Intraday Market Thoughts Archives

Ashraf Laidi regains the #1 rank in FX Week's 12-month currency forecast

http://bit.ly/31QMne

FX DOING COPY&PASTE of last friday. Oil extends declines and JPY rises across the board, outperforming USD strength as USDJPY slumps below 90 eyeing 89.20. All yen crosses extending losses. USDCAD eyes 1.0810 up 120 pips from pre-CAD report tweets http://chart.ly/ ekcwan

ANOTHER MANIC FRIDAY FOR ECON REALITY: Just as last Friday markets tumbled on the most recent figures of personal consumption, showing a decline in October figures after the expiration of cash for clunkers, today emerged the latest Oct evidence of the unemployment picture. And just like last Friday, oil drops more than $3.00 per barrel, testing the 76.80 low. Key support stands at 75.50, which is the 200-week MA as well as the 38% retracement of the 65-81.92 rally. Expect Asian stocks to move lower on Monday, regardless of any rebound occurs in late Friday US. The 10.2% unemployment is too stark for the likes of the sluggish Nikkei-225. More Losses seen for CAD as per previous IMTs.

The 10.2% US unemployment rate is a stark reminder to those misguided views stating the lagging nature of unemployment. That may have been true during 7% unemployment rate when capital formation was plentiful (personal credit was available, homeowners could refinance and home prices were still up on annual basis). But when unemployment exceeds 10%, new jobs are limited to temporary hiring and consumers credit (revolving and non revolving) drops 3.6% and 5.53% in Q1 and Q2 respectively, the consumer fabric of the unemployed. LOW VOLUMES helping stocks regain positive territory, but USDCAD seen supported at 1.0650 after hitting 1.0760 target. CADJPY hit the 83.72 target while remaining capped at 84.50, EURUSD capped at 1.4940.

Expect CAD and NZD to among the BIGGEST LOSERS IN THE EVENT of disappointing US figures. We could see USDCAD regain 1.0760 and extend to the right shoulder of 1.08 in the event of 10% US unemployment. CADJPY seen testing 84.40, followed by 83.70 in event of disappointing US figures. GBP SEEN KEY WINNER IN EVENT OF BETTER than exp US jobs, Resist at 1.6670. WHY YOU SHOULD FOLLOW OUR TWEETS (twitter/alaidi). 30 mins before the 12:00 GMT release of the Canadian jobs figures (which we previewed in last nights IMT), we told our followers on twitter (see the progression of the tweets in the link http://chart.ly/ekcwan ) they could expect USDCAD to rise from 1.0645-50 towards .0690 as we disagreed with market consensus, which was expecting an unrealistic 3 straight monthly creation of jobs. Not only did CAN jobs fell by 43K but the unemp rate jumped to a fresh 11-year high of 8.6%. USDCAD gained 45 pips BEFORE the data to reach 1.0690, then rallied to 1.0736 after the figures.

US stocks fired up partially by falling jobless claims and rising productivity as traders extend gains ahead of tomorrows Oct jobs report but oil prices remaining relatively shy, below 80 and that key 80.40 resistance. Dow rises +160 pts, facing resistance at 10,045, while S&P500 seen capped at 1,075. GBPUSD ended up being capped at $1.6640. CAD bias remains negative after prolonged FX jawboning from BoC and ahead of tomorrows CAD job figures (noon GMT) exp +10K from 31K and unemp rate seen at 9.5% from 8.4%. USDCAD stabilized at the 38% retracement of 1.0610, coinciding with the Sep 17 low. CADJPY capped at 85.96. Bias towards 84.20, 83.70.

Ashraf will be in a conference until later afternoon so frequency of updates will be light.

BANK OF ENGLAND adopts the more conservative measure of raising QE by an extra 25 bln rather than 50 bln, prompting GBP and 10-year UK yields higher to $1.6633 and 3.8% (highest in 4 months). GBP is seen as the main winner today in the event of an improvement in risk appetite. Should US weekly claims come in below 530K, a positive market reaction could further prop cable to test the $1.6660s but capped at $1.67. GBPJPY eyes 150.90. EURGBP seen capped at 0.8910.

