Intraday Market Thoughts

ECB Printing to Continue

Oct 26, 2016 22:29 | by Adam Button

A newswire report said more ECB bond buying after March is a done deal but more broadly the US dollar was solid. GBP was the top performer while the yen lagged. New Zealand trade balance is up next. There are 4 Premium trades in equity indices currently open. The rest are in FX and commodities.

Click To Enlarge
ECB Printing to Continue - Clinton Trump Oct 26 (Chart 1)

A Reuters report citing central bank sources said the ECB will continue purchases after the March deadline and tweak the rules in order to do so. Whether QE remains at 80 billion euros per month or slows down depends on the interim economic data, the report said.The euro hardly moved on the report and that's a clear indication that the market has priced in a dovish leaning wait-and-see from Draghi. On the day the euro finished slightly higher.

The pound gained for a second day in a row and gained 50 pips to close the gap from Wednesday's sharp decline.

The pound rose despite a theme of general US dollar strength that was driven by upbeat data. The Sept advance goods trade balance was a deficit of $56.1B compared to $60.5B expected; wholesale inventories were up 0.2% compared to 0.1% expected; and the Markit services PMI was at 54.8 vs 52.5 expected.

Those numbers all gave the dollar a modest lift.

Elsewhere, yet another bullish US oil inventory report sent WTI crude immediately 80-cents higher but it faded by the end of the day in a sign that the climb higher in oil might be tired.

Overall, ranges were limited on the day.

Looking ahead, the economic calendar tapers off after New Zealand trade balance early. Exports are forecast at $3.53B and imports at $4.68B. The data is due at 2350 GMT.

Act Exp Prev GMT
Goods Trade Balance
-56.1B -60.6B -59.2B Oct 26 12:30
Trade Balance
-1125M -1265M Oct 26 21:45
Flash Services PMI
54.8 52.4 52.3 Oct 26 13:45

Dollar Done Dipping? Aussie Inflation Next

Oct 25, 2016 23:23 | by Adam Button

A midday reversal lower in the US dollar Wednesday may be an early sign that the buy-the-dips dollar trade is due for a break. The Australian dollar was the top performer and GBP lagged but it was an intraday rollercoaster in New York trading. Australian CPI is up next. A new Premium trades has been opened in a 3rd major equity index.

(فيديو للمشتركين فقط) اين قاع اليورو، الذهب و ذروة الدولار

The US dollar rode high into New York trading but finished near the lows of the day. USD/JPY climbed to 104.85 before falling to 104.20. EUR/USD fell to a session low before reversing to a session high.

Most impressive of all was cable, which crashed 120 pips below 1.2200 and touched the lowest since the flash crash before rebounding nearly all the way back.

In the grand scheme of things, the reversals were small. In the past, we have talked about looking for USD dips to buy and it's been a solid strategy but the speed of the turnaround Wednesday and the impending calendar gives us pause.

The Fed has entered the pre-FOMC blackout period with the market pricing in a 17% chance of a hike next week. That's low but not insignificant. So there is a risk of dollar disappointment on the result.

More importantly, it's the beginning of a series of dollar unknowns. The Oct jobs report is next week and the election is now less than two weeks away. Some of those may turn out to be dollar-positive events but the trade in the interim will be to square positions and with dollar longs in the CFTC report at the most extreme since January, that argues for selling.

In addition, economic data lately has been modest like Tuesday's fall in consumer confidence to 98.6 vs 101.5 expected. Corporates, like economic bellwether Whirlpool also talked about US softness.

Another spot to watch is the Australian dollar. The market is pricing only a 28% chance of a cut through Q1 2017 but that could rise dramatically on today's inflation report. The Q3 data is expected to show the trimmed mean up 0.4% q/q and 1.7% y/y. A miss to the downside would send AUD spiralling lower.

Act Exp Prev GMT
CPI (q/q)
0.5% 0.4% Oct 26 0:30
CB Consumer Confidence
98.6 101.5 103.5 Oct 25 14:00

Something New in Thursday's Webinar

Oct 25, 2016 16:19 | by Ashraf Laidi

Get ready for something different in Thursday's webinar (Oct 27, 5 pm Eastern, 10 pm London time). Ashraf will walk you through my view on global markets, using the mechanics of a new game-changing software. Register for the webinar here.

ECB's Expectations Gap

Oct 24, 2016 22:59 | by Adam Button

A handful of Fed speakers today underscored market pricing for a high probability of a December hike but the ECB plan remains murky. The Canadian dollar was the top performer while the yen lagged. The Asia-Pacific calendar is light. The latest Premium video below focuses on key dynamics shaping USDX, gold & EURUSD, highlighting the high-probability turning points ahead. 

A poll from Reuters caught our attention today. They surveyed 17 traders and found that 11 of them don't believe Draghi will add any stimulus this year or next. That's in stark contrast to economists who almost universally believe more QE and/or lower rates are coming.

In sum, there is a roughly 1 trillion euro gap in expectations about how many bonds the ECB plans to buy. To us, that could represent a tremendous skew in market outcomes. If that isn't fully priced in and the ECB continues to buy, it's only likely to keep sovereign yields pinned at or slightly lower than current levels. There truly is a limit to how low you can go.

On the flipside, if 1 trillion euros of buying is priced in and the ECB doesn't deliver, yields could rise significantly and the euro along with it.

At the moment, however, euro longs are a no-go zone. Technically, EUR/USD broke down last week to the lowest since March. The time to make a decision will be closer to the December ECB but in the meantime, we will be watching for hints like Nowotny on Monday who said that one of the lessons from the crisis is that liquidity matters. He also refrained from making any dovish comments, which itself may be a signal.

The opposite central bank seems to be the Fed. There is a 71% chance of a December cut priced into Fed fund futures and that's a clear and transparent (and agreeable) number.

On Monday, the Markit PMI beat expectations at 53.2 vs 51.5 expected and that gave the US dollar and those Fed numbers a bump.

The Asia-Pacific calendar is very light in the hours ahead.

Act Exp Prev GMT
Eurozone ECB President Draghi Speaks
Oct 25 15:30
Flash Manufacturing PMI
53.2 51.6 51.5 Oct 24 13:45
Eurozone Flash PMI Manufacturing
53.3 52.7 52.6 Oct 24 8:00