The witnessed risk aversion trend overnight was modestly reversed in NY trading and the US dollar suffered as a result. Stocks managed to close the day flat on the back of gains in the health care and tech spaces, as 4Q earnings for some prominent companies beat estimates. Bonds were scooped up, however, in a sign that not all is calm in financial markets. The US 2-year slipped more than -7bps to 0.86% while the 10-year shed about -13bps into the 2.71% area. Gold gave up overnight gains and settled down more than -$24 but still well above $900/oz support.

Better than expected US economic data also help to keep risk trades modestly bid in FX. US January ISM manufacturing rose to 35.6 while the market was anticipating a decline to 32.5 from 32.9 the prior month. EUR/USD broke hourly trendline resistance near 1.2850/55 and this sent the pair on a try for the 1.2900 session high. Overall EUR/USD was about 75 pips higher in the session and sitting right near that 1.2850 area as the session was coming to a close. EUR/JPY was higher as well and rallied more than 100 pips into the 115.00/10 zone. Cable recovered from the prior session beating and rallied more than 170 points after the break back above 1.41 triggered some buying interest. Crude oil prices gyrated significantly but finished NY trading near the $40.50 open. This has USD/CAD relatively unchanged around 1.2430 for the session.

The highlight for the upcoming Asia session now is the RBA rate decision at 2230ET/0330GMT. The market is looking for a -100bps cut to 3.25%, which would be a new all-time low. Last fall the RBA intervened as AUD came crashing down amid the massive carry-trade unwind of 2H 2008, but with AUD relatively weak yet stable it is unclear whether the RBA will have the same sense of urgency this time around.  If the RBA cuts by the expected -100bps, we would expect to see AUD retest its overnight lows around the 0.6250 level. The 21-hour SMA by 0.6300 is short-term support, while the 55-hour SMA is resistance near the 0.6365/70 mark.

Upcoming Economic Data Releases (Asia Session)  prev  est

  • 2/2 23:50 GMT JN  Monetary Base (YoY)  JAN  1.80%  - -
  • 2/3 0:30 GMT AU  Trade Balance  DEC  1448M  1050M
  • 2/3 1:30 GMT JN  Labor Cash Earnings YoY  DEC  -1.90%  -1.50%
  • 2/3 3:30 GMT AU  RBA CASH TARGET  3-Feb  4.25%  3.25%