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Intraday Market Thoughts
September 3, 2010 12:10 ET: RALLYING LOONIE accumulates gains post-US jobs, amid positive impact on Canadas economy from stabilizing US dynamics, and the rationale based on the fact that Canadas overnight rate remains below 1% and faces higher upside than any of the commodity currencies. USDCAD dropped more than 160 pips to 1.04, which is the trendline support extending from the Aug low. I expect prelim target of 1.0380, which is the proximate overlap between the 100-day MA and the 200-day MA. Subsequent losses seen calling 1.0320 by mid next week, with key support standing at 1.0250. Upside capped at 1.0490.
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September 3, 2010 08:59 ET: MARKETS CHEER AUG US JOBS REPORT as payrolls fall by smaller than expected 54K and the unemp rate rises to 9.6%. More striking is the July figure was revised down to -54K from -131K, while the private payrolls rose by 67K vs exp 41K following 107K in July, which was revised from 71K. JPY is the biggest loser as risk appetite erupts across the board, with the USD attempting to trim down EURs gains but USDCAD is falling relentlessly (by 130 pips), eyeing 1.0380, followed by 1.0320. CAD is favoured by the fact that US stabilization will help Canada, especially since BoC rates remain below 1%. EURUSD hit the key $1.2870 resistance (1.2870), which is likely to stand in the way of any extension past $1.29. MARKETS TURN TO US AUG SERVICES ISM seen at 53.5 from 54.3. Attention will be paid to the new orders (prev 56.7 from 54.4) and employment index (prev 50.9 from 49.7). As long as the headline reading is above 52, markets are likely to extend their run-up, with currencies punishing the yen.
September 3, 2010 04:00 ET: Ashraf's Video for Reuters Thomson illustrating the similarities of the interest rate cycles between the Fed and the Bank of England and QE2 by the Fed will lead to the same by the BoE http://bit.ly/ 9VAefQ
September 2, 2010 12:29 ET: ECB LIQUIDITY & UPGRADES: ECB extends its 3-month fixed rate lending facilities into Q1 2011, which is EUR-positive considering 3-month EURIBOR has fallen to six-week lows at 0.884%. ECBs UPWARD REVISIONS of its Eurozone 2011 GDP forecast to 0.5%-2.3% from +0.2%-2.2% stand in contrast to the Feds economic downgrades. Turning into FRIDAY's US JOBS REPORT , the euro may not fall victim to a disappointing figure based on risk aversion flows. With US payrolls expected to show their second consecutive monthly net decline (exp -100K) and the unemployment rate at risk of rising back to 9.6%, such a scenario would highlight the Feds defensive stance, hence in favour of EURUSD. See prev IMTs on EUR Techs
September 2, 2010 09:32 ET: Ashraf's interview earlier today on BNN discussing the ECB, euro and the US dollar. http://watch.bnn.ca/ clip343439#clip343439
September 2, 2010 07:08 ET: STERLING BROADENS WEAKNESS on fresh data disappointment, this time from the slowest monthly rise in Nationwide house price index since Nov 2009 and slower than expected Aug construction PMI (6-month low). GBPUSD drifts around its 200-day MA $1.5427, while attempting to hold above the $1.5390s38% retracement of the rally from the May lows to the Aug highs. EURUSD supported by afresh round of Eurozone data strength, this time from Eurozone Q2 exports surging to their highest since records began in 1995. Awaiting the ECB press conference, EURUSD seen retesting $1.287538% retracement from the $1.3333 high, a break of which will likely target the next key target at $1.2960s.
September 1, 2010 14:22 ET: GOLD-SILVER RATIO http://chart.ly/ g2plri3 Chart shows the G-S ratio testing the 65 level, which is the trend line support extending from the March 2008 low, which is the date of the Gold's first post 1980s record high. A break below the trendline would accompany further gains in Gold and Silver, as the ratio has proven inverse related with the price of both metals.
September 1, 2010 12:56 ET: TODAYs GLOBAL EQUITY RALLY marks the importance of the 1040 support in the S&P500, which held up successfully in February, May flash crash and mid June, with the exception of 3 consecutive days in end of June. The fundamental catalyst for the buying was the rebound in Chinas manufacturing PMI as measured by the Beijing and by HSBC, as well as Australias stronger than expected GDP figures. Markets ability to shrug the unexpected 10K decline in August ADP stems from the relief that Asian strength will stabilize the world economy from the risk of a double-dip in the US and possibly the UK. Australias Q2 GDP showed a bigger than expected 1.2% increase q/q and 3.3% (y/y, which was the highest since Q2 07 and Q3 10 respectively. AUDUSD tests 4-week trendline resistance of 0.91, a break of which would extend advances towards 0.9155-60. AUDJPY requires a successful break of the 77.70 top, before we can consider the breach of 79.00. The USD's QE2 woes wreiterate that AUD shorts have more to gain from AUDJPY than AUDUSD.
