With the exception of the Japanese yen, which paired losses overnight due to the weakening risk-off sentiment, Asian currencies across the board were trading broadly higher. The South Korean won surged the most, up 1% against the USD. Since Monday, the KRW has appreciated more than 3% against the greenback as investors become increasingly optimistic about the country’s outlook. During the first two months of 2016, the won was under substantial downward pressure as market participants became increasingly worried about the growth outlook of China, its biggest trade partner. This triggered massive outflow. For now, we remain cautious about a won recovery as the Chinese story could still bring some surprises. USD/KRW was trading at around 1204; on the downside the closer support stands at 1190.
In spite of disappointing retail sales, the Australian dollar continued to gain ground against most G10 currencies. In January, retail sales expanded 0.3%m/m, missing expectations of 0.4% but above previous month’s flat reading. AUD/USD validated a break of the 0.7243 resistance and is now testing the subsequent one at 0.7385 (high from December 4th). The Aussie will need a fresh boost to break this level, which has remained unbroken since August 2015.
EUR/USD took a breather at around 1.0950, after rising roughly 1% on Thursday. On the short-term, we won’t be surprise to see the euro getting back some colour, especially given the greenback’s sharp gains in February. Nevertheless, on the medium term we expect the single currency to experience another round of downward pressure as the ECB’s easing bias, together with renewed talk of Greece’s debt situation take center stage in the coming months. Talking politics, Germany’s finance minister Wolfgang Schaeuble has declared that the EU migrant crisis was no excuse for Greece to further delay any payment to its creditors. In our view this kind of declaration is symptomatic of the long-term malfunction of the European Union in which one group of countries imposes its never-ending list of demands on another, even more so after forcing it to accept a humiliating agreement to stay within the euro zone. Mr. Schaeuble should try to take into account the fact that Greece is in fact at the forefront of the migrant crisis and trying to resolve this issue on behalf of the other member states.
Today traders will be watching the much awaited NFP report, the last job report before the next FOMC meeting (March 16th); industrial production from Sweden; GDP from Italy; Germany, France and the euro zone; industrial production from Brazil; trade balance, NFP and the unemployment rate from the US.