight and is holding 1.50 rather than trending lower towards a test of the year’s low as it looked yesterday.

Data release: The BoE quarterly inflation survey showed a pickup in consumers’ expectations for inflation from 2.4% a year out in November to 2.5%.

Technicals:

  • Trend: Daily higher; Weekly lower.
  • Overbought/Oversold (stochastics): Daily oversold; Weekly oversold.
  • Support/Resistance Levels: Resistance lies at 1.5196 (Mar8 high), 1.5816 (Feb17 high), 1.6284 (Jan22 high), 1.6458 (Jan19 high),1.6479 (61.8% retracement of Nov to Dec decline), 1.6722 (Dec 3 high), 1.6878 (Nov16 high) and 1.7043 (Aug high). Support lies at 1.4784 (Mar 1 low) and 1.4338 (76.4% retracement of Jan-Aug’09 rally.)

Positioning:

  • The CFTC non-commercial net position fell further to a record low -70.8K, suggestive of either an imminent rebound in GBP or some new implosions in either the banking system or economy there.
  • The risk reversal (3m, 25delta) is stabilizing after collapsing to a low since Feb’09, a warning sign that GBP/USD should be finding a bottom in here somewhere.
  • Implied Vol (3mo) is down overnight and is retreating from near the highs since Nov’09 as spot stabilizes.

Cross-asset valuation: The only strongly significant correlates over the past two months for GBP/USD have been the DXY (negative) and EUR/USD (positive). However, the correlation with the S&P (positive) and crude oil (positive) are increasing.

USD/CHF. Losing 1.08 as upward momentum fades

USD/CHF (1.0694) is down overnight but while it is trading lower intra-day highs, it is also trading higher intra-day lows, providing a mixed view. However, technical upward momentum is fading, suggesting the next trend is lower.

Data release: Internationally, the SNB will announce its 3-month Libor target rate at 8:00 NYT. The market expects the target to be held steady at 0.25%.

Technicals

  • Trend: daily lower; weekly higher.
  • Overbought/Oversold (stochastics): Daily neutral; Weekly overbought.
  • Support/Resistance levels: Resistance lies at 1.0899 (Feb19 high) and 1.1023 (Jun high), while support lies at 1.0649 (Mar3 low), 1.0508 (Dec17 high) and 1.05 (psychological).

Positioning:

  • The CFTC non-commercial net position moderated slightly to -6.8K, still suggestive of a retracement in USD/CHF.
  • The risk reversal (3m, 25delta) remains in extreme overbought territory - suggestive of stabilization of USD/CHF.
  • Implied Vol (3mo) remains subdued as spot trades consolidates around 1.08.

Cross-asset valuation: USD/CHF has correlated mostly strongly during the past 60 days with EUR/USD (negative), the USD index (positive), and gold (negative).

USD/CAD. Holding the bottom of 1.02-1.11 range

USD/CAD (1.0266) is up overnight after testing yesterday towards the bottom of the 1.02-1.11 range in place since Jul’09.

Technicals:

  • Trend: Daily lower; weekly crossing lower.
  • Overbought/Oversold (stochastics): Daily oversold; weekly neutral;
  • Support/Resistance Levels: Resistance lies at 1.0680 (Feb25 high), 1.0781 (Feb5 high), 1.0870 (Nov2 high), 1.0959 (Oct high), 1.0993 (Sep high), 1.10 (psychological), and 1.1125 (Aug 17 high). Support lies at 1.0217 (Mar10 low), 1.0207 (Oct low), and 1.00 (psychological).

Positioning:

  • The CFTC, non-commercial, net position rose to 40.1K, a relatively extreme position suggesting that this market segment has little to give in terms of pushing USD/CAD lower.
  • The risk reversal (3m, 25delta), is stabilizing, although the skew has slipped towards a more neutral reading.
  • Implied Vol (3m) remains near the low since Sep’08.

Cross-asset valuation: In terms of other assets correlating with USD/CAD, watch the SPX (negative), DXY (positive), CRB (negative), and crude oil (negative).

