Gauging the Bounce in Appetite

by Ashraf Laidi
Jul 16, 2009 17:32 | 89 Comments

The explosive surge in risk appetite following the earnings blowout from Goldman and Intel is posing serious threat to the validity of the Head-&-shoulder formations in the S&P500 and the Dow30 at the 8.600 and 930 levels, supporting the case for protracted rebound in equities and overall risk appetite. But Thursday's bigger than expected decline (first sub-500K reading in 4-week moving average in 5 months) failed to prolong the rise in stocks and bond yields. Unexpected deterioration in the July Philly Fed index to -7.5 from Junes -2.2 and news of an imminent CIT bankruptcy are preventing the positive impact from Jobless claims and JP Morgan earnings.

Gauging the Bounce in Appetite - HS Jul16 (Chart 1)

As spectacular as Wednesday's US rally appeared to be, equally notable was the lack of follow-through in the Thursday Asian session (+0.8% in Tokyo, flat in Bombay, -0.3% in Moscow and +0.6% in HK). The CIT news was the culprit. But also bear in mind that the VIX did close higher (first rise in 4 days) despite the S&P500s highest daily increase in 2 months. This may have been partially explained by the fact that the VIX had hit its lowest since September 10 and as equities neared key resistance levels, call buyers stayed on the defensive.

EURUSD did break above 1.4120 to 1.4165, now eyeing $1.4198 high-- 76% retracement of the $1.4338-$1.3744 decline. While the data are negative for both USD and JPY, USDJPY remains below 93.80s from earlier session high of 94.44.

Gauging the Bounce in Appetite - EUR Jul 16 (Chart 2)

GBPUSD follows on the back of overall USD-weakness, looking to test the $1.6520s, but its relative weakness to EURUSD cements EURGBP support at 0.8550 and renews prospects for regaining the 0.8630 resistance. USDJPYs rebound extended its post-91.70 predicted last week, but topped out at the 94.40s, which is the 50% retracement of the 96.97-91.78 decline.

Risk Appetite Probes Trend Line The charts below illustrate the risk-driven gains in AUDJPY and NZDJPY, currency pairs with consistently the highest positive correlation with equities (+0.7 year-to-date). Accordingly, these currency pairs, along with emerging market indices such as the Morgan Stanleys Emerging Markets index, are leading gauges of global risk appetite. Despite their falling trend lines, AUDJPY, NZDJPY and EM have yet to breaching above their resistance levels, signalled at 77.00, 62.00 and 770 respectively. Other pairs, such as AUDUSD, NZDUSD and GBPJPY remain capped at 0.81, 0.6520 and 155.70s respectively.

Gauging the Bounce in Appetite - EM Yen Crosses Jul 16 (Chart 3)

Comments (Showing latest 10 of 89) View All Comments
Ashraf Laidi
London, UK
Posts: 0
10 years ago
Jul 30, 2009 22:47
raj, if anybody claims to know exactly whats going on w/oil, they should be in chicago. The risk now is for the upside in equities tomorrow. Watch for exagerated moves in case of neutral-strong GDP.

Ashraf
14raj
Kolkata, India
Posts: 210
10 years ago
Jul 30, 2009 22:27
Ashraf,
I am bit confused with crude oil movement.last two days action is bit hard to digest.What you think about crude?I am in short side at $66(NYMEX,Light), even short in Dow .
regards,
Rajib
Ashraf Laidi
London, UK
Posts: 0
10 years ago
Jul 30, 2009 9:32
Gun, Nikkei sure had a strong recovery. let's see if it's not a double top. Technically, 10,800 is very possible.

Ashraf
Gunjack
London, UK
Posts: 1184
10 years ago
Jul 30, 2009 9:08
Hi Ashraf what are your views on the recent gains on the N225...I feel a break and close above 10236 should see further upside on that index.

Thx
Gunjack
Ashraf Laidi
London, UK
Posts: 0
10 years ago
Jul 29, 2009 23:36
wolf, your assessment implies prolonged gains in equities. im being cautious in my dollar longs and remaining nimble.

Ashraf
Forexwolf
Auckland, New Zealand
Posts: 39
10 years ago
Jul 29, 2009 22:24
As we know, they are very concerned about the NZ$, but cannot really do much about it other than trying to jawbone it down - not with much success though. I see it dropped about 70 pips on the announcement and concerns. This will probably recover in the next few days to the highs of 0.66 again as I see it. Your views?
Ashraf Laidi
London, UK
Posts: 0
10 years ago
Jul 29, 2009 20:34
Wolf, RBNZ widely expected to keep rates unchanged. watch the statement and how concerned it is on NZD strength.

Ashraf
Forexwolf
Auckland, New Zealand
Posts: 39
10 years ago
Jul 29, 2009 19:46
Do you expect NZDUSD to drop if RBNZ decide to lower their case rate?
Jmx
Singapore
Posts: 44
10 years ago
Jul 29, 2009 19:28
Dima,

Thks for the reply. I am not use to mid term trading.

Jere
forextrader
vologda, Russia
Posts: 127
10 years ago
Jul 29, 2009 19:23
JMX
Book profit of 25 pip ?? I think it is much better Hold it will go to 1.6250 .

I am not sure why the Cable did not fail as much as we expect, maybe because of the noise coming out of the UK regarding the bottoming out of there housing market. I am not sure why

I still think 1.58 is good medium term target for the GBP/USD

Dima