Intraday Market Thoughts Archives

Displaying results for week of May 19, 2019

World Trade Overshadowed by Indices

May 21, 2019 11:14 | by Ashraf Laidi

It is a session light of data with the USD edging higher and the Aussie underperforming all major currencies following fresh rate cut hints from the RBA. Global indices are in the green after a late session rebound in NY yesterday. Activity picks up tomorrow with UK CPI and Fed minutes, EU Elections on Thursday and UK retail sales on Friday. Also watch any response from Beijing to US ban on Huawei. The video for Premium subscribers below focuses on GBP, gold and indices. A new trade action will be issued on one of our index trades.

Trade Becoming a Problem

Now that the US and China have demonstrated they're in no rush to reach an agreement over the trade spat before June, the impact on global growth could well become a problem, sufficiently serious to not be adressed in time by the Fed and other major central banks. Here are some figures: 

The WTO said in its latest report that out of the 7 indices of international trade (such as merchandise trade volume, auto production and exports) 5 indices are falling below trend. The WTO is sticking to last quarter's decision to downgrade its projections for 2019 global trade growth to 2.6% from 3% in 2018.

According to Bloomberg's calculation of the latest Dutch Bureau for Economic Policy Analysis index, world trade fell 1.9% in the three months ending February from the preceding 3 months, marking the sharpest drop since May 2009.

What does this all mean to FX and indices traders? Aside from Asian currencies resuming their descent and the Aussie suffering along to the benefit of the US dollar, the matter will become an urgent issue for central banks. Today, the probability of the Fed cutting rates in September stands at 46%. This compares to a 72% chance of a cut in December. Stock indices have cooled down to a trading range after no longer manifesting optimism over the elimination of rate hikes. By mid summer, markets will shift to worrying that odds of a rate cut are not high enough, and this will be the Fed's next policy mistake. 

Act Exp Prev GMT
CPI (y/y)
2.2% 1.9% May 22 8:30

Where to now for GBP?

May 20, 2019 12:19 | by Ashraf Laidi

You know the market is admittedly clueless about sterling's future direction when the experts themselves are saying: "it could go 1% up or 1% down" or, to hear an answer worded in the following manner: “If the Withdrawal Agreement is accepted…., then we will see ….and if it is rejected, then….”. I highlighted in last week's chart that implied option volatility on GBPUSD for appears excessively supressed, considering the sharp descent in spot GBPUSD. Those who are bearish GBP will tell you the market is being complacent and volatility is underpricing the risk of heightened political uncertainty (PM May having to leave and allowing a leadership vacuum behind her). Those who are bullish or neutral GBP will explain the relatively low volatility by either indicating that it's too early, referring to the vote in two weeks' time. Others would stated that a smooth Brexit is inevitable.

So what do we think? Will Theresa May wait for the outcome of Thursday's European Elections to map her strategy for the Withdrawal Agreement vote the following vote? How about technicals? We currently have two existing trades on GBP for the Premium Insights. On Friday, I added an update to Friday's trading update with three charts and notes (also in Arabic) to lay out the case for the trades. Our record in the Premium Insights for the GBPUSD has been improving, with 11 out of 19 trades closed at a profit over the last two years (since May 2017).

NOTE: UK CPI on Wednesday, EU Elections on Thursday, UK retail sales on Friday