USD/JPY. Signs of wanting to rally above 90.

USD/JPY (90.68) is up overnight. It is trading higher intraday lows, but the intra days continue to fail short of 91. On the weekly chart, it continues to trace out a roughly downward wedge formation.

Data release: The final print for Q4 GDP disappointed, as it was revised lower from 1.0%q/q to 0.9%. Perhaps of more encouragement given Japan’s issues with deflation was that the GDP deflator unexpectedly improved from -3.0%y/y to -2.8%.

Technicals:

  • Trend: Daily higher; Weekly lower.
  • Overbought/Oversold (stochastics): Daily crossing higher from oversold; Weekly neutral.
  • Support/Resistance Levels: Support lies at 88.14 (Mar4 low), 87.37 (Dec9 low) and 84.83 (Nov27 low). Resistance lies at 90.82 (Mar10 high), 92.15 (Feb19 high) and 93.77 (Jan8 high).

Positioning:

  • The CFTC, non-commercial net position rose to 34.8K, a relatively extreme position that suggests little support for USD/JPY downside from this market segment.
  • The risk reversal (3m, 25delta) has risen towards an extreme suggesting little support for USD/JPY upside from this market segment. Note that the CFTC and RR are at opposite extremes.
  • Implied vol (3m): remains at very low levels.

Cross-asset valuation: The correlations of USD/JPY with the US 10yr yield (positive), the US-JP 10yr (positive) spread, S&P (positive), and crude oil (positive) are significant.

AUD/USD. Trending higher on daily, but within weekly range

AUD/USD (0.9156) is up overnight and trending higher on the daily chart. On the weekly chart, gains have merely put spot back into the middle of the range since late-’09.

Employment change: Employment failed to rise as much as expected (0.4K, consensus 15.0K), although the unemployment rate did come in as expected at 5.3%.

Technicals:

  • Trend: Daily higher; Weekly lower.
  • Overbought/Oversold (stochastics): Daily overbought; Weekly neutral.
  • Support/Resistance: Technical support lies at 0.8979 (Mar4 low), 0.8801 (Feb25 low), 0.8579 (Feb5 low) and then 0.8500 (psychological). Resistance for AUD/USD exists at 0.9193 (Mar10 high), 0.9406 (Nov16 high) and then 0.9850 (Jul’08 high).

Positioning:

  • The CFTC, non-commercial net position rose to 49.6K, an elevated reading suggesting the AUD/USD rally is maturing.
  • The risk reversal (3m, 25delta) is in neutral territory, though rising, which is consistent with AUD/USD gains.
  • Implied Vol (3m) is down and remains at very subdued levels (low since Sep’08.)

Cross-asset valuations: AUD/USD has correlated most strongly with gold (positive), equities (S&P500, positive), commodities (CRB, positive) and the USD Index (negative.)

NZD/USD. Can’t escape 0.7000.

NZD/USD (0.7002) is down overnight and again straddling 0.70 after yesterday’s test higher.

RBNZ left its official cash rate target on hold, as expected. The key market mover, which weighed on kiwi, was that Governor Bollard warned of a slower exit from stimulus measures.

Technicals:

Trend: Daily higher; Weekly lower.

Overbought/Oversold (stochastics): Daily neutral; Weekly oversold.

Support/Resistance: Resistance lies at 0.7098 (Mar10 high), 0.7442 (Jan14 high), 0.7500 (psychological) and 0.7635 (Oct21 high). Support lies at 0.6852 (Mar4 low), 0.6848 (Feb25 low), 0.6808 (Feb5 low), and 0.6594 (Jun high).

Positioning

  • The CFTC non-commercial, net position fell to 5.1K, and the opposing moves in AUD and NZD positioning is consistent with the AUD/NZD top last week.
  • The risk reversal (3m, 25delta) is up and relatively neutral.
  • Implied Vol (3m) is down at the low since Sep’08.

Cross-asset valuations: The strongest correlates for NZD/USD during the past two months have been AUD/USD (positive), the USD index (negative), stocks (S&P500, positive) and commodities (CRB index, positive).