Currency Updates:
AUD/USD The key 0.7720/40 support zone was neared in Europe’s morning but couldn’t be taken out. The ensuing short covering bounce saw the pair lift near 0.7770 ahead of Yellen’s testimony. The initial USD rally after Yellen’s comments were released saw the support zone tested again but once again it held. The quick reversal in the USD’s gains saw the pair spike back above the 10 & 21-DMAs and approach 0.7830. The pair dipped back near 0.7800 but lifted again as AUD/NZD broke above 1.0430 resistance and eventually trade to 1.0471. AUD/USD’s lift saw the pair just below the 0.7830 level in NY’s afternoon. Traders now look to China’s Feb HSBC Mfg PMI for cues. Should the result come in above the 49.5 forecast (prv 49.8) we might see offers in the 0.7850/60 zone tested again. IF they get filled and 0.7880 breaks we’ll likely see a decent sized short squeeze. The pair then might make a run to 0.8000/30 resistance.
EUR/USD Europe bounced EUR/USD off support near 1.1295 after EG’s Dijsselbloem noted EZ ministers could consider debt relief measures if Greece met all criteria. The pair neared 1.1340 in early NY. It slipped a bit after the EU commission noted Greece’s list is ‘sufficiently comprehensive to be a valid starting point for a successful conclusion of the review’. EUR/USD then sat near 1.1320 pre-Yellen The initial comments were taken hawkish as it looked like a rate hike was still on the table for the June-Sep period. A broad based USD rally took hold and EUR/USD dived down to 1.1288 in no time. Upon further examination of the comments it became clear Yellen wasn’t as hawkish as thought. The USD’s gains quickly eroded. EUR/USD rallied towards the 21-DMA as it hit a session high of 1.1359. Offers into the 21 & 10 DMA and by hourly highs near 1.1363 combined with EUR/JPY’s plunge below 134.55 to keep EUR/USD’s gains limited. The pair then lingered in the 1.1305/45 range for the remainder of the day with it sitting near the upper limit towards the end of day. It appears the recent 1.1270/1.1450 range will hold for the time being.
USD/JPY High hopes that Fed Chair Yellen’s testimony would at least moderately reinforce the notion of tightening finally beginning midyear had sent USD/JPY to a fleeting intraday peak of 119.84, only to have prices implode when it became clear she was intent on not boxing her or the Fed into any tightening timeframe. Tsy yields tumbled, dragging USD-JPY 2-yr spreads to their lowest since Feb 6 and USD/JPY all the way down to Monday’s 118.75 low. Prices did, however, manage to hold above the 55- & 21-DMAs at 118.71/51, as well as the daily Kijun at 118.56. The net change on the day is negligible, due to the Fed Chair’s noncommittal stance. The implied yield on the June Fed funds futures contract is 15.5bp and only about 1.5bp less than Monday, though yields further out the curve were 4-6.5bp lower, in part still working off some of the outsized rise in rates that followed the Jan NFPs report. Exporters remain happy to fade rallied toward 120 and 1-mo vol has sunk back to the Feb 5 nadir of 9.2. Daily Cloud twists Wed, with the base rising to the key 118.10 support level. There’s a flurry of US & Japanese data on Thur & Friday, along with more Fed speak.
Looking Ahead – Economic Data (GMT)
• 00:30 AU Construction Work Done* Q4 f/c -1.2%, -2.20%-prev
• 00:30 AU Wage Price Index QQ* Q4 f/c 0.6%, 0.60%-prev
• 00:30 AU Wage Price Index YY* Q4 f/c 2.5%, 2.60%-prev
• 01:45 CN HSBC Mfg PMI Flash Feb f/c 49.5, 49.70-prev
Looking Ahead – Events, Other Releases (GMT)
• 23:40 NZ RBNZ Governor Wheeler at Finance Select Committee
