New York Open: USD Rebounds as Sentiment Deteriorates

• USD is rebounding as the recent risk rally deteriorates. Global equities are trading significantly lower and U.S. 10-year yields have dropped back below the 100-day SMA and 2.00% level and are currently around 1.97%. The buck is stronger against all of the G10 currencies with the largest daily gains currently against the AUD (+1.19%) and the Dollar Index is trading above the daily Tenkan line ahead of the convergence of the Kijun line and cloud top which are just above the 80 level. The U.S. trade deficit widened in December to $-48.8B from the prior $-47.1B and the February preliminary University of Michigan confidence survey is due out at 0955ET and expected to decline. Fed Chairman Bernanke and Pianalto are scheduled to speak on housing at 1230ET and 1250ET respectively.

• EUR declining as EU finance ministers were left dissatisfied with Greece’s austerity agreement and demanded deeper cuts and implementation plans before signing off on the deal. Germany’s Schaeuble was reported to have said that the agreed reforms will take Greece’s debt to 136% of GDP instead of the 120% previous target. France’s December industrial production figures disappointed falling to -1.4% m/m (cons. -0.7%) and -1.3% y/y (cons. -0.6%). The euro is weaker against all of the majors with the exception of the AUD. EUR/USD is currently testing the 200-hour SMA which comes in around the 1.3170/75 area and is likely to be a pivotal level in the short term.

• JPY is trading firmly against the majors (except the USD) as safe haven demand boosts the yen. There were no economic data releases out of Japan overnight and the Nikkei 225 declined about -0.61%. Japanese PM Noda said that there is no discord between the government and the BoJ. BoJ Governor Shirakawa spoke overnight and said that the bank will keep policy accommodative until prices rise and noted that overcoming deflation is critical for Japan. Finance Minister Azumi was also on the wires commenting on last year’s intervention saying that he ordered intervention at 75.63 USD/JPY. As official rhetoric picked up and after yesterday’s close above key daily SMA’s and the ichimoku cloud, USD/JPY continues to advance. The pair now sees the next significant level to the upside just above the 78.00 figure where the 200-day SMA comes in.

• CAD softer despite a larger than expected trade surplus as key drivers move lower. Equities are trading weak and oil is lower with WTI crude currently down -1.68%. Canada’s December trade surplus unexpectedly grew to 2.69B from the prior 1.17B (cons. 0.80B) but the overall risk environment weighed on the CAD. The Loonie plunged against the USD with USD/CAD sharply higher on a break above the 200-day SMA. The pair is currently above parity and approaching the 21-day SMA which comes in at about 1.0045

• AUD underperforming after the RBA’s statement on monetary policy was on the dovish side. The bank lowered its 2012 forecasts for GDP to 3.5% from 4% and inflation to 1.75% from 2%. AUD is broadly weaker, most notably against the USD (currently lower by about -1.21%) and JPY (currently down about -1.18%). AUD/JPY was rejected from late October highs and AUD/USD tumbled below the 1.07 figure and currently trades around 1.0650.