September 1, 2010 09:06 ET: STERLING's NEW BOE REALITY. The underlining negative of the British pound continues to be the Bank of Englands insistence that inflationary pressure remain temporary, as well as the emergence of BoEs new MP member, Martin Weale, whose double-dip forecasts for UK reduced expectations of a 2010 rate hike. GBPUSD remains unable to regain its 200-day MA of $1.5432, Failure to CLOSE above $1.5430, it will retest $1.5325, which is the 38% retracement of the rise from the $1.4230 low to the $1.6000 high. Bulls continue to face trend line support at $1.5480.
August 31, 2010 13:38 ET: AS GOLD HITS 8-WEEK HIGHS vs. all major currencies (except the yen) despite the euros broadening gains, the case for the yellow metal remains bolstered by what seems to be the inevitable path for QE2 from the Federal Reserve and the Bank of England. I made the case for $1270 in previous analysis and last weeks video analysis on gold, and I reiterate it today. GOLD vs. EUR hits EUR 984/oz, breaking well above the EUR960 resistance. Next ceiling stands at EUR 985/oz, which is the 61.8% retracement of the decline from the EUR 1044 high to the EUR 887.20 low. Gold has also broken above its June trend line resistance against both USD and EUR, which also supports the case for retesting the $1264 and EUR1031 record highs. GOLD/SILVER RATIO drops $3.00 from its $68 high, now testing 12-month trendline support as SILVER nears the $19.71 resistance. Recal, silver has yet to break its record high attained back in March 2008. Both metals should be considered for medium to long term investments.
August 31, 2010 07:54 ET: CANADA, CHICAGO & FOMC MINUTES, are due today. Canada Q2 GDP is expected to slow sharply to 2.5% q/q from 6.1%, which should prolong USDCADs return towards 1.0660s. Note 1.0670s acted as a consistent resistance over the past since late June and so a sharp slowdown will likely drive CAD shorts to retest those levels. As long a s stocks futures remain pressured, we could see a retest of 78.50s. STERLINGs INEXPLICABLE PLUNGE (perhaps related to buying EURGBP on strong German data) calls up a break of the 55-day MA, currently at 1.5360, which is likely to be broken and lead to 1.5325-30. The FOMC minutes (18:00 GMT) will shed more detail on the split inside the FOMC, which is never a good sign for equities or risk appetite. I noted in yesterdays IMT !the inevitable revisit of 1040 in the S&P500 further weigh in risk currencies and indeed we did see a break of 1.0630 in USDCAD and below 75 in AUDJPY. Negative stochastics in daily AUDUSD calling for 0.8830, with 0.8920s acting as immediate resistance.
August 30, 2010 21:34 ET: EURCHF HITS FRESH RECORD LOWS at 1.2936 less than a day after SNB president said the cenbank is ready to intervene again. There are a few obstacles to any durable bounce in EURCHF; i) the Swiss franc is strong to the extent of dragging the rising USD down to 8-month lows at 1.0230. Chartists must look at the WEEKLY USDCHF to notice the obvious Head & Shoulder formation, suggesting USDCHF PARITY well before year-end. I have long said in my website that the franc is NOT the currency to sell against the USD.; ii) EUR weakness has also broadened overnight, which complicates the talks of any meaningful boost to EURCHF. Why would the Swiss National Bank stand out as the only central bank to intervene after the BoJ decided to back off? Why would the SNB risk another money-losing intervention, especially as the intensifying risk aversion in global markets will continue to boost CHF. Regardless, I see more chances of SNB stepping in this week below 1.2880 than the BoJ, but keep in mind SNB has usually intervened in Europe session and not in Asia. Another way of measuring the CHF is so strong that the strong $USDX is at 8 month lows vs CHF. Since both JPY and CHF are soaring in Asia, WATCH CHFJPY for the BATTLE OF THE BIG BOYS, to gauge which of the strong currency to likely post further advances against the shaky European and commodity currencies. AUDUSD to be impacted by the weeks PMI data from China as well as the array of US figures, targeting 0.8860 and 0.8820s, with resistance capped at 0.8970.
August 30, 2010 14:46 ET: The BOJ OPTED FOR easing than actual FX intervention, via expanding its 6-month fixed rate lending facility to 30 trln yen from 20 trln yen. The yen rose as a result of the confirmed absence of intervention. See previous IMT explaining why I continue to see no yen-selling intervention. Yen gained further ground when US markets took a turn to the worse despite better than expected 0.4% increase in July consumer spending. This may be a week where many US and European players are away on holiday, the concentration of US economics reports (ADP, ISMs, NFP/Unemp) could provide the data equivalent to the Feds economic downgrade. With S&P500 currently trading at 1056, it seems inevitable that we will see a retest of the key 1040 support, through which could lead USDCAD and AUDJPY towards 1.0630s and 75.00. Also watch tomorrows US Aug consumer confidence index, which risks falling below the 50 level.
