NY SESSION: USD weaker as risk sentiment rebounds

Risk sentiment rebounded with equities and US treasury yields advancing, European sovereign yield spreads easing, and the USD and JPY declining. Central bank chiefs spoke today with the Fed’s Bernanke testifying for the second day in Washington (this time before the House) while the ECB’s Draghi spoke in Munich. Italy successfully raised its maximum target of €6.5B in a sale 5- and 10-year bonds, US core durable goods orders rose in January by the most in a year, and pending home sales increased by more than expected.

US durable goods orders fell by -5.2% in January (cons. -4.8%). However, excluding transportation, orders jumped by +1.9% which was the most in a year (cons. +0.2%). Housing market indicators continued to show improvement with a stronger than expected increase in pending home sales which rose by 4.5% in January from the prior month (cons. 1.9%) and a 10.4% jump in the yearly change (cons. 8.2%).

Fed Chairman Bernanke’s comments before the House today were consistent with yesterday’s testimony before the Senate. Bernanke indicated that a “significant majority” of the FOMC supports current policy and that the housing mark is “still far” from where the Fed wants it. Regarding rates, he said that rates will rise over time and higher rates may signal a stronger economy.

ECB President Draghi indicated that the Bank is “far” from exiting stimulus measures. He said that ECB policy accommodation will stimulate growth and noted that the speed of recovery differs across the Euro area. The euro rose against the buck as Draghi’s comments showed the Bank’s willingness to support the economy. EUR/USD is currently testing above the 100-day SMA after rebounding from the base of the daily cloud. The pair see the daily cloud top and Tenkan line converge around the 1.3250 area key upside resistance.

BOJ announcement expected

USD/JPY tested channel support and the daily Kijun line for the third consecutive session. Tonight, Japanese Prime Minister Abe is expected to announce his nominations for new Bank of Japan members with the main frontrunner for the top job being current Asian Development Bank head Haruhiko Kuroda. As this is largely expected, markets have had time to price in the potential announcement and we do not expect much of a market reaction unless there is a surprise nominee or strong official rhetoric.

Data watch

On the data front for the upcoming Asia/Pacific session are New Zealand January building permits and February business confidence. There is a slew of data due out of Japan which includes weekly securities investments figures, January industrial production, housing starts, construction orders and vehicle production. Australia releases numbers for January new home sales, private sector credit, and 4Q capital expenditures.