Intraday Market Thoughts Archives

The euro edged higher on the day but talk of orderly defaults cut into the gains. Overall changes on the day were small, CHF was the top performer, followed by EUR; NZD and USD lagged. Fridays CFTC report showed USD longs jumping to a one-month high at the expense of the euro. Latest Premium Trades for Monday Asia (Sunday night) below.

The euro gained on rumours of ECB bond purchases and talk that the IMF could do more for European stability. But sentiment edged lower throughout the day, especially after a local press report suggested Germany was considering the possibility of orderly defaults beyond Greece.

Ashraf has been talking about the weekend general election in Spain for some time and on Friday the market is taking a more active interest, pushing Spanish spreads wider due to political uncertainty. The ruling socialist party is expected to cede power to the conservative Partido Popular but, as we have frequently seen, the honeymoon could be short. The (likely) incoming PM has promised to slash spending but has been vague on specifics, saying only that he will spare pensions.

The focus in the week ahead will shift to efforts to combat the US deficit. With just minutes to go in the trading day on Friday, second-tier ratings agency Egan Jones said it may cut the US debt rating if the budget super-committee flops. The FX is assuredly priced in a low probability of a budget overhaul and the bond market has not shown any concern. There is a risk, however, that a protest from the stock market could spark a short-term round of risk aversion later in the week, when it becomes clear that no deal has been reached or a the deal includes tax increases.

The S&P 500 closed flat at 1216 on the day but fell 3.8% on the week; the worst weekly performance in two months.

CFTC COT report

Speculators at the CME are holding a $10.1B net long position in USD, up from $6.2 a week earlier. The change was almost entirely due to a climb in EUR shorts to -76.1K from -54.3K. Sterling shorts increased to -32.8K from -29.1K. CAD shorts increased to -17K from -15K. AUD remains in a net long position but it was trimmed to 24.3K from 27.0K.

The long currency to make headway against the USD was the yen as the net long expanded to 33.7K from 28.0K. Surely the BOJ is keeping an eye on these numbers, they last intervened with net yen longs at 45K. The numbers cover through the close on Tuesday.

Weekly Charts

EUR/USD declined for the third straight week, eliminating the tentative positive signals late last week. The path lower is clear, especially on a break of 1.34 but given the extremely negative positioning evident in the CFTC positioning, a short-squeeze will remain an ever-present threat.

GBP/USD broke below the lows of the past three-weeks, which signals an end to the recent retracement phase. We may see a re-test of 1.5868 in the week ahead but the 3 cent drop since Monday indicates that rallies are to be sold.

USD/CAD looks to have broken out on the upside, closing the week above 1.2066 to put the finishing touches on a sloppy inverted head-and-shoulders pattern that targets a retest of 1.0650. A similar pattern targets the recent lows in AUD/USD.

The reversal in WTI crude confirms the Canadian dollar bias. Oil surged above $102 only to change course and close the week lower at $97.40, creating a spinning top on the weekly chart after 6 weeks of gains and signalling the potential for a near-term tumble.

Latest Premium Intermarket Insights include EURUSD, EURJPY, Gold, ES and USDCAD http://ashraflaidi.com/products/sub01/access/?a=553 NONsubscribers click here for a trial http://ashraflaidi.com/products/sub01/

German annual PPI lower; Italian industrial orders drop; 10 year periphery bonds yields decline slightly; Canadian annual CPI declines. Market turns to US and Canadian leading indicators. As market retraces & EURUSD rebounds, those who were not filled in yesterdays trades will get a chance to do so now.

The USD is slightly weaker today as market participants take profit and square positions after large moves seen this week. GBP and CHF are the relative strength winners today as they strengthened against most other majors. European equity markets are losing between 0.5% and 1%.

On the European data front, German annual PPI printed 5.3% in October down from previous 5.5% and Italian industrial orders dropped -8.3% in September after growing 4.2% in August which is the largest decline since mid 2009.

ECB president Mario Draghi reiterated during his speech that economic activity is expected to weaken in most advanced economies and noted increased downside risks in the Eurozone. However, he did not provide any insights as to what additional steps can the ECB take in order to cope with the crisis. Not surprisingly, France would like the ECB to implement mechanisms that would prevent additional yield increases while Germany believes that the ECB is not authorized for a more significant market intervention. Draghi did hint the ECB could consider further steps to relieve banks of liquidity strains, saying We are aware of the current difficulties for banks due to the stress on sovereign bonds, the tightness of funding markets and the scarcity of eligible collateral.

