Intraday Market Thoughts Archives

One year ago, Germany said it would crack down on naked shorts of CDS, driving down euro by 10%. On Friday, rumours circulated that Greece may leave the Eurozone. This may not be a reason to expect a 10% drop in EURUSD, but a valid argument (another one) for gold to rally. Click on full article and latest CFTC Gold Spec charts http://tinyurl.com/6bgcxol

The euro fell badly for the second consecutive day on Friday on reports that Greece is considering abandoning the single currency. The USD made some headway and risk appetite was positive after non-farm payrolls. CFTC position data showed dollar shorts at a record.

Der Spiegel reported that Greece is holding secret restructuring meetings in Luxembourg and is considering leaving the eurozone. Greek officials later responded saying the rumour is completely untrue. The report sent EUR/USD as low as 1.4315. Forced liquidation appears to have taken hold and it would be no surprise to see a rebound on Monday. Greece would lose all access to bailouts and a newly issued drachma would be worthless, so the rumour is assuredly bunk.

The US added 244K jobs compared to the 180K expected. The prior two months were also revised higher. On the negative side, the unemployment rate climbed to 9.0% from 8.8%, no change was expected. USD/JPY gained 50 pips immediately after the report but halved those gains by the end of the session. A similar story played out in stock markets as the S&P 500 gained 0.4% on the day (but declined 1.7% on the week).

The leader on the day was the Australian dollar while the euro lagged. Gold rebounded to $1495 after falling as low as $1462 late in yesterdays session. Silver hit a low of $33.05 below rebounding to close higher at $35.63. The precious metal fell a record 27% on the week. The top forex gainer on the week was the yen, followed by the dollar. The euro was biggest laggard followed by AUD.

LATEST CFTC SPEC DATA

CFTC positioning data for the that ended Tuesday showed traders piling into long euro positions ahead of the ECB decision. EUR net longs jumped by one-third to +99.5K. Surely, many of those buyers have rushed to the exits in the 500 pip drop over the past two days. Overall USD net shorts fell to a record (dating back to mid-2007). The yen remains in a net short position but it was halved this week. Net longs in AUD and CAD were scaled back while NZD edged higher. Positioning in GBP and CHF remains long and was essentially unchanged.

By AB - AshrafLaidi.com Staff

US Apr payrolls rose 244K (highest since May 2010) from a revised 221K , while the unemployment rate rose to 9% from 8.8%. Find out from our latest Premium Piece on the METRICS of STABILIZING APPETITE. http://www.ashraflaidi.com/products/sub01/

Analysts slashed their estimates to an average of about 180K for the April non-farm payrolls data from somewhere in the neighborhood of 200K seen at the start of this week. CONSISTENT DISAPPOINTMENTS from weekly jobless claims throughout the month, a slump in services ISM, and a warning-shot shortfall in Wednesday's ADP have tilted the bias toward a disappointment.

US equity markets may have finished the Thursday session off their lows, with the bulk of the focus on the panic liquidation in commodity pits. Traders are now bracing for a further sell-in-May post-earnings profit-taking on the 1-year anniversary of the historic flash crash on Friday. A particularly disappointing NFP print would only exacerbate the selloff. The following factors tip the scale toward a weaker than expected print: 1) April weekly claims have been consistently weak - above 400K for the last 4 weeks as compared to 4 weeks in low 380s before that; 2) Services ISM was a multi-year low with sizeable deteriorating in the employment component. While the NFP is also comprised of public sector and manufacturing jobs, the former has been constrained by reduced fiscal spending for months. The latter is not a large component of the overall data, with only +17K from prior month's 216K increase coming from manufacturing; 3) On Wednesday, we warned the ADP is likely to miss estimates based on the Conference Board projectsion. That report saw outright declines in the services sectors - the bulk of the ADP number.

In conjunction with monthly job creation, BLS report will include April unemployment rate. After falling a full point to 8.8 in March, here the bias may be in favor or a rise. Aside from the slowing job creation, we look for labor participation rate to finally expand from several months of trough at 65.4%, which would then send the jobless rate higher. Ultimately, the symbolism behind unemployment rate that is no longer falling rather than a miss in NFP will reopen the door to delayed end of QE2, most likely in the form of continued interest reinvestment in US treasuries. Recall the Fed chairman last indicated at his media briefing that the end of reinvestment would constitute an early exit from accommodative policy stance. As we have seen in the past in the event of a particularly disappointing jobs data, USD spike on safehaven flows is reversed later in the show as the markets price in more easy Fed policies which is always to the detriment of the greenback.

