USD/JPY tumbles, AUD climbs, UBS to buy Credit Suisse

Global Banking Crisis Eases; DXY Slides, PBOC Cuts Reserve Ratio

Summary

Global financial markets breathed a sigh of relief after Swiss giant, Union Bank of Switzerland agreed to buy troubled Credit Suisse for CHF 3 billion (USD 3.2 billion).

Global bonds rallied while yields tumbled. The benchmark US 10-year treasury yield fell 13 basis points to 3.43%. Germany’s 10-year Bund rate plummeted to 2.10% from 2.28% Friday.

The Euro (EUR/USD) rebounded 0.37% to 1.0647 (1.0612) extending its uptrend which began Friday. Inflation figures out of the Eurozone stayed elevated. Eurozone Annual CPI rose 8.5% in February, as expected. Annual Core Inflation in February climbed by 5.6%, unchanged from the previous month.

Risk leader the Australian Dollar (AUD/USD) rallied 0.32% to 0.6700 against 0.6653 Friday. Against the Japanese Yen, the Greenback plummeted 1.31% to 131.85 (133.48).

The Dollar Index (USD/DXY), a popular measure of the Greenback’s value against a basket of 6 major currencies, slid 0.53% to 103.87 from Friday’s open at 104.06.

On Saturday, China’s central bank, the PBOC (People’s Bank of China) cut its Reserve Ratio Requirement by 0.25 percent, effective 27 March. The PBOC last cut its RRR in December by 0.25%.

Other economic data released Friday saw the US University of Michigan Consumer Sentiment for March slide to 63.4 from a previous 67.0. US February Capacity Utilisation fell to 78.0 from 78.3.

At the close of trade in New York, Wall Street stocks rose. The US NASDAQ rallied over 4% in a choppy ride.

USD/JPY – In another volatile session, the Greenback plummeted against the Japanese Yen to 131.85 from Friday’s open at 133.48. The overnight low traded was at 131.49. The recorded high was at 133.58. The slide in US bond yields weighed on the USD/JPY pair.

EUR/USD – The shared currency cemented its rally above the 1.0600 level, soaring to an overnight high at 1.0685 before easing at the close of trade to 1.0647. In choppy trade, the overnight low recorded was at 1.0612.

AUD/USD – Risk leader, the Australian Dollar climbed to 0.6700 (0.6653) as risk appetite improved following the news of the UBS buyout of Credit Suisse. Overnight, the AUD/USD pair traded to a high at 0.6725 while the overnight low recorded was at 0.6654. Broad-based US Dollar weakness and a robust Australian Jobs report supported the Battler.

GBP/USD – The British Pound edged higher against the overall weaker US Dollar to 1.2180 from 1.2120 Friday morning. Overnight, Sterling soared to a high at 122.00 before dipping at the close. The overnight low recorded was at 121.02 in volatile trade.

On the lookout

Economic data releases today are light and begin with the Bank of Japan’s Summary of Opinions. This is the BOJ’s projection for inflation and economic growth. The UK follows with its March Rightmove House Price Index (m/m no f/c, previous was 0%; y/y no f/c, previous was 3.9%.
Germany follows next with its February Producer Price Index report (m/m f/c -0.5% from -1% - ACY Finlogix; y/y f/c 14.5% from a previous 17.8% - ACY Finlogix). Germany’s Bundesbank releases its Monthly Report (10 pm Sydney, 20 March). Canada releases its January New Motor Vehicle Sales (f/c 91,300 from a previous 111,100 – ACY Finlogix).

Trading perspective

The week begins with the US Dollar on the backfoot due to the marked fall in US Treasury yields. Risk appetite steadied following the news that UBS would take over Credit Suisse. While fears of contagion eased on Friday following the move, we can expect more volatility in Asian markets today. The old but popular tune of the 60’s and 70’s group the Mamas and the Papas, “Monday, Monday” rings familiar. The song was written about Mondays, the start of the week, which to the writer meant dreariness or dread. For currency traders, this means more volatility, which is welcome for most. While the Greenback finished on the back foot, it is far from down and out. Expect another choppy session to begin our week. Happy days!

EUR/USD – The shared currency has had a good run against the Greenback following its break above 1.0600. The Euro was boosted by the news of UBS’s takeover of Credit Suisse. On Thursday, the ECB hiked its Main Refinancing Rate by 50 basis points to 3.5%. While the move was widely expected, it is supportive of the EUR/USD pair. Today, immediate resistance lies at 1.0700 followed by 1.0730. Immediate support can be found at 1.0640, 1.0610 and 1.0580. Look for another choppy day in the Euro, likely range 1.0600-1.0700.

USD/JPY – Against the yield sensitive Japanese Yen, the US Dollar plummeted by 1.3% to 131.85 (133.48 Friday). The huge rally in bond prices, and plunge in yields were supportive for the Japanese Yen. Japan’s 10-year JGB yield rose on Friday to 0.28% from 0.22%. The climb, coupled with the plunge in the US 10-year rate (to 3.43% from 3.56%) weighed heavily on the Greenback. Immediate support lies at 131.50 and 131.20. On the topside, look for immediate resistance at 132.20, 132.50, and 133.00 to cap. Likely range today, 131.50-132.80. Trade the range, lots in it.

(Source: Finlogix.com)

AUD/USD – The Aussie Battler rebounded against the broadly based weaker US Dollar and improved risk sentiment. Overnight the AUD/USD soared to a high at 0.6725 before settling in late New York at 0.6700. On the day, look for immediate resistance to cap at 0.6725 and 0.6755. Immediate support can be found at 0.6675 followed by 0.6645. Look for the AUD/USD to trade a likely range between 0.6650-0.6730. Prefer to sell rallies today.

GBP/USD – The British Pound rallied against the overall weaker US Dollar to 1.2180 from Friday’s 1.2120. On the day, look for immediate resistance at 1.2200 (overnight high traded was 1.2200) followed by 1.2240 to cap. Immediate support can be found at 1.2150 followed by 1.2120 and 1.2090. This week the Bank of England will announce its monetary policy decision (Thursday, Sydney, 11 pm). The BOE is widely expected to increase its Official Bank Rate by 25 basis points to 4.25%. Expect the British Pound to remain supported against the Greenback today, with a likely range of 1.2110 to 1.2210. Trade the range.

Have a good week ahead all. Happy Monday, happy trading.