Intraday Market Thoughts Archives

EURUSD tumbled by another 200 pips to hit an 11-year low at $1.1460 as USD broadened gains on traders' increased realisation that yesterday's Swiss National Bank decision to end the EURCHF peg was an implicit vote of confidence for the US currency. Full chart & analysis.

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A new set of Premium trades is due out shortly ahead of the Friday Asia session.

1. The immediate focus turns to the ECB. The SNB certainly seems to believe that sovereign QE is coming and comments from Coeure late in the day were another hint. Even without the ECB, the SNB has quit buying and that's a negative for the euro.

2. The Swiss economy is about to be hit by a major shock and a disinflationary problem just became a disinflationary crisis. Exporters are uncompetitive overnight.

3. There is chatter about the SNB selling or altering the composition of its roughly CHF500 billion of reserves. Gold is a possibility and that may have played a small part of the $30 rally on Thursday.

4. Everyone is staying away from EUR/CHF now and analysts are even scared to guess what's next. The takeaway is that no one has strong opinions so momentum trades are likely to dominate.

5. The BOJ is slowly shifting its position on inflation targets and backing away from them. The move away takes the threat of action off the table and officials have even been talking up the yen. Technically, the Dec low of 115.57 is key.

6. With yields collapsing everywhere the high-yielders look better all the time. Stocks have fallen for 5 straight days yet the Australian dollar has been inching higher. The 2.50% yield Down Under is more enticing every day.

7. Many brokers took a hit on the news and at least one was forced to close up. For us, it's not so much a broker story but a liquidity story. It will ultimately mean less money, tighter margins and a more volatile market. It urges for top-notch risk controls.

8. The eurodollar market is slowly losing its love for Fed rate hikes. The Philly Fed was poor at 6.3 vs 18.7 exp and inflation is gone after the oil market made another failed attempt at a rebound. There is more and more talk about the Fed never getting above 1.00% but traders are still asking the question: If not the US dollar, then what?

9. Buried in the news was that retail giant Target is leaving Canada after entering 2 years ago. It helped to snuff out a USD/CAD slide. Investment isn't coming to retail/consumers, it's definitely not coming to commodities and housing is teetering. The next central bank surprise could be a BOC hint at cuts.

10.  IMF Managing Director Lagarde was asked about the SNB move today and said she was surprised not to be warned in advance. Jordan declined to comment on if other central banks were informed. We're troubled at the idea that central bankers would or should inform cohorts or that it's standard practice. It opens far too many avenues for leaks and abuse.

The Swiss National Bank's decision to abandon its 4-year old FX peg is a stark reminder that in today's deflation-bound, zero-interest rate world, capital appreciation exceeds yield. It is also a gross miscalculation. Read more here.

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A weak US retail sales report sparked a squeeze on the crowded US dollar trade but the move reversed within hours in a signal about the underlying dollar demand. Risk aversion remained the main theme with JPY leading and AUD lagging. The Aussie will remain in focus with the Dec jobs report due next. 1 of the 2 AUDJPY shorts hit its final target, while the 2nd trade is 20 pips away from hitting its final target for 180 pips. Both CADJPY are in progress. A new set of Premium Insights is due shortly ahead of the Aussie jobs figures.

There was no good news in the US retail sales report. Gasoline sales were expected to be weak because of falling prices but stripping out gas, autos and even the volatile building supplies category, sales were down 0.4% compared to +0.4% expected.

The reaction was swift with the US dollar down 50-70 pips right across the board. US dollar longs are an extremely crowded trade but the bottom was put in quick in quickly and it didn't take love to recover, and sometimes reverse the moves. USD/JPY hit a three week low at 116.06 only to rebound all the way to 117.46.

This is a pattern we've seen before. Traders see a USD-negative headline and act quickly but the moves aren't sustained. It's a great sign for US dollar bulls and underscores that even if the US economy isn't as strong as the Fed believes, it's still stronger than its rivals and a prime investment destination.

The focus shifts to a different dollar in the hours ahead with the Australian jobs report due at 0030 GMT. The consensus is for 5K new jobs but this report has been extremely volatile over the past few months and sparked a methodology change from the ABS.

The part-time/full-time breakdown is always important but because of the recent volatility in the report, the market may be skeptical of everything. That said, the Australian dollar has made somewhat of a stand at 0.8000 and that includes a big bounce from 0.8070 on Wednesday so a breakdown or rebound could have a lasting technical effect.

As copper plunged 5% today, our charts show the sixth weekly increase in copper warehouse inventories at the LME and so If copper sticks to its historical trend-reversion, it would 200-month moving average as has been the case in each 6 years, which means another 15% decline from here. Full charts and analysis here.