CAD is holding form for now after payrolls rose by 58.3K, exceeding expectations of +18.3K, with the unemp rate falling to 7.6%. .

By GG - AshrafLaidi.com Staff

UK PPI expected to rise again, German Industrial production to slip back, Commodity slide sees key levels tested and US dollar rebound.

Yesterdays decision to hold UK rates at 0.5% was no doubt borne out of the weaker than expected economic data seen throughout this week, however the decision will continue to be thrown into sharp focus this morning when April producer price data is due out, with year on year input prices expected to rise to an eye watering 16.4% from Marchs 14.6%.

Nevertheless, despite slipping back initially, and making new 52 week lows against the euro, the pound rebounded strongly after a surprise 4% plunge in German Industrial orders for March, which had been expected to rise 0.1%.

Against the US dollar the pound slipped back and last nights fall below 1.6430 could well now see a test towards the 55 day MA at 1.6260 which remains the key support having acted as support for the pound in April. A break below the 55 day MA would in all probability open up the major support level on the downside of the current range around 1.5965, the February and March lows.

This weakness may have contributed to the overly dovish tone adopted by Trichet at yesterdays press conference where he omitted the phrase strong vigilance in his summing up which suggests that further rate hikes could be some way off.

Further weakness in todays March German industrial production figures, which is expected to slip back to 10.3% from Februarys 14.8% could well see euro pulling back further.

Key levels to watch for in EURGBP are a break below 0.8860 trend line support from the 0.8355 February lows which could well target 0.8780. This would be a 38.2% retracement of the up move from the lows at 0.8355 to the recent peaks around 0.9040.

On the EURUSD, if the single currency closes below 1.4550, then the weekly candle will post a bearish engulfing week, and we could well have seen the highs in the short term.

Yesterdays commodity price slide has seen the Canadian and Australian dollar slip back as gold, oil and copper prices have slid back over fears that deteriorating economic data and rising interest rates could well choke off the global recovery and as such stifle demand as growth forecasts get revised down. The Aussie was able to recover some ground after the RBA stated that higher rates would be required at some point for inflation to remain consistent.

Copper hit its 200 day MA for the first time since August last year while gold hit trend line support from this years lows at $1,465. A break of either could well signal further declines in commodity prices and as such in commodity currencies.

Nevertheless the main event of the day is US non-farm payrolls for April, and given that we have seen a weak ADP report as well as sharp rise in weekly jobless claims to 474k there is a concern that the April payrolls number could miss by some distance.

By KM _ AshrafLaidi.com Staff

Broad worries about economic weakness combined with a rush to the exits in crowded trades like oil, silver and EUR led to a rodeo-like day of trading on Thursday. We explore emerging shifts in market sentiment and what it means for currencies and gold. Later, Japan returns from holiday and the RBA releases its quarterly assessment.

FOUR HEADLINES TRIGGERED bulk of the abrupt change in sentiment in the past two days: 1) very weak ISM services report 2) yesterdays comments from Rosengren/Williams 3) Trichets omission of vigilance. 4) an 8-month high in US initial jobless claims at 474K vs. 410K exp.

Behind the headlines, there are two stories: 1) Paper wars, position squeezing and speculative flows overwhelmed some resource markets. 2) Central bankers and markets are starting to see signs of economic weakness. These stories are obviously not mutually exclusive, but they collided today and created a wicked round of risk aversion. The euro was easily the laggard, losing nearly 300 pips against USD and JPY. Brent crude fell $10.39 in the largest one-day decline since Jan 18, 1991. Silver fell another 11% for a nearly 30% weekly decline. Gold fell $40 to $1475. The 19-commodity CRB index fell the most since Dec. 2008.

As the dust settles on todays volatility, the focus will shift to central banks, as it always does. Markets are coming to the conclusion that: a) Growth is a bigger problem than inflation b) Central banks of the world will remain dovish ad infinitum.

If we separate the day-to-day noise from the underlying story, the losers are any central bank where any measure of tightening is priced in; the winners are JPY, CHF and gold. This is a story that has the potential to explode in the coming week; especially if tomorrows NFP report is soft. The market is pricing in a number close to 160K (about 20K below the economist consensus) but if we see a reading below 100K, the market will be overwhelmed by talk of QE3. Although the initial reaction for a soft NFP reading will be risk aversion (USD higher except vs. JPY/CHF), this may only be a one-day trade. After the knee jerk reaction, the dollar will resume its decline, especially against gold. It will also continue declining against JPY but the risk of fx intervention is acute.

