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Intermarket:
Risk appetite appears to be weakening into today’s European session, and despite a resilient performance in Asia trade. Treasury yields have recovered somewhat, driving strength into the US. Crude oil is lower after an unexpectedly large inventory build.
The notable development in overnight US trading was the pullback in bond yields and big rally in tech/growth names. However, traders are bracing for a wave of selling into the 2nd half of March: a combination of pension rebalancing, 60-40 strategy rebalancing, momentum model rebalancing, and end-of-month/end-of-quarter. Buyers beware.
Central banks in focus with RBA’s Lowe pushing back against market expectations of rate hike, while RBNZ went the other way removing some emergency liquidity facilities.
Finally, House Democrats aim to pass Biden’s $1.9Trl relief bill today.
Also, Friday’s Quad summit (US, JP, India, AU) expected to focus on countering China, and will cover topics including funding to boost India vaccine output, securing supply chains and critical technologies, and boosting maritime security.
Looking ahead: the main focus today will be the Bank of Canada rates decision. Analysts are looking for a hawkish shift as economic data has improved since the last meeting, and vaccine rollout has brightened the outlook.
Matters that Matter:
• House to pass Biden’s $1.9 trillion package today
• U.S. Pres Biden, Japan PM Suga, India PM Modi, Australia PM Morrison online Quad meeting Friday
• China Feb factory prices roar back, YY +1.7%, +1.5% f’cast, +0.3% prev
• Australia’s central bank dismisses rate hike talk, cements lower-for-longer rate view
• RBNZ curbs some facilitations as economic conditions improve
• SNB pleased with franc weakening
Majors 1-Day View:
USDJPY
- Prices posted the 10th higher daily high & low in a row on Tuesday highlighting overstretched signals. Sellers returned to the market from 109.20s but were unable to interrupt the trend of higher daily lows. As such, signals are more mixed for today but on balance we prefer to sell rallies towards 110.00 or sell through 108.30.
- JPY pairs bid again in Asia after yesterday’s pullback as Yields rise.
- Offers & large barrier options reported at 110.00
- Decent demand reported in GBPJPY
EURUSD
• Prices posted the 4rd lower daily high & low in a row on Tuesday despite buyers returning from 1.1830s. As such, signals are more mixed for Wednesday and we favour buying any dip to 1.1830.
• Even as IMM Net-Spec positioning remains long, Eur under pressure as yields drive inflows into USD.
• Support at 1.1830s holding for now, resistance 1.1950
• Little movement expected ahead of ECB tomorrow.
AUDUSD
• Buyers returned to the market on Tuesday from close to last week’s lows, posting a bullish engulfing at the daily level. As such, signals are bullish for Wednesday.
• Under pressure on RBA comments and USD strength.
• Resistance at .7800, support at .7600.
GBPUSD
• Prices interrupted the trend of lower daily highs on Tuesday, with gains of 1 Big Fig. However, sellers returned to the market from close to Friday’s top, prices now trading back within the 1.3860-1.3800 range. As such, signals are more mixed but on balance we prefer to buy any dip to 1.3800 today.
• Pound softer into Wednesday on yields, USD strength.
• Prices back in 1.3800/3860 range.
FX Relative ATR Grid
Comment: Volatility is becoming more uneven in FX, with USD and CHF posting expansions and impacting the crosses. However, trading conditions still remain favourable.
Relative Strength Grid
Comment: The strongest trends are in USD (bullish), CAD (bullish), CHF (bearish), JPY (bearish), EUR (bearish). The strongest momentum was seen yesterday in CHF (bullish), JPY (bullish) and EUR (bearish).