As market retraces & EURUSD rebounds, those who were not filled in yesterdays trades will get a chance to do so now. Click here for those trades http://ashraflaidi.com/products/sub01/access/ ?a=552 Click here to get a 1-week trial http://ashraflaidi.com/products/sub01/Premium Subscribers wishing to get SMS alerts of ONLY the Premium Intermarket Insights can send their mobile phone number to Subscription AT Ashraf Laidi Com

The ECB is said to be aggressively buying Italian and Spanish bonds today which helped to push the Italian 10 year yield back below the critical 7% to 6.80%. French 10 year yields 3.60% and Spanish 6.44%. Spanish-German 10 year yield spread narrowed to 4.51% after it exceeded 5% earlier today.

Canadian October CPI printed 2.9% from previous 3.2% on annual basis while the core annual CPI showed 2.1% from 2.2%.

Canadas leading indicators rose 0.2% in October from Septembers rise of 0.1%. Market had expected +0.1%

US leading indicator index is due at 10:00 am ET and is seen higher in October at 0.6% from previous 0.2%.

USD to watch Dallas Fed president Fisher speech at 1:15 pm.

Germany PPI steadies, Gold drifts around 55 & 100 dma, oil licks wounds at 98.50, Draghi's speech awaited. The fast-moving market let 3 of the trades go unfilled, 2 hit all targets, 5 remain in progress and 2 have been stopped out

German October PPI +0.2% m/m (exp +0.1%) +5.3% y/y from prev 5.5%. PPI ex-energy -0.1% m/m, +2.8% y/y from prev +3.1% y/y.

Central bank speakers in focus will be ECBs Draghi and Bundesbanks Weidman, where the theme is widely expected to be the ECBs opposition against being a lender of last resort.

France 10 yr yield hit 3.80% on Thursday, beating the April high to reach a new Eurozone-Era record. This pushed the FRA-GER 10 10 yr spread to a record 1.91%.

US crude prices fell $5 to 98.80s fell back sharply yesterday as the expiry of the December contract prompted some squaring following Wednesday's jump. The sell-off in shares worsened the decline in oil. US crude. A Friday close below 98.20-30 would signify the break of the important 6-week trendline and may spell further losses.

Gold fell to a 2-week low of 1712 before settling around 1722, which is the overlap point of the 55 and 100 day moving averages.

Thursdays PREMIUM INTERMARKET INSIGHT trades saw 3 of the trades go unfilled, 2 hit all targets, 5 remain in progress and 2 have been stopped out. Click here for those trades http://ashraflaidi.com/products/sub01/access/?a=552 Click here to get a 1-week trial http://ashraflaidi.com/products/sub01/Premium Subscribers wishing to get SMS alerts of ONLY the Premium Intermarket Insights can send their mobile phone number to Subscription AT Ashraf Laidi Com

In the UK BoE member Weale told the FT there is "a very strong case" for further QE next year. This was considered a notably dovish turn for a member who spent the first half of his current tenure voting for higher interest rates. Weale added the UK economy could already be in contraction.

Separately, Britains banks are reported to have reduced their peripheral Eurozone lending exposure by a quarter in Q3.

The ECB resumed bond buys and US economic data continue to improve as forex traded at a stalemate on Thursday even as risk assets generally deteriorated. There are no data points scheduled for release in the Asia-Pacific region. Oil seems be finally breaking that 6-week trend line. Stay tuned for the next update in the Intermarket insights.

EUR/USD came into US trading with some momentum, climbing 100 pips from the earlier lows and touching 1.3540. The push higher came after US initial jobless claims fell to 388K from the 397K expected. A round of short-covering was also sparked by rumours of heavy ECB buying in Italian and Spanish bonds.

Sentiment began to falter after the Philly Fed missed estimates on a reading of 3.6 compared to 8.7 in October but the larger slide came after a euro zone official told Reuters there are no plans for an EFSF bailout of Italy. German also shot down a rumour that the ECB would lend to the IMF, who would then lend to PIIGS countries.