Asia-Pacific Preview

Japan officially returns from holiday on Friday but liquidity will be well-below normal with many traders extending the Golden Week holidays into the weekend. Pay particular attention to talk of intervention in USD/JPY from the Japanese Ministry of Finance with the pair is hovering around 80.00. The risk of actual intervention in a holiday week and ahead of NFP is minimal. The market, however, will be looking for hints of what the breaking point is. Also keep an eye on EUR/JPY as it threatens support at 115.99.

At 0130 GMT, the focus will shift to Australia as the RBA releases the QUARTERLY STATEMENT ON MONETARY POLICY. This should offer some valuable insight into how the central bank sees inflation pressures developing. In Tuesdays decision, the RBA continued to say that policy is mildly restrictive and that in the year ahead inflation will be close to target. They warned, however, that upward pressure on longer term inflation is coming. We will look for clarity on these points and suspect that the report may be more hawkish than the market is expecting. But even if it is, the upside for AUD is minor given the current climate and yesterdays weak retail sales data.

By AB - AshrafLaidi.com Staff

See our latest Intermarket Insight piece on EURUSD, Silver, S&P500, USDJPY and GBPJPY. The combination of highest weekly jobless claims since August 2010 (474K) and JC Trichet omitting vigilant from the ECB press conference with respect to inflation is extending losses in EURUSD below $1.47. Click here for full analysis http://www.ashraflaidi.com/products/sub01/access/?a=412

The ECB holds rates unchanged at 1.25%.Traders prepare to enter euro buy orders on the first hint of "strong vigilance" language at the 12:45 GMT press conference (see more below). US weekly claims expected to remain at elevated levels above 400K while labor costs data will likely only reflect earlier job gains. Canada manufacturing set to retrace, as US earnings roll on with GM.

European Central Bank will take the lead in policy hawkishness and transparency if Trichet and company follow the script set out in its monthly bulletin. As we indicated in the past, a reference to the ECB monitoring inflation "very closely" - statement directly from the last monthly ECB publication - should be followed with an explicit claim to exercise "strong vigilance." This would solidify expectations for a June rate hike and help reverse today's euro slide back toward $1.50. There are 3 reasons for the likelihood of this scenario playing out today: 1)ECB wants to avoid ambiguity as it transitions to an exit from accommodative stance, and it can afford to do so at this juncture given the recent inflation data; 2)Higher rates and stronger Euro is the "quid" in the latest Portugal bailout "pro quo"; 3)A more hawkish bias solidifies the credentials of the incoming Bundesbank representative to the ECB, helping Germany save face for not taking the presidency with Weber in the fall.

Stateside, weekly jobless claims could temper some of the optimism seen in the overnight futures markets with another 400+k figure. This would mark the 4th consecutive week above the 400K mark after 7 weeks south of that border. Non-farm payrolls loom on Friday, and another poor weekly claims report could spark some tempering of estimates for April job creation. This would add to the caution following the disappointing ADP - a bias we accurately forecasted overnight. Quarterly labor costs/productivity data, also due out at 8:30ET, are lagging indicators. Costs are set to rise to 0.8% from -0.6% and productivty to fall to 1.1% from 2.6%, reflecting Q1's added capacity at the expense of production efficiency. In Fed-speak on the docket, Bernanke and Evans will largely focus on banking regulation - there is little expectation for either to discuss monetary policy.

Economic data out of Canada may dull some of recent optimism following the elections. Monthly building permits are expected to fall by 1.5% m/m after a prior 5-month high of 9.9%. Canada Ivey PMI - the equivalent of US ISM - is set to slow to about 67 from last month's 5-year high just above 73. In the event of renewed post-NFP risk aversion on Friday, a breach of channel resistance at 0.96 in USD/CAD calls up the next inflection point at 0.9720.

CVS and GM headline the pre-market earnings session - expectations for the latter are particularly high given the most recent stellar quarterly report from Ford.

By GG- AshrafLaidi.com Staff

Sterling awaits services PMI and rate meeting, euro to focus on ECB press conference, Swiss franc and yen still gain on safety flight as Aussie dollar and precious metals slide.

