USD Lower With Risk Back On


USD softer against all of the G10 currencies except for the JPY after softer inflation data and amid hopes that the second Greek bailout will get the go-ahead on Monday. U.S. January CPI grew by less than expected with a headline reading of 0.2% m/m from the prior 0.0 (cons. 0.3%) and a core print of 0.2% m/m (prior 0.1%, cons. 0.2%). Global equity markets continue to rise as risk sentiment is supported by an optimistic view that Greece will avert a messy default. European markets are trading to the upside and US stock futures are suggesting a positive start to the day. UST yields are higher across the curve with the 10-yr Treasury yields back above the 2.00% level (currently around 2.02%). The Dollar Index remains inside of its daily ichimoku cloud but is now testing the cloud base after being rejected from the cloud top yesterday. The base of the cloud is just above the 79.00 level and will be a pivotal level on a daily closing basis.

EUR rising on optimism that a Greek deal can be reached on Monday. Italy’s Monti, Germany’s Merkel, and Greece’s Papademos held 3-way phone talks today and said that an agreement on Greece can be reached at the Feb. 20 Eurogroup meeting. ECB members were also on the wires with Weidmann reportedly saying that he did not support the decision to swap Greek bonds for new ones and Knot saying that the “sovereign debt crisis clearly demonstrates that the job is not yet done” but that the crisis is not one of the single currency. In other Europe news, German President Wulff resigned, becoming the second German president to quit in less than 2 years. The news was shrugged off by the markets as the role of the German president is to act as more of a figurehead while Chancellor Merkel handles most decision making. The euro was stronger across the board, most notably against the JPY. EUR/USD rose to test the 200-hour SMA which is around current levels of 1.3180/85.

JPY continues to decline as the market continues to adjust to the recent change in BOJ policy and weak fundamentals. Governor Shirakawa spoke overnight and said that Japan has a long way to go to beat deflation and that there is no ‘magic wand’ to boost Japanese growth. USD/JPY extended its ascent and approaches the 79.50 area which were the highs made in late October after the last round of massive intervention.

GBP slightly firmer after better than expected economic data reduced expectations of additional asset purchases. January retail sales unexpectedly rose by +1.2% m/m (cons. -0.3%) and +1.9% y/y (cons. -0.1%). GBP/USD advanced to current levels of around 1.5830 and sees the key 200-day SMA above at about 1.5915 which should be resistance in the near term.

CAD is higher against the buck after stronger than expected Jan. leading indicators and higher CPI. January headline CPI rose +0.4% m/m from the prior -0.6% (cons. +0.3%) and 2.5% y/y (prior 2.3%, cons. 2.3%) while core prices grew 0.2% m/m from the prior -0.5% (cons 0.1%) and 2.1% y/y (prior 1.9%, cons 1.9%). Leading indicators came in at 0.7% in Jan. (cons. 0.6%). Stronger oil also helped to support to Loonie with WTI crude currently over $103/barrel and up about +1.02% at time of writing. USD/CAD is trading firmly below the 200-day SMA but faces horizontal support around the 0.9925/30 zone which is the key downside pivot.


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