A development from out of left field overnight as a Saudi Arabian move to intervene in Yemen suddenly has oil rallying and the selloff in risky assets deepening. This kind of development is very difficult to assess in terms of its durability, not least because risky assets seemed to be selling off in the US yesterday well before this story broke overnight.
In any case, the pattern at the moment seems to be JPY strongest on the general risk-off implications, followed by EUR (offsetting carry trade exposure) and then the USD somewhere in the middle of the pack.
Also, we have CAD and NOK rallying hard on the implications for crude oil. It’s in the latter that the effects of this story could fade the quickest, as these are hardly two currencies associated with thriving in a risk-off environment.
Raw sentiment and nerves will dominate the trading environment today as we watch the stock indices, JPY crosses and oil price as much as any fundamental developments.
Chart: USD/JPY
USD/JPY was sold heavily overnight on the general risk-off environment and the over the new geopolitical tensions from the situation in Yemen. The first critical support areas below the recent 119.25 range support have already neared this morning at the Ichimoku daily cloud near 118.50, which is followed by the bottom of said cloud in coming days that happens to coincide with the 61.8% retracement of the rally from the 115.85 low to the 122.00-plus top.
The G-10 rundown
USD: Before this Yemen story broke, the greenback actually survived a very weak durable goods order number yesterday with relative aplomb, suggesting reasonable strength – but now everything is clouded by this sudden new situation and the USD is under pressure across the board this morning. Watching the last shreds of local USD/JPY support and the 1.10 area in EUR/USD as the key indicators. It’s incredibly difficult to stomach NZD/USD rallying when the world is in risk-off mode this morning – but that is what is happening. We seem to have entered the kiwi Twilight Zone.
EUR: The euro is thriving on the offsetting of previously popular carry trades inspired by the ECB’s QE programme. If the panic eases, the currency may begin to underperform again – certainly looking for a turnaround in EUR/USD, with bears needing a sell-off back through 1.0900/1.0885 to feel more comfortable.
JPY: Thriving on all of the selling of risky assets and this may continue, particularly as the risk-off move came in the US even ahead of developments overnight. Still, let see if important USD/JPY support between 118.20 and 118.50 is taken out in the coming sessions.
GBP: Odd to see GBP outperforming the USD this morning and have to imagine this is merely piggybacking the EUR/USD attempt above 1.1000. Watch out for Retail Sales today.
CHF: Notable that we got very little CHF upside on the risk meltdown, suggesting that the risk is weighed toward a much weaker CHF. At the moment, 1.0500 looks like minor support in EUR/CHF and would prefer to see the pair back above 1.0550 to prefer CHF selling opportunities.
AUD: Weaker overnight on the risk-off, but bouncing this morning as we remain in a nervous pivot zone. The bears have the recent false break higher to support a downside focus in AUD/USD, but their case only firms with a solid confirmation below 0.7800.
CAD: Boosted on the spike in oil prices overnight. Watching the local 1.2425 low and then the 1.2355 range low from early February.
NZD: Somewhat weaker than AUD, as we continue to watch whether AUD/NZD is going to follow through higher after showing signs of bottoming. Again, a rally to 1.0500 needed there for more focus on NZD selling as opposed to AUD selling.
SEK: Not receiving much attention – generally weaker versus the euro because of the strength in the latter on ongoing position offsetting.
NOK: Rallying on the spike in oil on geopolitical developments, though the relative strength of the NOK rally looks modest given the strength in oil. Important data up tomorrow from Norway in the form of Retail Sales and Unemployment Rate as the 200-day moving average and range lows are not far away in EUR/NOK.
Economic Data Highlights
- Germany Apr. GfK Consumer Confidence rose to 10.0 vs. 9.8 expected and 9.7 in Mar.
Upcoming Economic Calendar Highlights (all times GMT)
- UK Feb. Retail Sales (0930)
- UK Mar. CBI Reported Sales (1100)
- US Weekly Initial Jobless Claims (1230)
- US Fed’s Lockhart to Speak (1300)
- Canada Bank of Canada Governor Poloz to Speak (1330)
- US Mar. Preliminary Markit Services PMI (1345)
- US Mar. Kansas City Fed Manufacturing Activity (1500)
- Switzerland SNB’s Zurbruegg to Speak (1700)
- Japan Feb. Jobless Rate (2330)
- Japan Feb. Overall Household Spending (2330)
- Japan Feb. National CPI (2330)
- Japan Feb. Retail Trade (2350)