Intraday Market Thoughts Archives

GOLD/OIL RATIO & STOCKS RELATIONSHIP. GOLD/OIL CHART http://chart.ly/gnf2h2 On April 7, we warned in the FXStreet Online ITC Conference that each time the GOLD/OIL ratio reaches multimonth lows, any subsequent recovery in the ratio is accompanied by a decline in OIL (oil being the denominator starts to fall), which ALWAYS LEADS to a DECLINE in STOCKS within the subsequent 5-7 days. This is the SAME RATIONALE USED in Chapter 6 of my book http://www.ashraflaidi.com/book/ which shows how multi-year Gold/Oil ratio always led to recession or/and Fed rate cuts. In this case, a recovery in the ratio means rising equities could no longer hold in the face of falling oil. MORE ON SEC's GOLDMAN COMPLAINT in THIS FORUM THREAD http://bit.ly/90aNJ9

RISK AVERSION slams commodities as Goldman Sachs drops 10% following the U.S. Securities and Exchange Commission's announcement to charge Goldman Sachs with Fraud in structuring and marketing of collateralized debt obligation tied to subprime mortgages; defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter. The ECB's Jurgen Stark's position against aid for Greece and broad decline in all of the Univ of Michigan's consumer sentiment 5 components deepens the sell-off in commodities, which we warned about through our analysis (these past 6 days) of the CRB's inability to breach above 280. EURUSD nears $1.3460 target, USDCAD subsequent target tands at 1.0220 but oil real suport now stands at $80. Those long USDCAD could look into hedging with shorting AUDCAD.

EURO GIVES UP ALL OF THE WEEKs GAINS falling back below $1.35. Not enough attention is spent on improved US data. Housing starts and building permits hit 16 and 17-month highs respectively after better than expected retail sales earlier in the week. Kansas Fed's Thomas Hoenig speech (16:30 GMT) will make a fresh rebuttal to the Fed's low interest rate mantra, warning against the risks of keeping interest rates too low for too long. Meanwhile, the euro loses all of the week's gains, falling back below $1.35. $1.3680 has clearly failed, $1.3460 is next target. USDCAD eyes 1.0080.

GBP is WORST performer of the day on fears of hung parliament after more than 50% of those polled found LDPs Klegg the winner in yesterdays political debate, followed by 29% for Conservatives Cameron and 21% for Labours Brown. Any improvement in LDPs election chances suggests marginalized majority for Tories or Labour, thus reducing chances of passing deficit-reduction policies. There are 2 more debates remaining before the election. Theoretically, the likelihood of a Conservatives/LDP coalition is smaller than that of a Labour/LDP coalition. Thus, with Tories still leading in the opinion polls and LDP gaining in the debates, the difficulty of forming a government would weigh on sterling. Part of the GBP rallies in recent days has been attributed to improved Tory polls. Cables 3-hr chart shows lower highs, suggesting trend line resistance at $1.5485. Could Nick Clegg become increasingly associated with a hung parliament?

US CRUDE OIL remains capped at the $86.40 trend line resistance extending from the Apr 6 high despite yesterdays $2.60 rally. The failure is in line with the CRBs inability to break above the $280, which is the right shoulder resistance. For more info on the CRB Index see this link http://bit.ly/9G8Wv0 GBPUSD weekly stochastics remain bullish despite the diminishing momentum on the daily chart. Cable 4-hr chart suggests a retreat towards $1.54, but support has lifted to $1.5340. US Housing starts and Canadian manufacturing shipments due tomorrow must be closely watched as a potential boosters for USDCAD, which eyes 1.0030, followed by 1.0080.

USDSEK may see further gains ahead. Several sources of Swedish pitfalls lie ahead; Swedens attempt to recover from a double-dip recession; the risk of a retreat in metals and uncertainty ahead of Swedish September elections could propel USDSEK gradually towards 7.6 after the summer, while remaining supported at 6.9-7.0 in the medium term. Todays downgrade of 2010 GDP growth to 2.5% from initial forecasts of 3.0% doesnt appear to help either. But SEKs outlook vs EUR appears more positive due to lingering uncertainty in the Eurozone. EURSEK looks to retest the 9.5, with risk to extend losses towards 9.3, but any recovery in EURSEK remains capped below 10.2. Watch Ashraf this afternoon on CNBCEurope at 15:05 GMT (16:00 London).

EURO PULLBACK remains isolated from other currencies as Greek/German yield spread jumps back to 427 bps, up more than 70-bps due to ongoing uncertainties over the agreed-upon 45 bln euro package. We long said there are serious questions about the efficacy of deploying those funds, including 8.5 euro billion from Germany. Euros failure to break above $1.3680 yesterday is giving way to a full-cent sell-off towards $1.3533. Subsequent target stands at $1.3480. OIL remains capped below 86.40 trend line resistance (extending from Apr 6 high).

USD INDEX enters its 3rd weekly decline, which would be the longest losing streak since October 2009. USDX breaks below the 55-day MA for 1st time since Dec 4th, looking vulnerable for a breach below 79.15. The EU/IMF agreement as well new highs in equities have helped extended USD losses to EUR and GBP. A confirmation of Chinas Q1 GDP figures tonight (after they were leaked to show a 11.9% jump could intensify risk appetite in Asia, unless PBOC reiterates its aim to rein in lending. GBPUSD regains the 55-day MA, with the weekly stochastics suggesting further run-up towards $1.5550. But daily stochastics do not appear as positive, thereby, suggesting a near-term pause in cable. Bernanke did not mention the "low rates" mantra, but higher oil prices following the unexpected draw in crude inventories helped boost stocks and oil.