The fast-moving market let 3 of the trades go unfilled, 2 hit all targets, 5 remain in progress and 2 have been stopped out. Click here for those trades http://ashraflaidi.com/products/sub01/access/?a=552 Click here to get a 1-week trial http://ashraflaidi.com/products/sub01/ Premium Subscribers wishing to get SMS alerts of ONLY the Premium Intermarket Insights can send their mobile phone number to Subscription AT Ashraf Laidi Com

EUR/USD fell as low as 1.3448 but held above Wednesdays low of 1.3420 in a sign that the sellers may be taking a short break.

The Australian dollar was a laggard as it fell below 1.00 for the first time since mid-October. The declines came amidst a broad commodity selloff. Copper fell 3%, oil nearly 4% and gold fell $54 to $1720.

In comparison, the changes in FX were relatively small but this is likely a case of the periodic lags in some risk assets. The S&P 500 fell 1.7% to 1216, a one month low.

The unusual divergence between oil and euro is NOT only confined to energy prices. In fact, EURUSD has also diverged (or decoupled) from the S&P500, highlighting the deepening nature of euro-centric concerns in financial markets. Daily correlation between EURUSD & S&P500 weakened to 0.51 from the usual 0.75-0.80. Also watch Spain-German 10-yr spread breaking the 5% mark for the 1st time in the Eurozone. LATEST PREMIUM TRADES ARE HERE: http://ashraflaidi.com/products/sub01/access/?a=552 Non-subscribers can go here: http://ashraflaidi.com/products/sub01/

Ashraf Laidi

UK retail sales higher than expected; Swiss ZEW declined; Spain and France auctions pay higher yields; Spain-Germ 10- yr hits 4.99%, Italian 10 year yield firmly above 7%, Chatter of Margin hike in Spanish requirements, Market turns to building permits, housing starts, jobless claims and Philly Fed index. Intermarket Insights due ahead of NY opening bell.

USD stronger against most majors in the ongoing session. Major European stock markets are losing about 1.5%.

UK Retail sales rose 0.6% in October from previous 0.5%, significantly better than expected -0.2%. Annually, retail sales grew 0.9% from 0.3%. This is a second solid print in a row as consumers took advantage of early Christmas discounts. The improvement is not likely to last long though as the unemployment rate remains high and consumer confidence is declining. GBPUSD jumped on the release towards 1.58 but lost most of its gains.

Swiss ZEW economic expectations index fell to -64.3 in November from -54.4 which remains close to two years low seen in September at -75.7.

Spain sold EUR 3.5 bln in 10 year bonds with average yield 6.975%, up from previous 5.43%. Bid to cover was lower at 1.54 compared to previous 1.76. Spain 10-yr yield hit a new high of 6.78%, pushing the spread over Germany to 5%. This is the highest borrowing cost since 1997 and dangerously close to the 7% rate which is by many considered to be unsustainable for longer term funding. A rumor that Clearnet will increase margin requirements for Spanish bonds is pushing yields higher.

France also had to pay higher cost as it sold EUR 6.94 bln in various durations today. The largest auction was for July 2016 BTAN that reached EUR 3.33 bln with average yield 2.82%, higher than previous 2.31%.

Investors have been paying more attention to the fixed income market as 10 year yields have rising not only for the periphery states but also for many Eurozone core countries. Italian 10 year yields around 7.09% and Spanish 6.69% despite ECB buying.

The NY session starts at 8:30 am ET with building permits that are seen higher in October at 0.6M from previous 0.59M and housing starts that are anticipated lower at 0.61M from 0.66M. Jobless claims are seen at 396K from 390K.

Canadian International securities transactions should rise to CAD 9.24 bln in September from CAD 7.92 bln.

Philly Fed index is due at 10:00 am and is anticipated unchanged in November at 8.7.

Markets await Spain & French bond actions, UK Oct retail sales stronger than exp, Today's Premium Insights are due before the US opening bell.

SPAIN AUCTION RESULTS around 9:40 GMT=====

Spain plans to sell a new Jan 2022 bond with coupon at 5.85%, raising between EUR 3-4 bln. The last 10-year auction was on Oct 20, raised EUR1.8 bln at an average yield of 5.4%, with a bid/cover ratio of 1.76 times. Spanish 10 yr yields have soared to a new Eurozone-era high of 6.68%, pushing the spread of German 10-year yields at 4.90%.