Central bank rate meetings are set to be the focus of European markets today with the Bank of England expected to leave interest rates unchanged at 0.5%. Forty five minutes later the European Central Bank is expected to leave its interest rates unchanged at 1.25%, after increasing them last month.

Particular attention will be placed on the ECB post-meeting press conference for clues as to the timing of the next ECB rate increase in light of last week's higher than expected 2.8% euro zone flash CPI number. Some commentators have suggested June with respect to the timing of the next hike, something the tone of Trichets press conference may shed some light on.

Before these meetings though we have the small matter of UK April services PMI data which is expected to slip back slightly from March's 57.1 to a reading of 56, however it could spring a surprise on the back of a possible pre Royal Wedding boost to the hotel and restaurant sector.

Certainly the pound could do with a welcome surprise given recent disappointing PMI and housing data over the past couple of days. Cable continues to find support between 1.6430/50 level, but a break below could well target 1.6270 and 55 day MA.

EUR on the other had no such problems, hitting its highest levels since March 2010 against a basket of currencies, solely on the basis of higher yield expectations. The Euro index has run into some resistance however at 114.30, the 61.8% Fibonacci retracement of its 2009 peaks at 121.80 to its lows last year at 102.10. This resistance level could put a short term cap on any potential upside in the short term.

EURUSD finding resistance around 1.4940, with support around 1.4750. A fall below 1.4750 suggesting a deeper correction towards 1.4520. EURGBP finding resistance at 0.9040, with support around 0.8940.

CHF continues to make fresh highs against the US dollar, while the yen could well be pushing back into intervention territory after hitting its highest levels against the US dollar since late March, pushing towards the 79.90 area which is 61.8% retracement of the up move from 76.25 to 85.50. This decline in the US dollar hasnt been helped by a sharp decline in US 10 year bond yields to their lowest levels since the end of March.

Sliding gold, silver and copper prices have seen the Aussie dollar pull back from its recent highs above 1.1000 and last nights Australian retail sales numbers for March suggest that for the moment, rising inflation and prices are starting to crimp consumer demand with the currency sliding back from post float record levels. The Aussie dollar could well slide back to the 1.0670 area which is trend line support from the 29th March lows at 1.0250.

By KM - AshrafLaidi.com Staff

The carry trade unwound Wednesday after a drop in the April ISM non-manufacturing index and ADPs jobs data. New Zealand employment and Australian retail sales are coming up after sizable declines in NZD and AUD.

The NZD lagged Wednesday followed by AUD and CAD. The yen was the market leader in a classic, risk-driven carry trade unwind. The fears ebbed in the latter half of the US session but were sparked by: 1) the ISM non-manufacturing falling to 52.8 (exp: 57.5) from 57.3 2) ADP employment falling to 179K (exp: 200K) from 207K 3) oil falling 2%.

Digging deeper, the fall in the ISM service sector reading was driven by a decline in new orders (to 52.7 from 64.1) with all the main sub-indexes falling. The employment component is one of the best forecasting tools for predicting NFP and it slid to 51.9 from 53.7. The consensus for Fridays NFP number is a modest +183K but the market has started to price in something close to +160K. The prices paid component declined for the second consecutive month, weighing on Fed tightening speculation and USD/JPY.

Fed's Rosengren said opened the door for QE3 when he said NOTHING WAS OFF THE TABLE" as far extra measures to stimulate the economy. The Feds Fisher (voter) re-iterated that he will be at the forefront of calling for policy tightening but noted that higher resource prices have not translated into general inflation. He warned that his gut (which was 180-degrees wrong prior to the crisis) says the Fed cant be complacent on inflation.

New San Francisco Fed President Williams (voter in 2012) sounded as dovish as his predecessor, Janet Yellen. He said inflation will peak but then turn lower. He also fretted about recent lackluster eco data and the drag from gas prices.

Metals took another fall with silver dropping 7.5% to $39.38. All kinds of stories are swirling about battles in the silver futures market. Gold also fell $24 to $1516. Copper, which is one of the better gauges of global growth, fell 12 cents to $4.12 and rests just above Mondays lows.

Asia-Pacific Preview

Japan remains on holiday but New Zealand and Australia will fill the void with NZ employment and AU retail sales. New Zealands unemployment rate is expected at 6.7% vs. 6.8% prior and the quarterly employment change is expected at +0.6% vs. -0.5%. These figures are only released every three months and have a large impact on NZD (often more than 100 pips). Nothing has gone right in the New Zealand economy since the Christchurch earthquake but expectations are relatively modest here (esp. for the unemployment rate). NZD/USD has fallen 200 pips since Mondays three-year high (spot at 0.7889). A fall below todays low of 0.7866 points to a re-test of the late-April low of 0.7821.