STRONG US retail saies and WEAK US CPI could maintain the low interest rates mantra in Bernanke's upcoming speech today (14:00 GMT) at the expense of the US dollar. ALL traders will watch for this phrase in the speech. But EURUSD has yet to regain the $1.3685 resistance (76% retracement from Mar 17 high to Mar 25 low),a failure of which could see a retreat towards $1.3530. FX traders may grow suspicious of Greeces insistence to tap the bond markets, especially as questions remain about any additional conditions regarding the disbursement of the agreed-upon 30 billion euros from the EU.

SINGAPORE DOLLAR BOOSTED across the board after the Monetary Authority of Singapore (MAS) announced it will re-center the SGD trading band towards that of gradual revaluation aimed at countering inflationary pressures. USDSGD fell 1.2% from 1.392 to 1.373 to reach its lowest since August 2008. The higher than expected 13% y/y increase in Q1 GDP offered the growth justification to the rally. So far this year, AUD and CAD are the only G-10 currencies to have risen against SGD at 3% and 2.8% respectively. USD, GBP and EUR are down 1.9%, 6.1% and 6.6% against SGD year-to-date. JP Morgan earnings due before the US open expected at $0.64/share up from $0.40/share a year earlier. BIG DATA DAY for US as both retail sales and CPI due at 13:30 SEE CALENDAR http://www.ashraflaidi.com/economic-calendar/ GOLD sets to retest 1165 resistance.

AUSSIE RETREATS as COPPER extends 1-week decline from its 20-month highs of +8,000/tonne. SEE CHART http://chart.ly/96k956 Fears that chinas copper purchases are increasingly used for stockpiling as well as the latest directive from Chinese regulators to rein in bank lending have triggered coppers sell-off. While care must be paid when shorting the Aussie, the emerging double top with the Nov 16 high (failing 0.94) suggests interim downside at 0.92, followed by 0.915. Considering our alerts with the peaking CRB (last week) and struggling oil prices, we may witness a case of energy prices leading metals on the downside.

OIL ENTERS its 6th CONSECUTIVE daily decline (longest losing streak since December) after hitting 18-month highs at $87.09 per barrel. So far this year, US crude oil has outperformed gold, USD as well as all major currencies. The 4% pullback in oil helps explain recent downside pressure on the CRB (19 commodities), 23% of which dominated by WTI crude oil. In turn, this helps explain the CRBs recent underperformance relative to gold and copper. Technically, crude oil is vulnerable to a retreat towards $80, where both the 55 and 100-day MA converge. Deteriorating oscillators are consistent with previous peaks (Jan 11, Oct 21 and Aug 25), which increases the risk for prolonged losses towards $77.00.

Greece successfully raised 1.2 billion euros of 6 and 12-month T bills today, with an interest rate at below 5%. While we mentioned $1.3780-00 as the resistance point, EURUSD may be facing a lower obstacle at $1.3720, 23% of the decline from the $1.5130 high to the $1.3276 low. US earnings season kicks off this week, with the simultaneous release of US retail sales, industrial production, Philly Fed and housing starts. GBPUSD regains $1.54 after a bigger than expected decline in UK Feb trade deficit. Cable to attempt retesting the $1.5450s, but do keep close watch on the last weeks shootingstar candle, which may imply emerging bearishness later this week.

GBPUSD SHOOTING STAR on the daily candle is classic bearish pattern, which is illustrated on the Bloomberg terminal (based on 18:00 London --17:00 GMT closing). Despite a break above $1.5340 to $1.5480s, in Monday morning Asia (which was largely driven by Monday morning gap-ups in Asia) offers were heavy at $1.5420s, which markets the 38% retracement of the decline from the Jan 19 high to the Mar 25 low. The only caveat on this particular shooting start is that the body does not gap higher above the high of the previous day. The When using Reuters data, however, which is based on NY afternoon, the price pattern shows a large down day at the top of the prior candle. The possibility for sub $1.53 is suggested by cable, followed by $1.5170 later in week.

CRUDE OIL extends its 5-day loss, the longest losing streak since mid January (when oil oscillators descended in a downward spiral and oil lost $17). $83.00 stands as the next support. We reiterate that oil will continue its underperformance relative to gold based on a rising GOLD/OIL RATIO, which is expected to reach 14.50-80 before quarter end from its current 13.65. EURUSD successfully broke above its 21-week trend line after regaining the $1.35 figure to a 3-week high of $1.3570. NEXT RESISTANCE POINT stands at $1.3780, which, a break of which would qualify for a return towards the $1.40 figure. failure to retest $1.3770s, may lead to gradual retereat back towards $1.330s.

GOLDs RALLY has been attributed to both the safe haven element during the uncertainty regarding Greece as well as continued signs of global expansion, led by China. Gold did manage to close above 1158 on Friday61.8% retracement of the decline from the 1226 high to the 1044 low. Although the recent rally has breached our misplaced expectations for continued downside, we warn over a bearish divergence in daily stochastics. Only a break below 1140 would revive expectations of a near-term sub-1100. GOLD vs GBP tests its all time high but fails to close above it (756), while GOLD vs. JPY hit the highest level since the Dec 4 record high before retreating back.

SHOW THEM THE MONEY is exactly and finally what the Eurozone and IMF did when Eurozone members agreed to provide 30 bln in standby loans to Greece this year, supplemented by IMF loans of reportedly as much as 15 bln. The interest rate would be at around 5% for a 3-year loan, less than 7.40% demanded by bond markets. These funds are more a show of Eurozone/IMF solidarity aimed at enabling Greece to tap the bond markets at sustainable interest rates (below 7%), than an actual disbursement of funds. Greece reiterates it has not ask for money, but will use these agreements to raise as much as 1.2 bln through 3 and 6 month paper. EURUSD seems poised to extend gains towards $1.3780, while EURCHF may push towards 1.4550 as the SNB could feel encouraged to buy the pair with the wind at its back.