FRANCE AUCTION RESULTS DUE around 10:00 GMT======

French plans to sell 2-year and 5-year bonds (BTAN), raising between EUR 6-7 bln. The last 2013 BTAN auction (maturing on 2013) was on Sep 20, raised EUR 2.3 bln at an average yield of 1.08%, with bid/cover ratio of 2.66 times. The 2016 BTAN auction was on Sep 20, raised EUR 3.5 bln at an average yield of 1.80% and bid/cover ratio of 1.54 times. The 2016 BTAN was last sold on Feb 17, 2011.

UK Oct Retail Sales are stronger across the board, +0.6% m/m vs exp -0.5% m/m from prev 0.5%, y/y +0.9% from prev +0.5% vs exp -0.1%

A late warning from Fitch about vulnerabilities in the financial sector due to the European crisis hit risk sentiment hard. USD and JPY were the best performers while AUD, NZD and EUR lagged. Japanese machine tool orders are the lone indicator of note in Asia. 7 of our trades hit all targets (2 EURUSD, 1 EURJPY, 2 GBPUSD, 2 oil), 5 in progress (2 USDJPY, 1 gold, 1 EURGBP, 1 silver).

A modest negative tone percolated in markets for most of US trading as positive US data competed widening European spreads. The bears took over late after Fitch said further contagion from European banks poses a serious risk to US financials. At the same time, the WSJ reported that European banks are hitting a 2008-style funding crunch.

The S&P 500 fell 1.7% to 1237. EUR/USD closed below 1.35 for the first time since Oct 6. USD/CAD hit the highest since Oct 11 despite a rise in WTI crude to the highest since May.

US industrial production rose 0.7% in October compared to the 0.4% expected. US CPI, at 3.5% y/y came in lower than the 3.6% expected, boosting hopes for further QE.

Yesterday I wrote about the potential for stocks and the euro to decouple for a short period and that theory remained sound in early US trading but as sentiment worsened the buoyancy in equities quickly deflated. In spite of that, this trade may still have potential on days where overall sentiment is slightly more constructive.

For access to those trades. click here: http://ashraflaidi.com/products/sub01/access/?a=550 Non-subscribers click here: http://ashraflaidi.com/products/sub01/

Asia-Pacific Preview

Early in the session, New Zealand reported that output producer prices climbed 0.2% in Q3 compared to 1.4% in Q2. The calendar is light for the remained of the session with the exception of Japanese machine tool orders at 0600 GMT. The previous reading was a 20.1% y/y rise.

Periphery yields continue to rise; UK labor market data mixed; BOE projects inflation to drop to 1.3% in 2 years; Eurozone CPI remains elevated. Market turns to CPI, TIC flows, capacity utilization and industrial production. Both EURUSD Premium trades hit all targets, pattern seen repeating as range remains intact.

EURUSD was declining throughout the Asian session and reached a 1.3430 low right before London traders got to their desks. Profit taking sent EURUSD 130+ points higher but the common currency was not able to hold onto the gains and quickly gave them up. EURUSD is trading around 1.3470. Major European equity indices are losing between 0.5% and 1%.

The closely watched Italian 10 year yield reached 7.13% today but has since declined to current 6.85 with German-Italian 10 year spread around 5%. A reason for concern comes from soaring Spanish 10 year yield that reached 6.34% today which is above the high seen in August. At the beginning of October, Spanish 10 year yielded only 4.98%.

In the UK, the labor market data was mixed. The unemployment rate ticked up in September to 8.3% from 8.1% but the claimant count decreased in October to 5.3K from previous 13.4K. The claimant rate held steady at 5%.

The long awaited quarterly inflation report predicts CPI to fall to 1.3% in two years and GDP growth to reach 3.1% in the same timeframe. However, the BOE notes unusually uncertain outlook and high sensitivity to developments in the Eurozone.

BOE governor King in his speech reiterated that the forecasts are based on the assumption that there is no change in QE which could imply further QE is possible as the projection is below BOE's 2% inflation target.

Eurozone annual consumer inflation remained elevated at 3% in October mainly due to persistently high energy costs. Core CPI was unchanged at 1.6%.

