Intraday Market Thoughts Archives

CAD is the day's worst performing currency after Canada's April inflation fell to 0.4% y/y from a 1.0% rise in March, posting the biggest decline since October 2009. Core CPI also fell, reaching 1.1% from 1.4% in March. The Canada inflation news bears tremendous significance for the Bank of Canada, which is the least dovish of G5 central banks. Banking on further CAD declines has been one of the primary themes in our Premium Insights, as we warned in Thursday's USDCAD trades about the CPI catalyst. Both of our USDCAD longs have hit their final targets of 1.0295 and 1.0260, with entries averaged at 1.0150. AUDUSD shorts and EURAUD longs hit their final target, while EURUSD awaits the final target at 1.2810 after an average entry at 1.2950. CADJPY and 1 of 2 GBPUSD were stopped out. All the Premium trades and their rationale are in the Latest Premium Insights.

A flurry of weak economic data put the US dollar on its heels but it stormed back later on a hint about QE tapering. The pound was the top performer on the day while the kiwi languished. Watch out for new Japanese government stimulus measures later tonight. Both of today's new USDCAD longs were triggered, awaiting tomorrow's Canada CPI figures. Both CADJPY are in progress and so is the USDJPY as these may be impacted by tonight's announcement from Tokyo. Rest of trades are in the latest Premium Insights.

The US dollar bears finally caught a break early in US trading as a stream of economic data weighed on the buck. First, initial jobless claims jumped to 330K compared to 360K expected. It was a setback for the report after a number of better-than-forecast readings.

At the same time, US housing starts collapsed to 853K compared to the 970K consensus. The 16.5% monthly drop was partly due to poor weather but it also raises questions about the real estate recovery.

The Philly Fed also underscored that manufacturing is the weak link at this point in the cycle. The index fell to -5.2 compared to +2.4 expected. New orders were especially weak.

In addition, the trend toward disinflation accelerated with CPI falling to 1.1% y/y in April, slower than 1.5% in March and 1.3% expected.

Lower inflation and slower growth is a recipe for continued quantitative easing and the dollar declined. Given the one-sidedness of the data, the real surprise might have been that the dollar didn't fall further. USD declined 50-60 pips on most crosses but no further.

That was a strong signal that the dollar bulls remain in charge. Later, Fed comments suggested tapering remains on the table. First Fed Governor Raskin said stable inflation expectations have offset deflationary pressure to some extent. Later, San Francisco Fed President Williams was explicit, saying the FOMC could reduce asset purchases as early as the summer.Just like that the US dollar recovered most of its losses and proved that it will be awfully difficult to bet against the buck.

The top item on the upcoming calendar is at 2350 GMT when Japan releases machine tool orders for March. The median forecast is +3.0% m/m. The market is less concerned with March data because it was in early April the BOJ announced fresh QE programs.

Another thing to look for is an announcement from the Japanese government on a second round of economic reforms – Abenomics 2.0. Nikkei reported that one of the measures includes incentives to boost leasing. The market will be looking for more substantial measures.

Recent rallies in Non-USD currencies resulting from poor US data have not lasted long. And those rallies resulting from strong US figures via the indirect effect of rallying equities (risk-on) have not lasted either. Broadening pro-USD sentiment may stay for longer than we had thought. Full Analysis & Charts

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Ashraf tells the FT's Investment Editor John Authers why the USDJPY is particularly powerful and could extend to 108.  Never since the USD was freely floated has USDJPY rallied for 8 consecutive months. Aside from some historical technical points, the choice of the Bank of Japan governor, the disinflationary tendency of the world economy and the positioning of the Federal Reserve are among the key forces underpinning the rally ahead. FULL VIDEO

Germany narrowly escaped a technical recession in Germany Escapes Recessionq. Germany's export machine was especially highlighted via its continued activity with China despite the renewed Eurozone contraction starting last summer. China's demand for German high-quality exports is on the rise to the extent of lifting its share of German exports to 7% of the total. Exports to the Eurozone account for about 40%, while the rest of the world makes up Germany's remaining 60%.  Looking closely into that 40%, activity may well begin to shrink. More Charts & Analysis

The BoE's inflation report came and went and so did the brief GBP rally after the report reiterated inflation will fall back closer to the Bank's 2% target in 2 years' time. But the BoE also raised the question about its own credibility for as long as CPI remains above 2%. EURUSD drops below 1.29 after France GDP remained in negative for the 2nd consecutive quarter and German Q1 GDP posted a weaker than expected +0.1% q/q following -0.7% in Q4. And with French CPI unexpectedly falling to 0.8% y/y from 1.1% y/y, expect more talk and hints of negative ECB rates. Risk aversion set in as USDCAD breaks 1.02. Last night's 6 new Premium trades on EURUSD, USDJPY and GBPUSD are in play, with 1 of 2 EURUSD nearing 1.2810 target from 1.2930 entry, both GBPUSD are in progress as does 1 of 2 USDJPY longs. Both CADJPY and 1 EURAUD also remain in progress as seen in the latest trades and charts in our Premium Insights.

