Morning FX thoughts - 23 Jan '12

Commodity currencies and US treasury yields advanced but equities and commodities were capped during London and NY sessions which were largely devoid of significant news.

Greece’s Proto Thema reported that the country and banks holding its debt had reached an agreement involving a debt swap into 30 year bonds with an initial coupon of 3.10% rising to possibly 4.75%.

That, plus a WSJ article by Hilsenrath suggesting there is little chance the Fed will raise the prospect of further QE at this week’s meeting , helped the US 10yr yield rise from 1.96% to 2.03%, still inside the 1.80%-2.04% range since mid-December.

US equities were hurt by a sub-consensus earnings result from Google, despite positive surprises from IBM, Microsoft and Intel, but staged a late rally to finish up just 0.1%.

The CRB commodities index closed 0.7% lower, copper -1.5%, oil -2.2% but gold +0.5% and silver +5.1%. Eurozone 10yr bond yields were mixed, France and Italy down 5bp and 12bp but Greece and Spain 24bp and 26bp higher.

The US dollar index changed little on the day. Underperforming most, EUR fell from 1.2986 to 1.2887 in London but closed in NY higher at 1.2931. USD/JPY fell from 77.30 to 76.92, closing at 77.04. Speculative futures positioning as at the previous Tuesday was reportedly made a fresh record low.

AUD outperformed, rising from 1.0383 in London to 1.0489 (last seen in 1 November) in NY. NZD also fared well, rising from 0.7995 to 0.8064. AUD/NZD rose from 1.2960 to 1.3000.

AUD/USD and NZD/USD outlook next 24 hours: Australian PPI for Q4 today will warm the markets for Wednesday’s important CPI release. AUD’s break above 1.0450 on Friday maintains the positive momentum since mid-December and suggests an upward bias today with minor resistance at 1.0500. NZD similarly remains inside a five-week old ascending channel, minor resistance at 0.8080.

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