Both EURUSD trades hit all targets. One of our AMENDED GBPUSD TRADES hit all targets. following the markets rapid decline in Asia (as we were not filled in Tuesdays trades) More on GBPCAD, EURJPY, US crude and gold as well as FOUR CHARTS on GBP, CAD & EURUSD, click here: http://ashraflaidi.com/products/sub01/access/?a=550 Non-subscribers click here: http://ashraflaidi.com/products/sub01/

The NY session will start at 8:30 am with October CPI that is seen lower at 3.7% from 3.9% on annual basis while core CPI should increase to 2.1% from 2.0%.

Long term TIC flows due at 9:00 am should show an increase to USD 63.4 bln in September from USD 57.9 bln in August and Capacity utilization and industrial production both due at 9:15 am are seen slightly higher at 77.6% and 0.4% respectively.

Patrilk Button

EURUSD loses a full cent to 1.3430s as risk aversion deepens, hitting risk assets across the board. Markets shift to BoE inflation report and UK unemployment figures. Premium Trades are amending the current GBPUSD trades (after the earlier ones were unfilled) and added GBPCAD trades

All eyes will the UK October jobless figures (9:30 GMT and the Bank of Englands quarterly inflation report (10:30 GMT), followed immediately by Mervyn Kings parliamentary testimony. The inflation report is likely to further downgrade UK growth forecast for 2011 and 2012 to around 1% from the 2% projections made in August. The BoE will also be prove vindicated with its long standing forecast of a peak in inflation after the October UK CPI came in yesterday at 5% from 5.2%.

The all-important UK unemployment report is expected to show jobless rising to the 20K level in October from Septembers 17.5K. More importantly, the October unemployment rate could well hit 5.1% (highest since 1997) from 5.0%, beating the 5% highs reached in 2009 and 2010.

SEE OUR AMENDED TRADES IN GBPUSD following the markets rapid decline in Asia (as we were not filled in Tuesdays trades) TRADING THE UK DATA, our latest Premium Trades show new positions on GBPUSD, GBPCAD, EURUSD, EURJPY, US crude and gold as well as FOUR CHARTS on GBP, CAD & EURUSD, click here: http://ashraflaidi.com/ products/ sub01/ access/ ?a=550 Non-subscribers click here: http://ashraflaidi.com/ products/ sub01/

Aussie Q3 wage price index rose by a disappointing 0.7% q/q and +3.6%y/y compared with a consensus for +0.9% and +3.8% increase. Aussie lost a by full cent alongside EURUSD.

The Bank of Japans monetary policy statement showed the Bank has lowered its economic assessment from October, but seeing moderate pickup in economic activity as illustrated in the first positive quarterly growth after 3 consecutive contractions. The BoJ said the yen and the Thai floods will maintain a on the export sector.

Yen joins USD on the rise as Asia deepens in the red, with Dow-30 futures down 114 pts and S&P500 futures -13.8 at 1240.

The euro briefly fell below 1.35 in US trading but rebounded on speculation Monti will form a government in Italy. USD and JPY were the top performers while NZD and EUR lagged. The Bank of Japan ends its two-day meeting in the upcoming session.

Monti will meet with the Italian President tomorrow to presient his technocrat-driven government. The news helped to offset a weak Spanish auction, a rise in Italian 10-year yields back over 7% and blowouts in periphery spreads.

Stocks and forex decoupled as the modest risk appetite shown in the 0.5% rise in the S&P 500 was not registered in FX where EUR and GBP fell nearly a cent.

The divergence was partly driven by a 0.5% rise in US October retail sales; beating the +0.3% consensus. Ex-autos sales increased 0.6% versus the +0.2% expected. Last months 1.1% was driven by a boom in auto sales but this figure suggests spending increases may be more sustainable sales ex-autos and gas rose 0.7%. The caveat is that disposable income has declined for the past three months.

The ability of the USD to outperform on positive US data should not be overlooked as a potential trade for the next several months.

Our latest Premium Trades include new positions on GBPUSD, GBPCAD, EURUSD, EURJPY, US crude and gold as well as FOUR CHARTS on GBP, CAD & EURUSD, click here: http://ashraflaidi.com/products/sub01/access/?a=550 Non-subscribers click here: http://ashraflaidi.com/products/sub01/

Asia-Pacific Preview

The BOJ renders a rate decision at 0330 GMT but first, Australia releases its Q3 wage price index at 0030 GMT. The consensus estimate is for a 0.9% q/q rise. The BOJ will not waver from 0.1% rates and is unlikely to increase bond buying or roll out any new programs. Shirakawa will hold a news conference around 0630.

