The Quarter Ends at the Lows

Traders dumped risk assets at quarter end despite better-than-expected US data. The euro was the worst performer, followed by CAD. The leaders were USD and GBP. Fridays CFTC report showed the net long USD position to a fresh high since June 2010. EURUSD closed below 1.34, nearing Ashraf's 1.29 target, first warned 6 weeks ago.

Economic data was solid as the Chicago PMI climbed to 60.4 from 56.5, beating the 56.0 expected. Similarly, the final reading on the U of Mich consumer sentiment was revised to 59.4 from 57.8.

The euro fell hard on a rumour that the haircut on Greek bonds will be hiked to 75% from 21%. High European inflation numbers also failed to douse a rumour that the ECB will cut rates by 50 basis points next week.

Hedge funds appeared to want to show minimal risk on their balance sheets as the quarter came to an end as the S&P 500 fell 2.5% to 1131..Continued worries about the eurozone compounded the worries as Germany continued to quash hopes of an expanded EFSF. Minimal rises in US income and spending were also a drag.

Ashraf's Friday PREMIUM INTERMARKET INSIGHTS made 6 out of 9 (2 Gold trades & USDJPY remaining in progress.) The EURUSD prominently failed to break the trendline, long described as the required condition to reverse the downtrend. Direct access to the trades is found here: http://ashraflaidi.com/products/sub01/access/?a=508 To get a free 1-week trial, click here: http://ashraflaidi.com/products/sub01/

Monthly Charts

On the week GBP led while CAD lagged. On the month, USD and JPY were the best performers while CHF and NZD lagged.

A look at the monthly charts makes it quite apparent that the global economy is in a precarious place. After three months of largely range-bound trading, EUR/USD fell 1000 pips in September and close at the lows of the month (similar to many other pairs). A sequence of lower highs and lower lows is also evident. Any bounce in this pair should be sold.

The more than two-year rallies in the commodity currencies are likely over. We may not see continued rapid declines but, at best, they will move sideways.

Given the turmoil elsewhere, its difficult to believe the lows in US stocks wont be taken out shortly. The S&P 500 fell 7.2% on the month and 14% in the quarter.

Commitment of Traders

Fridays CFTC report pushed net USD longs further but the overall changes were relatively mild. The net euro short fell to 82K from 79K, the net sterling short to 64K from 60K and net CAD short to 21K from 5K. Most currencies remain in a net long position against USD but the positions were pared back. The net yen long slipped to 42K from 46K, NZD to 10K from 14K, CHF to 2K from 4K and AUD to 5K from 23K.