AUSTRALIAN RETAIL SALES are expected to rise 0.5%-0.6% after climbing 0.5% in March. AUD/USD has been falling since the RBA held rates and remained dovish on Tues. The pair closed at session lows Thursday (spot at 1.0723) and uptrend support from the Mar. 15 low has given way.

By AB - AshrafLaidi.com Staff

The latest "Intermarket Insight" Piece is up. ADP hits 4-month lows & services ISM at 7-month lows. A look at silver support and diverging equity indices between BRICs & G5. http://bit.ly/jfWif1

Renewed job creation is perceived as one of the key pillars of the US recovery story, but how solid is its foundation? According to the Conference Board global research group, April job growth is stalling. This bodes rather poorly for ADP payrolls and the ISM services data...

Monthly ADP payrolls report is widely seen as a dress rehearsal for the Friday non-farm payrolls. Expected at 8:15ET, consensus for the figure is around 200K, roughly on par with the past 3 months. However, a much-less publicized Conference Board assessment of labor demand paints a more bleak picture. Posting of new online job ads in February fell by nearly 20% on both sequential and year-ago basis - the first such declines of this year! We see this leading indicator as a warning signal for downside risk on both ADP and NFP data.

Likewise, strong ISM manufacturing report from earlier this week may not be echoed by the more encompassing for the US economy services indicator on tap for 10amET. Last month, the services ISM marked a 3-month low of 57.3 - well below 59.5 consensus. This time around, analysts forecast a rise to 57.9, even though the Institute's research chief Nieves warned about potential downside impact from Japan earthquake. Analyst consensus for comparable ADP and improved services ISM may prove to be too optimistic, suggesting economic green shoots still require continued liquidity.

In energy, weekly DOE inventories expected at 10:30ET see a build of 1.9M barrels. Overnight, private sector's API forecasts saw a 4th consecutive weekly build, further pressuring oil prices below $110.50/brl. Crude is fast approaching its key psychological support at $110/brl.

Agrium (AGU), MGM Resorts (MGM), and Time warner (TWX) are among the key US companies reporting Q1 results pre-market open. The first two will look to improve on the horrendous Tuesday reports from their sector cousins Archer-Daniels and Las Vegas Sands. Time Warner Corp (TWX) will also release a quarterly update.

GBP Shrugs the 4-month low in April construction PMI as risk appetite stabilises ahead of the flurry of the aforementioned key US data. EURUSD holds well above the Apr 18 trendline support of 1.4750.

By GG - AshrafLaidi.com Staff

Pound at 6 month lows ahead of usually market-moving Key construction PMI, Portugal agrees bailout terms, Safe haven flows boosts Swiss franc and yen, but gold and silver slide.

Sterling has slid to its lowest levels against a basket of currencies since October last year after yesterdays manufacturing PMI data for April fell short of expectations, to its lowest level for 7 months.

This fall more or less guarantees, if any were needed, that the Bank of England will keep rates unchanged at tomorrows meeting of the MPC committee, as fears about anaemic UK Q2 GDP growth continue to grow. Todays release of April construction PMI is unlikely to change that perception with expectations of a decline to 55.9 from Marchs 56.4 reading.

Even though shop price inflationary pressures continue to remain elevated with food price inflation jumping by 4.7% from 4% the month before, it appears that the central bank will continue to ignore these factors in their deliberations. As a result the pound has slipped back towards its post GDP support level of 1.6430. A break below this support could well target a deeper down move towards 1.6260 and the 55 day MA. Against the euro yesterdays break through the 0.8940 2010 level could well presage further sterling losses towards the 2010 extremes at 0.9150.

As for the single currency it has been somewhat sidelined despite further inflationary data showing that producer prices for March rose by 6.7% year on year, above expectations of 6.6%.

News that Portugal appears to have come to an agreement about its EU/IMF bailout package also helped underpin EUR, with a package of 78bn over three years. EURUSD support stands at around 1.4750/70, a break of which could see 1.4650, while a break above 1.4900 targets 1.5000.

USDX continues to remain under pressure particularly, against the Swiss franc which continues to make record highs on an almost daily basis on safe haven capital flows. US economic data due out later today is not likely to change the story with respect to US dollar weakness with the April ADP employment report due out later this afternoon.