The US dollar soared Tuesday alongside the S&P 500. The dollar hit fresh recent highs against JPY, CHF, AUD and others. Japanese consumer confidence will be in focus in Asian trading as Abenomics spurs demand. 1 of 2 USDCAD hit all targets, the other awaits at 1.02. 1 of EURAUD hit all targets, the other awaits above 1.31. Both CADJPY remain in progress in the Premium Insights.

The dollar was relentless bid in US trading Tuesday and it was for no particular reason. A 1% rally in the S&P 500 encouraged optimism about the US economy but there was no unique catalyst on the day. The lone indicator on the day was the NFIB small business optimism survey. The reading of 92.1 was stronger than 90.3 expected but it still remains at the mid-point of the range for the past 3 years.

The euro climbed near 1.30 midway through US trading as Fitch upgraded Greece's credit rating but it stumbled afterwards, sliding as low as 1.2912.

USD/JPY also had a sharp turnaround; after touching 101.27 in Europe it marched to a four-year high of 102.42. The Swiss franc was especially battered as EUR/CHF broke 1.25 and USD/CHF climbed to the highest since August.

The focus will be on Japan in the hours ahead with the tertiary industry index at 2350 GMT and consumer confidence at 0500 GMT. The second release will be important because it could show a change in consumer attitudes following the BOJ moves in early April. The consensus estimate is 45.5 after a 44.8 reading in March.

Kyodo also reported that the Japanese government will announce a second set of growth strategies on Friday – Abenomics 2.0. At some point, stronger Japanese growth will attract investment and weigh on USD/JPY but that moment remains on the distant horizon.

Upbeat US retail sales numbers led to more speculation about Fed tapering Monday. The US dollar was the best performer while the Aussie lagged. The focus will remain on the Australian dollar today as the government delivers its latest budget. Both Premium longs in EURAUD are nearing their target. USDCAD also awaits as seen in the latest Premium Insights.

The S&P500 has not had a 10% peak-to-trough decline in 49 weeks. Prior rallies without a 10% decline were seen in Mar 2009- Apr 2010 (59 weeks) and June 2006 to July 2007 (56 weeks). Another fact worth noting is that the rally since the March 2009 lows has lasted for 17 quarters, nearly matching the 18 quarters from autumn 2002 to autumn 2007. See more analysis breaking down the S&P500 here

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USD/JPY opens the week higher after the G7 refrained from censuring Japanese efforts to boost inflation. In the past week, the US dollar has been the top performer while NZD and JPY lagged. Weekly futures positioning data showed a drop in AUD longs. After 1 of USDCAD and 1 EURUSD hit final targets, both EURAUD remain in progress. 1 cable short was stopped out. Those existing Premium trades are seen in the latest Premium Insights.

With the sharp fall in the yen late last week, all eyes were on the G7 to see if politicians would rebuke Japan. That wasn't the case, at least publically. Japanese Deputy PM Aso said there was no criticism of BOJ monetary policy or the weak yen. USD/JPY had started the week stronger, up 25 pips to 101.87. Other G7 news included a commitment to increase efforts to save failing banks.

Markets will quickly shift their focus to the Chinese economy in the upcoming session. After several lower-tier releases from Australia, China releases industrial production and retail sales numbers for March at 0130 GMT.

China Industrial production is expected 9.4% higher year-over-year and retail sales are expected up 12.8%. The IP number is generally the more-important one for the Australian dollar. Given the swift fall in AUD late last, week look for a potential snap back to 1.01 on a strong reading.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -33K vs -30K prior JPY -78K vs -71K prior GBP -63K vs -59K prior AUD +6K vs +30K prior CAD -52K vs -68K prior CHF -6K vs -8K prior

The big move is in the Australian dollar, which is in danger of falling to a 'net short' position. The rate cut and dovish rhetoric sent speculative traders fleeing the Aussie. It might be a stretch to begin predicting a large net short position, however, because the cost of carrying short AUD positions is prohibitive.