Markets await the BoE decision at noon GMT. A decision to raise QE by 25 bln may not be seen enough by the markets and could keep GBP stable after an initial decline. An increase in QE of 50 bln would be a clear negative for GBP. Traders must watch yields on 10 year guilts (UK 10-year) for an impact on FX. If yields fall by at least 10 bps from their current 3.76%, then expect GBPUSD to sustain renewed pressure, targeting $1.6460s. ECB unlikely to move the market at 12:45 GMT, but watch the press conference with JC Trichet and US jobless claims at 13:30. CAD remains amid the biggest losers in FX ahead of tomorrows CAN job figures and BoC worries with the strong CAD. USDCAD eyeing 1.0920, eyeing 1.0680, followed by 1.0720. CADJPY attempts to stabilzie abve 85 but any fresh risk aversion seen calling up 84.20. Catch Ashraf on CNBC Europe at 12:05 GMT after the BoE announcement.

FED DOVISH BUT: Fed maintains the dovish language about exceptionally low levels of the federal funds rate for an extended period BUT REDUCES the amount of agency debt to be purchased into year-end from $200 bln to $175 bln, This change in the amount initial caused brief USD rebound but may not last as the market focuses on the for an extended period, signalling continued liquidity injections. BONDS INTERPRETING THE FOMC AS HAWKISH by lifting 10 yr yields to 3.56% from 3.46% but FX traders continue to sell USD across the board, targetting 1.6630 for GBPUSD, 1.4920 for EURUSD. Watch Ashraf give his reaction Thursday on CNBC Europe at 12:05 pm GMT right after the BoE decision.

Watch Ashraf's Video Analysis PREVIEWING FOMC decision http://bit.ly/3y6bob and detailing the impact of the ADP, ISM and unexpected draw in EIA data. GBPUSD hit the 1.6580 target but EURUSD still struggles to regain the 1.4850-55 resistance.

US Oct ISM drops to 50.6 from 50.9 (exp 51.5), new orders index rises to 55.6 from 54.2 but employment index drops to 41.1 from 44.3. AUDUSD struggling to hold above 0.91. OIL AWAITS EIA INVENTORY (15:30 GMT) expected to show a rise of 1.3 mln in crude oil, a rise of 800K barrels in gasoline and fall of 1 million barrels in distillate at 15:30 GMT. Lesser build or uenxpected draw will be USD negative in favor of GBP, EUR, CAD (USDCAD target 1.0570) Stocks extend rally on hopes that FOMC will NOT hint at exit strategy.

Oct ADP -203K vs. exp. -190K but Sep was revised to -227K from -254K. Risk appetite picks up on the 3rd straight improved revision. Watch the ISM as well as the COMPONENTS, such as Employment and New Orders indices. US 10-yield posts its 3rd straight daily gain, eyeing 3.55%. Cable still capped at 1.6575-80. OIL MAKING AN IMPORTANT breach above the 80.40 resistance and could well extend its gains IF THE FED MAKES NO CHANGE in the phrase "exceptionally low...for extended period". ONLY In the event that the FOMC statement softens the language, such as changing the adjectives exceptionally low or extended period, would the US dollar and bond yields garner further gains at the expense of equities. We do expect FOMC language to improve the assessment on the economy, but the key remains with aforementioned phrase "exceptionally low" and/or "extended period". EURJPY eyeing 134.70, a break of which to call up 135.50.

Dollar falling across the board as European equities recovery ground. Stronger than expected Oct UK services PMI at 56.9 from 55.3 lifts GBPUSD above 1.6530, eyeing interim resistance at 1.6580-85-- the right shoulder resistance from the Oct 30 high. Oil eyeing that 80.40 resistance and USDJPY seen extending gains towards 91.25. CADJPY eyes resistance at 86.25 trend line. While much talk circulates about todays FOMC decision, we caution ahead of the ADP report (13:15 GMT) and Oct services ISM (15:00).

Warren Buffetts Berkshire Hathaway provided a temporary reprieve to US stocks after news of its acquisition of railroad Burlington Northern Santa Fe, but the divergence between the DJIA and the DJ Transportation index highlights the Dow Theory that stipulates both the averages must support each other for the move to bear significance. Gold shrugs USD and silver by hitting a record high of $1,080 on news of gold buys from Indias central bank. While much talk emerges on tomorrows FOMC decision, be aware of the Oct ADP report on private payrolls, expected at -190K from -254K and Nov services ISM exp 51.5 from 50.9. As we argued in todays article, expect EURUSD to break below $1.46 this week.