On the other side of the safe haven story weve seen some correction in the recent rises in gold and silver prices, amid reports that some heavyweight investors have been booking profits after the recent hike in CME margins came into effect last night. A fall below $1,500 could prompt further falls in gold towards trend line support at $1,466 from the lows this year at $1,308, while silver could fall towards the 55 day MA at $38.50 if it falls through the $40 mark.

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By KM - AshrafLaidi.com Staff

A tumultuous day of trading spelled a nearly 10% drop in silver as weak hands were shaken out by a hike in margin requirements. The dollar no longer gets the kick it used to from risk aversion as the low yielding CHF and JPY led. Japan remains on holiday so the upcoming session will be thin with a focus on New Zealand building permits.

March U.S. factory orders rose by 3.0%, on expectations of 2.0%; the previous number was revised to 0.7% from -0.1%. Durable goods orders ex-transportation were revised to 1.8% from 1.3% and that will lead to an upward revision to last weeks Q1 GDP reading of 1.8%. Sterling lost a great deal of ground, AUD also trailed (see below).

The talk of the market was silver as it fell to as low as $40.61 from last weeks high of $49.78. Spot most recently traded at $41.64, which is modestly above key support at $41.20. A similar story played out in gold on a less violent scale. We warned yesterday of a breakdown on a fall below $1533 and the metal fell to $1516 before recovering to close above support at $1520.

SEE our DAILY INTERMARKET INSIGHTS For detailed levels on Silver, Gold & Euro http://www.ashraflaidi.com/products/sub01/

In the forex market, its telling that in a fairly straightforward risk off day with commodities falling, the dollar failed to make gains against the euro. At the same time, USD carved out a fresh record low vs. CHF and a one-month low vs. JPY. The factory orders report would normally give the USD a greater bump but bids were absent in a clear signal that the USD is unwanted. Even late news of a 78 billion Portuguese bailout (close to estimates) did little to hurt EUR/USD.

Asia-Pacific Preview

The calendar is relatively bare in the upcoming session with Japan celebrating the Greenery Day holiday as the Golden Week continues. At 2245 GMT New Zealand releases building permit data for March after a 7.8% m/m drop in Feb. There has been a 26% drop in permits since March 2010. This will be one of the first metrics to turn as the embattled construction industry recovers but thats unlikely in the near term. There is no consensus estimate but a further 8-10% decline would weigh on NZD. The market will also be looking forward to Thursdays quarterly employment data. NZD/USD hit a three-year high on Monday but has fallen 150 pips and is in danger of breaking short-term support at 0.7971 (spot at 0.7977). This would set up a similar fall to the one experienced by AUD/USDs break of 1.0921 (which we warned about yesterday).

By AB - AshrafLaidi Staff

Today's Premium Piece is up "CAD Positioning & Gold/Silver Foundation" Click here for access. http://bit.ly/jsGMEh You will also find access to the 24-hour streaming FX Bullets from MNI.

Sterling loses across the board on weaker than expected UK April PMI,

RBA Rate Hold Supports AUD, while CAD boosted by Elections

UK April PMI drops to 54.6 below expectations of 56.9 from a previous 57.1, reinforcing the belief that the Bank of England could keep rates unchanged at this weeks MPC meeting. GBP drops against the euro and the dollar with the break above 0.8940 increasing the likelihood of a test of 0.9050. While the 1.6430 level holds on cable then we could still expect to see further strength towards the recent highs.

The mornings decision by the Reserve Bank of Australia to keep interest rates unchanged, while a little surprising given last weeks higher than expected CPI figures, still serves to highlight these inflationary pressures, as the bank acknowledged that the high level of the dollar wouldnt in of itself be enough to keep inflation in check. However concern about continued spill over effects of the Queensland floods may well have stayed the banks hand on this occasion. AUDUSD needs to break above the 1.1000 area and yesterdays highs to push on and make further gains.

The US dollar continues to remain under pressure against a basket of currencies, despite yesterdays Bin Laden bounce. The greenback looks set to test levels last seen in July 2008 around 71.30.

Last weeks FOMC meeting and press conference, merely confirmed that despite higher inflation expectations around the world, the US Federal Reserve will continue to keep monetary policy loose, especially in light of a weaker then expected Q1 GDP number. This stance contrasts with other central banks tightening policy in the face of rising price pressures. It seems that improving economic data continues to take a back seat to the Feds ultra loose fiscal policy.

