Getting constructive on the USD

The technical situation for most USD crosses is looking very interesting and suggestive of further gains. To boot, a very good US jobless claims number is boosting USDJPY past key resistance – but how will the market react to the 30-year auction later?
China ignored the negative action in the US overnight that was at least partially triggered by an ugly report from Cisco after the NY close. But the overall stronger USD and weaker risk appetite picture shows that the two developments remain inseparably intertwined at the moment and that China seems to trade in its own world.

Constructive technical developments for the USD
Into this morning’s early US hours, we are seeing interesting technical developments in many of the major USD crosses that suggest the USD bulls are beginning to build a case for a major stand in the USD after its recent probing of the lowest levels (vs. a basket of the rest of the G-10 currencies) since the summer of 2008.

Chart: EURUSD
EURUSD found resistance just above the key 618 Fibonacci resistance at 1.3727 (for wave from 1.3863 to 1.3508) and is seeing an engulfing bearish candlestick today. We still need to see the pair through the 1.3400/50 area to confirm a full structural turnaround here, but at least the bears have some talking points now.

Chart: AUDUSD
AUDUSD couldn’t maintain momentum after the recent move back through the 1.0087 previous high and the move back below this level and below the weekly pivot at 1.0070 is interesting, though we need a full dive and close back through parity to get the ball rolling for the bearish argument.

Chart: USDJPY
USDJPY is trying to close above the 55-moving average for the first time since having a peak above to start the year. The front end of the curve is supportive, as we have covered in the recent past (see our post from Tuesday), but the long end has shown signs of some resistance to further rises, so today’s 30-year auction will be interesting to see how much more the pair can rally here in the short term.

Chart: USDCAD
USDCAD is still biding its time below parity, but the double bottom keeps a default upside view until proven otherwise. Brent crude needs to join WTI in a sharp fall and risk appetite needs to come off further to help the dam break back toward the 200-day moving average.

Chart: GBPUSD
Cable is teetering at the key 1.6025 level and a swoon below that line in the sand would appear to open up the pair for 1.5800. GBP looks relatively strong in some of the other crosses. (this has often been the case in the past, when the GBP weakly echoes the greenback’s moves.)

Odds and ends
The Australia employment report was weaker than it appeared on the headline. After last month’s very weak reading for December, the slight beat for January underwhelmed, as did the details of the report, which showed no full time employment gains (the gains coming rather from part time work).

The European industrial production data for December looks rather weak, after a weak German number recently and then followed up by a very weak Swedish production number for December released today as well. The UK data looked less weak and is somewhat of an encouragement for the resistance to further upside in EURGBP.

The BoE left rates and the asset purchase target unchanged as expected, and with no statement issued, this “development” saw the pound a bit firmer versus the Euro, and we won’t know the BoE’s thinking for another few weeks when the minutes are released.

US weekly jobless claims data looked very positive, though if we average with last week’s very bad spike, the flat “trend” around the 400-425 level has not been erased and we’ll need to see several more readings below 400k as we get into the less weather-affected month of March.

Looking ahead
We’ve got the RBA’s Stevens out testifying before a parliamentary panel tonight. Seems like a bit of bellyaching about Aussie strength and the imbalanced Australian economy might be in order (we think it’s in order, but will Mr. Stevens deliver this kind of rhetoric.) The market seems to have forgotten that the issue of Aussie strength crept up in RBA statements some months ago.

Let’s watch the close today, but the USD has already made a move and now we need a follow up move on Wall Street for confirmation that the incredible run in risk appetite (we outlined a few divergences in equities in yesterday’s video that suggest cause for at least short term caution and we tweeted a few comments ahead of the RBA about basic materials equities’ declines suggesting that . Follow us on Twitter @johnjhardy – we’re a bit late to the Twitter/social media party, but better late than never.)

Finally, today we can expect the US auction of 30-year debt to go at least fairly well with solid foreign demand, judging from yesterday’s 10-year auction results. If the yield curve steepness is compelling for buyers, bond vigilantes should note that the 10-yr.-30-yr. spread is still over 100 bps, vs. an average since 1977 of 28 bps.  The question is whether foreigners shy away from the long duration – the only reason to suggest that today’s auction may not as strong as yesterday’s. Again, the most interesting reaction will be in the JPY crosses. Bunds finally look like their trying to find support, so EURJPY will be an interesting one to watch for a potential reversal lower if rate plunge again today.

Economic Data Highlights

• Japan Dec. Machine Orders rose 1.7% MoM and fell -1.6% YoY vs. +5.0%/+2.2% expected, respectively and vs. +!1.6% YoY in Nov.
• Japan Jan. Domestic CGPI rose +0.5% MoM and +1.6% YoY vs. +0.3%/+1.4% expected, respectively and vs. +1.2% YoY in Dec.
• Australia Jan. Employment Change out at +24k vs. 17.5k expected and +1.8k in Dec.
• Switzerland Jan. CPI out at -0.4% MoM and +0.3% YoY vs. -0.2%/+0.6% expected, respectively and vs. +0.5% YoY in Dec.
• Sweden Dec. Industrial Production fell -2.1% MoM and +10.0% YoY vs. +0.6%/+12.5% expected, respectively and vs. +12.3% YoY in Nov.
• Norway Jan. CPI out at -0.5% MoM and +2.0% YoY vs. -0.2%/+2.4% expected, respectively and vs. +2.2% YoY in Dec.
• Norway Jan. Underlying CPI out at -0.9% MoM and +0.7% YoY vs. -0.5%/+1.1% expected, respectively and vs. +!.0% YoY in Dec.
• Norway Jan. Producer Prices including oil rose +2.5% MoM and +22.2% YoY vs. +23.9% YoY in Dec.
• UK Dec. Industrial Production rose +0.5% MoM and +3.6% YoY vs. +0.5%/+3.7% expected, respectively and vs. +3.2% YoY in Nov.
• UK Dec. Manufacturing Production out at -0.1% MoM and +4.4$ YoY vs. +0.4%/+5.4% expected, respectively and vs. +5.1% YoY in Nov.
• UK BoE left interest rate unchanged at 0.50% and asset purchase target unchanged at 200B as expected
• Canada Dec. New Housing Price Index out at +0.1% MoM vs. +0.2% expected
• US Weekly Initial Jobless Claims out at 383k vs. 410k and vs. 419k last week
• US Weekly Continuing Claims out at 3888k vs. 3900k expected and 3935k last week.

Economic Calendar Highlights (all times GMT)

• US Dec. Wholesale Inventories (1500)
• US Fed’s Lockhart to speak (1745)
• New Zealand Jan. Food Prices (2145)
• Australia RBA’s Stevens to appear before parliamentary panel (2230)
• New Zealand Jan. Non-resident Bond Holdings (0200)