Big Day for the British pound on Wednesday as the Bank of England quarterly inflation report will likely further downgrade UK growth forecast for 2011 and 2012 to around 1% from the 2% projections made in August. Also watch those the UK jobs figures (9:30 GMT), which could show the unemployment rate at a 14 yr high. More details on those data figures, how to trade them & FOUR CHARTS on GBP, CAD & EURUSD, click here: http://ashraflaidi.com/products/sub01/access/?a=550 Non-subscribers click here: http://ashraflaidi.com/products/sub01/

Eurozone Q3 GDP growth same as Q2 while German and French GDP grew faster; ZEW economic sentiment fell further in Eurozone as well as in Germany; UK inflation slips. Italian 10 year yield rose back above 7%. Market turns to US PPI, retail sales and Empire state manufacturing. Today's Premium Intermarket Insights due at the US open.

The greenback is the relative strength winner again as it rises across the board with the exception of JPY. Major European equity indices are losing about 1%.

Eurozone's GDP grew 0.2% in Q3 the same pace as in Q2. However, the annual print declined from 1.6% to 1.4%. Two largest Eurozone's economies, Germany and France, maintained GDP growth, albeit a slow one. German Q3 GDP rose 0.5% up from 0.3% while French Q3 GDP grew 0.4% up from previous -0.1%. However, German economy minister Philipp Roesler warned today that economic growth will slow down in coming months which corresponds to ZEW's projection that Germany will contract in Q1 2012.

German ZEW economic sentiment index fell for the 10th time in a row in November to -55.2 from -48.3 and its Eurozone's counterpart declined further to -59.1 from -51.2. Greek and Italian government crises contributed to the worsening the Center for European Economic Research noted.

EUR is being pressured again as Italian 10 year yield moved back above the critical 7% mark and the German-Italian 10 year spread widened to 5.24% (last week's Eurozone-era high was 5.54%)

EURUSD trades have near session lows slightly above 1.35.

It seems that the long standing BOE projection about peaking inflation is finally becoming a reality. UK consumer inflation declined to 5% y/y from previous 5.2% which is below market expectations of 5.1%. BOE governor Mervyn King reiterated today that MPC sees CPI falling sharply in the next six months and should reach 2% target by the end of 2012. GBPUSD fell after the release to 1.5828 and currently trades around 1.5860.

The New York session will start at 8:30 am with October PPI that is seen lower at 6.3% from 6.9% on annual basis (core PPI is expected higher at 2.9% from 2.5%). Advance October retail sales are seen lower at 0.3% from previous 1.1% (core sales are expected lower at 0.2% from 0.5%).

November Empire state manufacturing is seen at -2.0 from previous -8.5 and Canadian manufacturing sales are anticipated lower at 1.3% in September from 1.4% in August.

All eyes on UK Nov inflation German ZEW for the latest on those fired up prices in the UK and the latest signs of a recession in the Ezone's largest economy. Both Germany & France await Q3 GDP. RBA Minutes boost Aussie as they prove less dovish than expected, Latest on Premium Intermarket Insights.

Germanys November ZEW survey on investor sentiment will be closely awaited for the latest on the slowdown in the Eurozones largest economy. Due at 10:00 GMT, ZEW current situation exp at 32 from 38.4 (lowest in Jul 2010), ZEW econ sentiment exp at -55.3 from, 51.2 (lowest since Aug 2008). For more detailed charting of Germanys growth indicators, including the ZEW, see the bottom charts in this article http://ashraflaidi.com/articles/charting-euro-macro-yields-libor-spreads.asp

Due at 6:30 am GMT France Q3 GDP exp +0.4% q/q from flat q/q and +1.6% y/y from +1.4% y/y. at 7:00 am GMT, German Q3 exp at 2.4% q/q and 1.4% y/y.

GBP traders await the 9:30 GMT release of the November UK CPI, expected to edge down to 5.1% from Octobers 3-year high of 5.2%. The figures will be a prelude to Wednesdays quarterly inflation report from the Bank of England, which Ashraf referred to in Mondays Premium piece.