The win by Canadas conservatives in the Canadian election has sent the Canadian dollar back towards the highs of this year at 0.9445, however it still remains someway short of the 2007 highs at 0.9060.

Euro continues to be buoyed by higher rate expectations especially in light of last weeks higher than expected April CPI estimate which came in at 2.8%. The 2009 highs at 1.5145 remain in focus while above 1.4770, but concern is mounting about the high level of the single currency as the peripheral economies struggle.

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By KM - AshrafLaidi.com Staff

Canadians rewarded the ruling Conservative party with a majority government in Federal elections Monday. Pollsters predicted the Conservatives would continue to rule with a minority as they have for the past five years but support for the centrist Liberal Party collapsed. The Canadian dollar rallied in response to the win by the right wing government, which has long championed foreign investment.

USD/CAD fell by 45 pips as the results rolled in. Some CAD crosses gained as much as 100 pips on the news. The Conservatives were vague on promises during the campaign and instead focused on their role as a strong economic steward during the recession. They promised to trim $11 billion in spending during the campaign but would not say how. They also promised to balance the budget by the end of their term in 2015.

The Canadian dollar could be volatile in the coming days as Prime Minister Harper offers further clarity on how he will govern the country. Its unlikely that the knee jerk CAD-positive reaction will be sustained.

By AB - AshrafLaidi.com Staff

The Canadian dollar was the G10 laggard ahead of election results on Monday. Polls predict the right-wing Conservative party will maintain power. The key question is whether they will win a majority of the 155 seat Parliament or continue to govern with a minority.

The Conservatives with roughly the same level of support as the 2008 election when they came 12 seats short of a minority but vote splits in Canada’s first-past-the-post system could spawn a majority. In the past, elections have had minimal lasting impact on CAD and that will continue. Markets may slightly favour a Conservative minority as that formula has worked well for the past 5 years. There is a risk that with a minority the remaining parties may band together in a coalition to take power. Any hints of this during post-election speeches will immediately weigh on CAD. The effects would likely continue through the rest of the week and then would later be evaluated based on policy proposals.

There is also a very small chance to leftist New Democratic Party could spring from third place to within striking distance of the Conservatives. A poll on the eve of the election put them only 3 percentage points behind. A majority is out of the question but a strong NDP result could initially hurt CAD. Another potential CAD negative result would be one where the NDP and centrist Liberal Party have enough support to form a coalition without the separatist Bloc Quebecois. With so many moving parts in this election, some traders have decided to head for the sidelines and that has weighed on CAD. Time and time again, as we saw in the UK last year, election fears rarely translate into policy and are oftentimes great buying opportunities. A full picture of the results may not be clear until 0200 GMT, or later.

By AB - AshrafLaidi.com Staff

The Bin Laden buzz continued to fade through U.S. trading, pulling the dollar down with it. Hawkish rhetoric boosted the euro to the top of the G10 pile while CAD lagged ahead of election results. We look forward to todays RBA decision with the Australian dollar pushing up against 1.10.

The early jubilation that lifted the USD and stock markets dissipated. On the whole, ranges were tight as traders preferred to follow the details and fallout from the Osama Bin Laden assassination. The euro narrowly edged out USD as the top performer after Constancio and Juncker warned of upside inflation risks. Wellink also said Greek debt maturities could be extended.

The Dollar Index fell to a fresh 2-year low of 72.72 but recouped some of its losses after a better-than-expected ISM manufacturing report. The index decelerated to 60.4 from 61.2 in March (exp: 59.5). The details of the report were mixed with strength coming from new export orders but an inventory build points to a further slowdown. U.S. inflation signs continue to point higher with the prices paid component climbing to 85.5 from 85.0, a high since July 2008 (83.0 exp). The US dollar also got a late lift after the Treasury announced $142 billion in Q2 debt issuance, much less than the $299 billion January estimate. Geithner now estimates the debt limit wont be reached until Aug.

The metals trade was action packed with gold falling $30 to start the week. It then bounced back to just short of the $1576 all-time high before again collapsing back to $1544. Key short-term support rests at $1533 with a breach completing a double-top formation and potentially opening the way back toward $1500. The silver trade was equally dramatic as it bounced between $42.50 and $47.50.

