Intraday Market Thoughts Archives

Today's US jobs report was mostly neutral-to-negative and its dynamics will not do the job to sway the Fed into raising rates in June. The chart below shows how easily-beaten corporate earnings were able to lift the S&P500 in March-April, making a break away from the positive correlation with US 10-year yields and USDJPY. But the last 2 weeks have seen a normalisation as equities fell back in line. Full article.

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Ashraf's next LONDON TRADING SEMINAR is on Saturday, May 14th at XTB London HQs in Canary Wharf from 9 am to 5 pm.

Reserve your free seat here.

Ashraf's next LONDON TRADING SEMINAR is on Saturday, May 14th at XTB London HQs in Canary Wharf from 9 am to 5 pm.

Reserve your free seat here.

A third day of declines in EUR/USD sets the stage for Friday's non-farm payrolls report. The Australian dollar was the top performer while the Swiss franc lagged. The Australian construction PMI and RBA Statement on Monetary Policy are due; Japan also returns from holiday. There are 6 Premium trades in progress: 2 in FX, 2 commodities and 2 equity indices. A new trade was added yesterday, supported by 4 charts, 5 reasons and the potential for 1200 points.

A sideways chop characterized most trading in the day ahead of non-farm payrolls. Weekly initial jobless claims data showed a small bump to 274K compared to 260K expected.

Fed officials continued to extol the virtues of the labor market and casting doubt on GDP. Kaplan, Williams, Lockhart and Bullard were all singing from the same song book but there are confounding gaps in logic. The general theme is that they want to see a pickup in GDP before hiking but that 2-3 rate rises are still on the table.

The problem is that the first reading on Q2 GDP isn't until the end of July. The next meeting following that isn't until September and three hikes before year end would fly directly in the face of the Fed's longstanding 'gradual' hike philosophy, neve rmind their even longer-standing philosophy of doing whatever it takes to keep stock markets strong.

Generally the US dollar was strong, particularly against the euro, which finished the day down 85 pips. The pain finished on the lows and cut through support at the April highs.

Another spot we continue to watch is CAD. It's not surprising it faile to rally even as oil prices climbed Thursday. The driver for crude gains is word that around 800K bpd of crude production in Canada is offline due to the forest fire in Alberta. That will be a major hit to Canadian GDP and trade. Just this week, Canada reported its worst-ever monthly trade deficit.

The bias ahead of non-farm payrolls is mixed. ADP on Wednesday missed but the employment component of the ISM non-manufacturing report was strong. The market is pricing in just a 10% chance of a June hike and 22% in July. A weak jobs report would undermine this week's USD bounce and kill what's left of a Summer hike. What would be the best sign for the dollar bulls, is if the report is weak and USD doesn't fall.

Looking ahead, the calendar features the 23 30GMT Australian construction PMI report for April. The prior was 45.2. At 0130 GMT, the RBA will publish the quarterly Statement on Monetary Policy. The RBA statement from Stevens didn't offer much in terms of bias and the market sees only a 65% chance of a cut before year end. Hints in the report could change that.

The US dollar once again showed strength and resilience on Wednesday but the bit story was a sharp drop in CAD on weak trade data and a wicked wildfire in the heart of the oilsands. Australian retail sales and trade data are due later; Japan remains on holiday. Both CAD Premium trades were stopped out, while a new trade has been issued with 4 charts, 5 reasons and 1200 points.

آخر صفقات في العملات و المؤشرات"  ** فيديو الأسبوع **

We wrote about the reversals in the US dollar yesterday but the day afterwards is often equally telling. Euro and cable trading wasn't nearly as exciting on Wednesday but it was instructive. Both trades continues lower before consolidating.

Of course, none of that happens in a vacuum so we evaluate the moves against the news and broader environment, which continued to be risk-off. The US dollar was briefly hurt by ADP employment at 156K versus 196K expected. USD/JPY skidded 45 pips to a session low of 106.20 on the headlines. One takeaway is that the pair recouped most of the declines in the following hour. Part of that was better US trade numbers but there was also dollar resilience.

Good news came later as the April ISM non-manufacturing index rose to 55.7 compared to 54.7 expected. USD/JPY jumped more than 50 pips on the news and was able to hold the gains despite falling stocks and yields.

The most impressive US dollar move over the past two days has been USD/CAD. We called it the most compelling chart reversal yesterday and another 170 pips of gains (despite a rise in WTI) underscored the point. The trade had some help from the worst ever month trade deficit in Canada and a forest fire that is ravaging Fort McMurray, which is the small city where 80% of Canadian oilsands workers live. It's been completely evacuated and thousands of structures have burned, leading to widespread production shutdowns, with more looming.

Given the soft Canadian data, there is a downside bias in the 0130 GMT trade balance report from Australia. The consensus is a 2.9B deficit as they struggle to make a similar transition away from raw materials exports.

At the same time, the consumer will be in focus with March retail sales expected up 0.3%.

Finally, keep a close eye on the yen. Fin Min Aso made FX threats yesterday and Abe touched on the same points today. The conventional thinking is that they won't intervene on a holiday but that might be a dangerous assumption.

The US dollar hit cycle lows and then stormed back on Tuesday, marking impressive reversal signals on the daily charts. The commodity currencies lagged badly following the RBA rate cut. In early Asia-Pacific trading, the New Zealand Q1 employment report led to a kiwi rebound. The trades in the Premium Insights hit their final targets in USDJPY and EURUSD, while stopped out in AUDNZD. A new trade has been issued after the NZ jobs.  Ashraf's latest video on FX and equity indices trades and charts for subscribers is found below.