Cable drops below $1.63 nearing the 1.6270 target after disappointing UK cpnstruction PMIs. USDCAD hits 1.0830, eyeing 1.0870 as oil nears our $75 target. FTSE-100 extends losses to 106 pts at 4,998. Risk Aversion is here to stay. EURCHF extends gains from 1.51 intervention territory,eyeing 1.5140, followed by 1.5170.

WATCH ASHRAF's CROSS-RATE TRADING IDEAS ON Reuters TV http://bit.ly/1S6J9O $$

GBP deepens losses as RBS confirms will sell assets and govt to increase its stake by 84%, while Govt stake in Lloyds to stay at 43% as bank remains outside Asset Protection Scheme. GBPUSD tests $1.6330s, eyeing $1.6270, while upside capped at $1.6420. RBA did raise rates by 25 bps to 3.50% but signalled a slower pace at which it would withdraw its stimulus i.e. be less aggressive in raising rates. AUDUSD fell on disappointment that the RBA did not raise by 50 bps as well as the possibility that it could leave rates unchanged at the December meeting. SERIES OF LOWER HIGHS IN AUDUSD combined with the S&Ps' close below 1047 suggests risk aversion is here to stay. AUDUSD faces trend line resistance at 0.9120, with interim target at 0.8950. USDCAD to retest 1.0790 trend line resistance, followed by 1.0855.

Based on our expectation for a 25-bp rate hike by the RBA (decision due at 3:30 am GMT), we see upside ground for quick AUD gains across the board, but profit-taking will have to be relatively nimble as the prevailing risk environment will impact overall high yield trades. Due to the fact that a minority of analysts is expecting a 50-bp rate hike, a 25-bp hike to 3.30% is likely to lift AUDUSD by no more than 0.9130 trend line. AUDEUR and AUDJPY are seen testing 0.6140 and 82.50. CATCH ASHRAF on CNBC squawk box at 6:20 am GMT.

RBA DECISION PREVIEW Video Analysis http://bit.ly/3POJBr .

Do not expect any major Asian rally if S&P closes below 1,047 and Dow below 9,685. Markets to remain defensive ahead of the key central bank decisions and US data as long as no close is seen above 9,900 in the Dow and no S&P close is seen above 1060, Nikkei-225 showed little sign of recovery after falling into its Aug-Sep H&S pattern. Only a recovery above 10,200 is seen re-establishing bullishness in the index.

POSITIVE US DATA TRIFECTA (ISM 55.7, pending home sales +6.1%, construction spending +0.8%) is boosting equities across the board at the expense of USD and JPY. But GBPUSD is quickly losing its post-data gains, now back to $1.6370s. RECALL GBPs habit of giving up gains after the London close. Interim support starts at $1.6320 and $1.6270. OIL rebound dissipated at 78.30s before retreating back towards 77.60s. We stick with our 75 price target. EURGBP facing pressure at 0.9070, followed by 0.9130, while support climbs towards 0.90.

WATCH ASHRAF's INTERVIEW on CNBC earlier today discussing whether the USD can be talked up.

http://bit.ly/N0KxH

Todays reports on Oct manufacturing ISM and pending new home sales have to reveal convincing gains for markets to shake off the lingering fear (VIX at 4-month high, S&P below 55-day MA and 80mth trend line support, Brazil & Indian equity indices showing their worst 2-week declines of the year). Manuf ISM expected at 53.0 from 52.6, pending home sales expected at -0.5% from +6.4%). GBPUSD vulnerable to testing $1.6270 in event of US data disappointment. USDCAD eyes 1.0870, supported at 1.0740.

Two days after markets had their premature reaction to a higher than expected Q3 GDP growth in the US, CIT, the nations key lender to small businesses has finally gone bankrupt. A flurry of interest rate announcements (RBA, Fed, ECB and BoE) will highlight Australias recovery, US dichotomy between improved financial markets and the real economy; the need for the BoE to expand its QE by another 50 bln. It will be a long way before Fridays release of the October US jobs report is out. Looking for EURCHF to gain towards 1.5150s from current 1.5096, while EURJPY and CADJPY to remain capped at 133.20s and 83.70 for renewed losses towards 131 and 82.10.