Asia-Pacific Preview

At 0030 GMT we turn to the RBA decision. Of 13 economists polled, one expects a rate hike, one no hikes this year and 11 a hike in Q3. At the April 5 meeting, the RBA held at 4.75% and said inflation is consistent with the medium-term objective of monetary policy. Last week, Q1 CPI jumped to 1.6% q/q compared to the 0.4% prior and 1.2% expected. This has led some to believe that the RBA will deliver hawkish rhetoric that sets up a hike next month. This fear may be overblown as the RBA warned that temporary factors would drive up the CPI before it moderates. Technically, AUD/USD remains in a very powerful uptrend. The pair touched 1.1012 in US trading but has potentially generated a short-term double top with 1.0921 acting as key support.

By AB - AshrafLaidi.com Staff

US dollar rally sparked by the uplifting announcement on Bin Laden's death has largely reversed itself to the benefit of precious metals. Following multiple attempts, USD/CHF retreated from CHF0.87 while USD/JPY was contained below Y81.70 and EUR/USD above 1.4770. Gold retested 1,560 after falling to 1,540 immediately following the Obama press conference.

A snapback rally in the euro comes on the heels of comments out of the ECB president Trichet ahead of the his Thursday rate decision from Europe, affirming the central bank commitment to price stability. Speaking at the formal introduction of the new Bundesbank president Weidmann, Trichet lauded the ECB "credibility" for its adherence to price stability during the challenging times in European markets. In turn, the new German Federal Bank chief echoed his predecessor's hawkish stance, calling for the ECB policy rates to return to more normal levels. In addition to return above 1.48 mark against the dollar, the euro rose to 0.89 against cable and as high as 1.2880 on the Swiss franc.

Turning to the US economic calendar, the 10amET release of manufacturing ISM marks the single most notable event of the session. April figure is expected to fall back below 60 level for the first time in 4 months, foreshadowing a poor start to Q2 following a tepid Q1 GDP report from last week. ISM employment component will be of particular importance ahead of the non-farm payrolls on Friday after March print saw a pullback to 63.0 from 64.5. Likewise, "prices paid" component will mark a key assessment of inflation in the manufacturing sector - last month, this figure rose to its highest level in nearly 3 years at 85.0.

By GG - AshrafLaidi.com Staff

News of Osama Bin Laden's death led to a knee jerk reaction rally in the USD, a $13 decline in gold to $1550 and a $3.4 decline in silver to $44.50. Since it is important to realize that the recent run-up in commodities (and especially metals) has been the product of QE2 policy and the FOMC's consistently dovish remarks regarding i) muted inflation; ii) downgrading growth and iii) planning to reinvest their mortgage securities payments, the monetary policy element of metals is to remain in favour.

Todays historic news is highly symbolic rather than a game-changer in geopolitics as AlQaeda has become a decentralized organisation with various local leaders vying for that global leadership position. There is even a possibility that these potential leaders could be fighting alongside Anti-Qaddafi rebels in Libya (alongside NATO) as was the case in the aftermath of the USSR-Afghan war. Bin Ladens death could have a short-lived positive impact on the US currency, which presents fresh opportunities for bottom fishing in EURUSD and AUDUSD eyeing ininterim targets at 1.4890 (from current 1.4790) and 1.1020 (from current 1.0940).

For the key support levels on my euro longs, please the Apr 29 version of my Premium Service in the link below, which can be obtained for free at 1-week trial: http://www.ashraflaidi.com/products/sub01/

AL

Currency market liquidity likely to remain constrained as trading in the UK and much of Europe will be closed on Monday. Likewise in Asia, China is closed for its Labor Day while Japan is open briefly before closing for much of the balance of the week on Golden Week Holiday. Thin markets could potentially exacerbate the impact of a worse than expected April Manufacturing PMI from China coming in at 52.9 - below consensus 54.0.

China's PMI figure also represents the 2nd lowest print in the past 8 months and speaks loudly to the effect of China's efforts to rebalance its economy.

Aussie dollar would be the most directly impacted currency in the event of a pronounced risk appetite retreat, which may be brought about by profit-taking in thin markets. As we pointed out on Friday, COMMITMENT OF TRADERS' SPECULATIVE POSITIONING in AUD net longs has been trimmed to 80.9K contracts. Despite the 13-handle runup in AUD/USD over the past 7 weeks, that net long exposure is a 4-week low. RBA rate decision coming up this Tuesday presents a key event risk for the Aussie - until then, short-term may be vulnerable to a test of Friday's 1.0920 resistance turned support.

By GG - AshrafLaidi.com Staff