Mondays Premium Intermarket Insight trades on EURJPY, AUDNZD, USDJPY (2 trades), USDCAD, EURGBP, silver are still in progress; CLZ (US crude) hit all targets while gold and ES were both stopped out.DIRECT access for these trades here: http://ashraflaidi.com/products/sub01/access/?a=550. Non subscribers click here: http://ashraflaidi.com/products/sub01

The minutes of the latest RBA board boosted AUD across the board as the deliberations suggested that the 25-bp rate cut was not only a close call, but also kept an uncertain view on the next rate cut. The minutes were interpreted to have produced a rate cut that was mainly defensive pre-emptive in nature and not necessarily a result of sudden deterioration in Aussie fundamentals. More specifically, the easing was aimed principally at any contagion from the Eurozone and the possibility of further cooling in China.

Italys Unicredit missed its earnings estimate by 17 billion and German leaders continued to muse about ways for countries to leave the currency union. JPY and USD were the top performers while EUR and CHF lagged. The RBA minutes are the top release of the upcoming session.

The European crisis continues to be waged in five countries (the PIIGS) and on four fronts: bond yields, credit ratings, politics and banking stability.

The combination means that on any day, one of 20 things could go wrong for the euro. On Monday, it was Italy and banks after Unicredit lost 10.6 billion in the quarter and halted its dividend. Ratings agencies also factored in as Moodys put Credit Suisse on review for a downgrade.

At the same time, the battle lines are growing more clear on hopes for the ECB to make unsterilized purchases of government debt. German fin min Schaeuble said there can be no financing of states by central banks but noted that Germany appears to be fairly alone in this thinking. Schaeuble also talked about changes to the Lisbon Treaty, i.e. allowing countries to leave the euro area.

The S&P 500 fell 1% to 1252.

CFTC Commitment of Traders

The COT report was delayed until Monday due to a holiday. It showed the net USD long cut back to $6.3B from $9.9B as euro and sterling shorts were trimmed. The net euro short slide to -54K from -60K and the net sterling short fell to -29K from -47K. Other changes were all less than 3K with net JPY, AUD and NZD longs expanding.

Asia-Pacific Preview

The minutes of the Nov 1 RBA meeting will be released at 0030 GMT. The central bank lowered rates by 25 bps to 4.50% and said it was moving to a more neutral stance. The timing of the next cut is far from certain but the minutes probably wont provide a clear answer. Look for more colour about the outlook for the Asian and European economies, as that seems to be a major factor the RBA is considering.

EURUSD Dual trades, USDCAD, EURJPY, US crude, oil & silver are part of our latest Premium trades, as well as existing positions in AUDNZD and EURGBP. Direct Access to these trades is here: http://ashraflaidi.com/products/sub01/access/?a=550 Non-subscribers can get a free 1-week subscription here: http://ashraflaidi.com/products/sub01/

The ECB announced it purchased a paltry EUR 4.5 bln in Ezone bonds last week despite the raging storm in Italian bonds, well below the EUR 9 bln in prior week. Now that Berlusconi is out, it may find it more in its interest to support Ezone bonds by delivering more aggressive purchases when needed. Our latest Premium trades are bringing back 2 new trades in USDJPY, with new trades in US crude, ES, EURUSD and EURJPY. Direct Access to these trades is here: http://ashraflaidi.com/products/sub01/access/?a=550 Non-subscribers can get a free 1-week subscription here: http://ashraflaidi.com/products/sub01/

Ashraf Laidi

EURUSD Below 1.37; Italian Bond Auction Results Mixed

Italian auction ends with improved bid to cover ratio but higher yields; Eurozone industrial production declines; Swiss deflationary worries persists as Swiss producer and import prices fall. The day's Premium Intermarket Insights will be issued prior to the NY open.

Italy was able to reach the full target by selling EUR 3.0 bln in 5 year bonds. Bid to cover ratio improved to 1.469 from 1.34 but the gross yield was 6.29% compared to previous 5.32%. 10 year yields around 6.38% with the Italian-German 10 year spread at 4.52%. Italy has now raised 4/5th of its total planned bond issuance for the year. Over EUR 45 bln in new bonds must be raised before year-end.

Investors optimism proves short lived as risk aversion returns to markets. USD is higher across the board with the exception of JPY in the ongoing session. European equities are in red by about 0.5%.

EURUSD opened higher and traded above 1.38 during the Asian session on the back of a smooth transition of power in Italy. PM Berlusconi resigned on Saturday as planned after the parliament approved 2012 budget. Former EU commissioner Mario Monti was selected to form a new government and could be sworn into office as early as Wednesday. However, EURUSD has not been able to hold onto the gains and pulled back to 1.3670 where it continues to trade.

