Morning FX thoughts - 10 Feb '12

Westpac Global Markets Strategy Group

Friday 10th February 2012

Risk sentiment improved slightly further after an announcement during the London session that Greek politicians had agreed on austerity measures which were acceptable to the IMF/EU/ECB troika. Eurogroup head Juncker later restrained the market, pointing out that a decision on the next rescue package was unlikely at the Eurozone finance ministers’ meeting currently in progress, citing the requirement for Greece’s parliament to approve the measures before a rescue offer can be made. The S&P500 is currently 0.3% higher, the muted advance perhaps partly due to much of the good news (including expectations) already being priced in. The CRB commodities index is 0.2% higher (oil +1.1%, copper +1.7%, gold +0.3%). US 10yr treasury yields are 7bp higher at 2.05% after earlier probing 2.08%, and the 30yr auction was tepid. The Greek 10yr shed 20bp in yield, Portugal -18bp.

The US dollar index is slightly lower. EUR made a fresh two month high at 1.3322, supported by the positive developments in Greece. The ECB remained on hold as expected and offered no signal for rate cuts ahead but noted tentative signs of stability and confirmed looser standards for collateral ahead of the 28 February liquidity offering to banks. The BOE increased its asset-purchase program by GBP50bn, also as expected. Safe-haven yen underperformed and USD/JPY rose from 77.20 to 77.60. AUD ran out of steam after the Sydney close, probing 1.0824 several times and settling around 1.0800. NZD similarly looked tired, only managing 0.8378 before settling around 0.8360. AUD/NZD ranged sideways between 1.2910 and 1.2945.

AUD/USD and NZD/USD outlook next 24 hours: The EZ meeting should dominate headline space this morning. Locally, there is the RBA monetary policy statement to read, NZ has electronic retail spending, and China has trade data. The technical setups remain unchanged, both currencies overbought and signalling reversals. AUD major resistance remains at 1.0840, NZD’s at 0.8410.

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