The dollar finally has a pulse. Dollar bulls were battered in March and April but a new month brought new hope Tuesday.

It didn't start out that way as USD hit trend lows against EUR, CAD and JPY early in European trading. From there it was a complete turnaround as a massive bid underpinned the dollar in a steady rise.

There was no clear catalyst for the USD move. Commodity and stock markets were under broad pressure but that was more-likely a result of US dollar strength than the cause.

In any case, a few impressive reversals appeared. EUR/USD touched 1.1617, hitting all the targets in Ashraf's latest trade, before skidding more than 100 pips lower.

USD/JPY also reversed course after hitting a cycle low at 105.57 and finished at 106.80. We continue to preach caution in yen trading with Tokyo on holiday until Friday. Japanese Fin Min Aso was on the wires and used all the code words to suggest intervention is possible at any time.

Perhaps the most compelling charts were cable and USD/CAD. Both traced out impressive outside days with USD/CAD engulfing the previous six trading days in a 250 pip classic reversal pattern. It will take at least another day to confirm the weak-dollar trend is over but with better May USD seasonals and Fed expectations near rock-bottom, there's scope for more.

The focus in early Asia-Pacific trading is the New Zealand dollar. It initially fell to 0.6890 as unemployment rose to 5.7% in Q1 from 5.3% at the end of 2015. But that was skewed by a 0.4 pp rise in participation. The q/q employment change rose 1.2% compared to 0.6% in a better signal about the health of the jobs market and NZD/USD jumped to 0.6935.

More than anything, the NZ jobs report is a good test of the mentality of the broader market. Ultimately, it's good news and if NZD/USD can't hold gains after an upbeat report, then the commodity bloc might be in for more pain.

Finally, news networks have declared Donald Trump the primary winner in Indiana. That gives him a clear path to the Republican nomination and wipes out the risk of a contested convention. From here until November, the focus now is Trump vs Clinton.

The Australian dollar was the top performer while the US dollar lagged on Monday. The AUD/USD gain comes despite the looming, tough-to-call RBA decision. We look at what's expected and examine the market moves so far this week. On Friday we closed our short AUDJPY at a gain, leaving one AUD trade in progress ahead of the  RBA.

While the market was focused on the FOMC last week, the events that drove trading were the BOJ and Australian CPI report. The later sent the probability of a rate cut today to 54% in the OIS market from 15% beforehand.

Ashraf jumped on AUD/JPY shorts after the inflation data and the pair remains down nearly 400 pips since the post-release hour. A small portion of that eroded today, perhaps as short term AUD shorts covered or due to a climb in industrial metals.

Financial futures positioning shows an increasingly crowded long trade in AUD/USD and that could be squeezed after the 0430 GMT RBA decision.

The cut is the main thing to watch for. The RBA ramped up its anti-AUD jawboning in the latest decision and AUD/USD has risen a cent since (although it's down versus other G10 currencies). Ultimately what may motivate Stevens to cut isn't the current level of AUD, but fear about how high it may rise if he doesn't.

The BOJ and RBNZ examples last week show that this market demands constant dovish action. The only way the RBA could avoid a similar fate is by promising to do more at the next meeting. An interesting scenario would be a cut followed by a clearly neutral bias. In that case, the kneejerk lower in AUD could reverse.

In broader markets Monday the US dollar was generally soft. Some selling came after the April ISM manufacturing index as it slipped to 50.8 from 51.4. The dollar sold on the headlines but the prices paid index rose to the highest since Sept 2014.

Japan is on holiday until Friday.

The yen ripped right to the finish line on Friday and is slightly higher to begin the week. China's manufacturing PMI was released on the weekend and edged lower. Holidays could complicate trading to start the week. On Friday, the Premium trades took a 335-pip gain in AUDJPY, while 6 of the 9 existing Premium trades are at in the gain with +100 pip each. The Video below is open for subscribers and non-subscribers alike, containing Ashraf's take on how/why stops were hit 2 weeks ago and how matters change last week.

On Thursday we warned that the pain could be far from complete in yen crosses and that was the case as USD/CAD cracked the April lows, pushed through 107.00 and sank to 106.30. The pair is down 560 pips since the BOJ decision.

Holidays make this a tricky week of trading. China, the UK and parts of Europe are out on Monday. Japan returns from a three-day weekend but only for a day before another three-day holiday begins.

Seasonally, April was a weak month for the US dollar and that proved to be true as it lagged all G10 FX except the Aussie. The situation reverses in May, which is an excellent month for the dollar bulls.

Weekend news was led by the China manufacturing PMI. It slipped to 50.1 from 50.2 and missed the 50.3 consensus. The non-manufacturing PMI also declined to 53.5 from 53.8. The misses aren't likely big enough to spark much of market reaction but the numbers underscore the muddling global economy.

Commitments of Traders

EUR -40K vs -47K prior JPY +66K vs +72K prior GBP -49K vs -55K prior CHF +9K vs +9K prior AUD +59K vs +44K prior CAD +12K vs +7K prior NZD +7K vs +5K prior

These numbers show the setup ahead of the BOJ and Fed, not afterwards. Specs sniffed out how the BOJ would be sidelined and real money piled in. The position that's in peril this week is AUD. It was the worst-performer in April and Stevens may not be friendly on Tuesday.