Eurozone industrial production fell -2.0% in September after growing 1.4% in August (+2.2% y/y down significantly from 6% y/y). This is the worst result since mid 2009 and most concerning is that production was notably weak in Germany, France and Italy which are the three Eurozone's most important economies. The probability of a recession has increased dramatically over the past few weeks.

Swiss producer and import prices declined in October -0.2% from -0.1% in September which translates to -1.8% y/y from previous -2.0% y/y. Fears that deflationary pressures will continue could reignite SNB's comments about further measures to weaken the Franc.

There is no data due during the NY session.

CAD traders should pay attention at 1:00 pm when BOC governor Mark Carney speaks in Toronto.

Markets await Italy's 5-yr bond auction (see details on prev B/C ratios & yields below), Japan Q3 GDP back in positive territory after 3 straight quarterly contractions, Greeks favour Papademos but no majority as far as parties. Friday's Premium trades activated into Monti's appointment.

Italy's 5 yr auction is due at 11 am GMT. All eyes will be on the average yield and the bond/cover ratio for measuring funding cost and demand. The last 2 bond auctions produced an average yield of 5.81% and 5.32% in Oct 28 and Oct 13 respectively. But with the 5 yr yield closing at 6.46% on Friday and a new Eurozone-era record high hitting 7.83% on Thursday, the yields at prior auctions seem a thing of the past. As for the bid/cover ratios rose, the last two 5-year auctions produced 1.62% in Oct 28 and 1.34% in Oct 13 auction. But rising interest as measured by bid/cover ratios is not always indicative of improved confidence as the number of bids does not necessarily reflect strong amounts when compared to the target raised. Those same two auctions raised lower amounts, with EUR 1.4 billion in Oct 28 and EUR 4.9 bln

In Greece, sentiment seems to have dissipated after the appointment of former ECB official Papademos to the Premiership. Latest polls show 55% of Greeks have a favourable view of PM Lucas Papademos and the new coalition But respondents also said that neither of the two leading parties would succeeded in getting outright majority if snap elections were held today.

Earlier today, Japan's Q3 GDP rose 1.5% from the Q1 on q/q after 3 straight negative quarters, with consumption rebounding from the earthquake-caused slump. The 1.3% q/q rise matched expectations, with y/y growth at 6%. The soaring yen is causing several economists to expect growth to be flat at best in Q4

USDCAD, EURJPY, EURJPY, EURGBP, AUDNZD trades are all in progress. EURUSD popped to 1.3815, triggering both our EURUSD longs. Rest of latest Premium Trades are found directly here: http://www.ashraflaidi.com/products/sub01/access/?a=549 Non subscribers click here to have a 1-week Trial http://www.ashraflaidi.com/products/

Mario Monti has been appointed to head Italys emergency government aimed at implementing a series of unpopular austerity measures. The next hurdle in Italy's debt drama is Mondays 5-year auction in Italian govt bonds due to raise EUR 3 bln.

EURUSD popped to 1.3815, triggering both our EURUSD longs. Rest of latest Premium Trades are found directly here: http://www.ashraflaidi.com/products/sub01/access/?a=549 Non subscribers click here to have a 1-week Trial http://www.ashraflaidi.com/products/sub01

Fridays spike in risk appetite wiped out most of the mid-week moves after Italys Senate passed an austerity budget. AUD and EUR were the top performers while USD and CAD lagged. The CFTC Commitment of Traders report was delayed until Monday due to the Veterans Day holiday.

Risk appetite was positive in European trading on the Italian Senate news but it spiked early in the US session, driving 100+ pip moves. The moves cant be explained but a single headline but the factors included:

1) The UMich consumer sentiment survey for November at 64.2 vs 61.5 exp

2) A rumour the EFSF will peg maximum bond yields and defend them

3) A continuing rally in Italian 10-year notes, with the yield falling 48 bps to 6.50%

4) Larger than expected gains in US stocks at the open

5) Low liquidity due to the holiday

6) Cascading stop losses

Friday's afternoon spike was a symptom of the indecisive, confused trading we saw throughout the week as the market grappled with the politics in Greece and Italy. Monday's Italy's 5-yr auction will be the first measure of sentiment in the new temporary govt.