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Late in 2014, influential ECB policymaker Ewald Nowotny said Q1 was too soon for sovereign QE but today he urged a quick decision, warned the ECB balance will effectively shrink without action and called sovereign QE a traditional monetary policy instrument. The comments got little attention as oil sparked a round of risk aversion that helped the yen outperform. Japanese machine tool orders are due later.  In our latest Premium Insights, 2 CADJPY & 2 AUDJPY trades are in progress after 4 CADJPY shorts hit their final targets all the way from the 103 level.

Until today, Nowotny was thought to be one of the soft hawks at the ECB but with Brent hitting $45 today and deflationary signs emerging, he's swinging to the dovish side. It's one of the best indications yet that sovereign QE is coming on Jan 22.

The euro touched 1.1753 on Tuesday, which is a pip below last week's cycle low, and it will be a key support level in the hours ahead. EUR/JPY also extended further below the 200-day moving average after breaking it on Monday.

The key euro risk in the day ahead is the preliminary German court decision on the OMT. It's a program that was never used from the 'whatever it takes' era but if the court sounds disapproving it may have implications for the sovereign QE. Markets find court decisions very difficult to price and interpret so it could spark heard reaction or a squeeze higher.

Other moves on Tuesday saw USD/CAD stall just ahead of 1.20 despite a continued oil decline and a warning from the BOC's Lane that low energy prices could stall rate hikes. It could simply be some consolidation before a break but the lack of a further push could also be an early warning.

In the near-term, the highlight on the Asia-Pacific calendar comes at 0600 GMT when Japanese prelim Dec machine orders will be released. These numbers have been extremely volatile recently with Nov data up 36.6% y/y.

Another 5% fall in oil prices sparked risk aversion as the ECB wavers on sovereign QE. The Canadian dollar was the worst performer and hit a 5-year low while the yen led the way. Chinese trade data is a key event in the hours ahead. 1 of our 2 CADJPY Premium shorts hit its final 99.30 target for a 190-pip gain, while the other short is 10 pips away from the final 98.70 target for a 100-pip gain. Both AUDJPY shorts are in progress. China's trade figures are up next at 2 am GMT. A New set of Premium Trades will be released shortly, before the Chinese figures.

The fall in oil prices continues its relentless slump with Brent touching $47.16 and WTI down to $45.62. It's been a common pattern that fear in the oil market spills over to oil stocks and the broader market and that continued Monday. The US dollar gave up solid European gains and finished the day generally unchanged.

The exception was against the Canadian dollar as USD/CAD shot to 1.1970, the highest since 2009 in a more than 1 cent rally. The BOC's Business Outlook survey also indicated slower investment as the oil patch dries up.

Many central bankers spoke throughout the day but the focus is on the ECB. Handelsblatt reports that a majority of ECB policymakers support sovereign QE but at least 7 are against it. One of them continues to be Nowotny who said government bond purchases were only one option. Makuch and Noyer also spoke about QE and neither were committal and the crowded euro-short trade could see some profit taking ahead of Jan 22.

The Australian dollar was also soft on Monday, sliding to 0.8150 but the key level is 0.8000. That could come under pressure as soon as Asia-Pacific trading with Chinese trade data on the agenda at 0200 GMT.

The key metrics are imports and exports, which are expected up 6.0% and down 6.2% y/y, respectively. The market has grown increasingly sensitive to this data set. The numbers could be skewed by commodity prices rather than volumes so guard against a whipsaw.

Stocks / Yields ratio hits a new record high as oil plunge to new fresh 5-year low. Now, we turn onto China's trade figures for a pause in the ratio. Full charts & analysis.

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US dollar traders were whipsawed on Friday as job gains were overshadowed by weak wage growth. Japan is closed for holiday to start the week so early trading is light but the US dollar has continued to slide lower while the kiwi and euro lead the way. Weekly CFTC positioning data showed traders continuing to pile into euro shorts. Both of Premium shorts in CADJPY are in the money, with the first netting +105 pips and the 2nd trade netting +1030 pips. AUDJPY is =in a loss and a AUDCAD was stopped out.

The week ahead will be increasingly about the ECB and Greek election. Mainstream chatter about the ECB decision and its effect on broad risk assets is ramping up and there's a chance of significant disappointment if Draghi fails to deliver. The Jan 25 election is also nearing with polls continuing to show Syriza 3-4 points ahead.

With Japan on holiday, the lone economic data points are Australian home loans and ANZ job advertisements at 0030 GMT. Neither is likely to drive a move in the Australian dollar.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -161K vs -152K prior JPY -90K vs -96K prior GBP -26K vs -19K prior AUD -49K vs -41K prior CAD -17K vs -14K prior CHF -24K vs -17K prior NZD -1K vs -2K prior

The euro is approaching the most-extreme levels of the past three years. The cycle low was in October at a net short 161K.