August 29, 2010 16:24 ET: DON'T CONFUSE INTERVENTION WITH QE in the case of Japan. Japan's Fin Min Noda made it clear last week that any yen intervention would make little difference and that chances of US stepping in were "zero". So Japan is now moving in the way of further QE as was seen in December when the BoJ's fresh bond purchases placed a cap in the yen successfully (but temporarily). FRIDAY's YEN SELL-OFF was INITIALLY TRIGGERED by a Nikkei News report (early Saturday edition), stating the BoJ may move forward its September 6-7 meeting to next week. The already weak yen was further hit by a positive market reaction from better than exp US Q2 GDP. 90 mins later, stocks fell and yen strengthened temporarily after Bernanke's speech. But as we neared Friday's London close, the yen resumed its broad selloff, closely followed by the falling USD. I've already mentioned the high targets for selected yen crosses in the IMT well before Friday's GDP (all of which were taken out). LOOKING FORWARD, traders will keep the yen pressured as they await Japanese words to tun into policy action (new loans by BoJ). The latest attempts at a fresh political coup against the Japanese PM are also helping to push the yen lower. And the 3rd force likely to weigh on the Jpns currency is a positive Monday Asian equity reaction to Friday's Bottom-Fishing rally. I've already mentioned on twitter last week that 1040 in SP500 served as a key support before and after the flash crash, with the exception of the late June sell-off. Further gains in yen crosses in Monday Asia + Europe will face their test in Monday's US data schedule.
August 27, 2010 13:17 ET: BERNANKE SPOKE, MARKETS WHIPSAWED before both USD and JPY accelerated their selloff in the last half hour of London trade. Readers of the IMT were alerted of these declines before the start of the US trading session, but once Bernanke spoke, I warned my followers on twitter (twitter.com/alaidi) on the following: Accelerating selloffs in $USDX & #YEN coming up near London Close. $ EURUSD to make transition from holding 12680s to 1.2760s $FXE $$. Once again, EURUSD held up at the important 1.2680s trendline before taking off towards 1.2770s. Fed chairman Bernankes speech highlighted 2 key points; purchases of long term assets are his favourite option for additional easing; and the central bank will not breach its commitment to price stability. The preference of additional asset purchases over communicating a longer period of exceptionally low rates and reducing interest rate on reserves allow for the possibility of renewed expansion of the Feds balance sheet. I warned on twitter there was NO REASON for USD to rise when Bernanke keeps the door open for QE. Equities bottom picking ensued on better than exp GDP especially as the S&P500 neared the key 1040 low, but these gains are unlikely to extend past mid next week.
August 27, 2010 09:11 ET: US Q2 GDP REVISED down to 1.6% (vs. exp 1.4%) from advanced 2.4% reading, triggering a relief rally in equities and BROAD YEN SELLOFF, especially since the Japanese currency has been already hit by: i) fresh political fallout in Japan and ; ii) escalating signals of a looming stimulus package involving the Bank of Japan injecting fresh liquidity. SWISS FRANC COMES OUT ON TOP as the best of the 3 safe haven currencies, hitting 3 1/2 week highs vs. JPY 82.90s, while dragging USDCHF to lowest since Jan at 1.0244 eyeing 1.0130s in medium term. NOTE CHFJPY is testing the July trendline . Bernankes speech will likely focus on the possible policy response rather than on the outlook, which should maintain GOLDs run-up. FX reaction will likely get its queues from equities, but any aggressive risk aversion, will see AUDUSD heading back to 0.8840s and GBPUSD towards 1.5420s. In the unlikely event that Bernanke's speech triggers a reliefe rally in equities, I would opt for EURUSD, NZDJPY and CHFJPY to stand among the big winners of the day, retesting 1.2760s, 60.40s and 83.40s respectively.
August 27, 2010 00:23 ET: GDPs, BERNANKE & CONSUMER SENTIMENT: UK Q2 GDP (4:30 EST, 8:30 am GMT, 9:30 BST) is expected to remain unrevised at 1.1% (the highest rise in 4 years), but any downward revision will likely ease cable into the $1.5570s.========= US Q2 GDP (8:30 EST, 12:30 GMT) seen revised to 1.3% from the advance reading of 2.4%. Some have mentioned a figure of as low as 0.6%. All components of the GDP report will be revised but the important PCE component (personal consumption expenditure) is seen unchanged at 1.6%. A figure below 1.4% or 1.3% would hit USDJPY hardest, along w/ downward pressure on yen crosses temporarily before market likely regains composure ahead of Bernankes speech. A shockingly low figure (below 1.0%) would not only hit all yen pairs, but would likely trigger broad selling in USD. I see another EURUSD & GBPUSD attempt towards $1.2760s and 1.5620s. ====== === 90 mins later, Bernankes speech titled Economic Outlook & the Federal Reserves Policy Response will hit the wires, which I expect to focus on the POLICY ACTION instead of the FORECASTS and OUTLOOK, in which case he will explain the FOMCs August decision to purchase treasuries as a way to maintain the size of the Balance sheet. Also watch Univ of Mich consumer sentiment due 5 mins before Bernanke's speech, exp at 70 from 67.8, so a positive figure could also help underpin cable and euro vs USD.
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