Intraday Market Thoughts Archives

US DOLLAR STRENGTH pushing the envelope, as EURUSD breaks the $1.4270 target from the Dec 10 HotChart http://bit.ly/6RBsob USDJPY breaks towards initial 90.60 target, now eyeing subsequent objective at 91.25, followed by 93 (as repetitively called for on (twitter.com/alaidi) while GBPUSD breaks below $1.6060 to hit lowest since Oct 15, eyeing the 200-day MA of $1.60, which we warned about in yesterdays Video Market Analysis.

Watch Ashraf's take on REUTERS TV covering the latest USD rebound and how far could it go against EUR and GBP http://bit.ly/8HJBk7

Oil prices rally after Iranian forces reportedly to have entered Iraqi oil fields on Thursday. The reports were denied by Iraqi officials. Oil makes its biggest weekly rebound in 2 months, hitting $74.32 but the pattern of lower weekly highs remains intact and would only be broken after a close above $76.00

The combination of the negative news flow from the Eurozone and last weeks SNB announcement to halt its 9-month old policy of bond purchases has dealt a blow to the EURCHF pair, dragging it to a 9-month low of $1.49. The SNB had acted to stabilize the pair by selling CHF for euros at 1.50 and later at 1.51, where the pair held for 5 months. With SNB pres Roth leaving by year-end and SNB set to withdraw liquidity, we could see the previous floor of 1.5055-60 to serve as a new ceiling, which could further drain Swiss liquidity as markets anticipate policy normalization. German IFO better than exo, helping EURCHF to 1.4980s, but resistance seen at 1.5030. UK Nov deficit & money supply data due at 9:30 GMT. New resistance stands at $1.6250.

Ashraf's Video Market Analysis on EURUSD, GBPUSD & overall take on GBP. Also looking at USDJPY, Gold & SP500. http://bit.ly/6OIyH

USDJPY accumulates further gains, looking for an initial target of 90.60, a break of which would pave the way for the important resistance of 91.25. This level is not only the 50% retracement of the decline from the 97.73 high to the 84.83 low, but also a congestion level in mid September, a failed high on Oct 16 and Nov 4th. The $1.4270 target on EURUSD remains viable as technical trading in FX takes over from the data.

The 10-year yield differential between EUR & USD improves to -1.22%, the best level since March 11 as EURUSD $1.4340. GBPUSD breaks below $1.61 after the first decline in UK retail sales in 6 months (warned about in prior IMT). Cable approaches its 200-day MA of $1.60. The last time the pair was below its 200-day MA was in May 19th. We are gradually strengthening our case for expecting prolonged GBP losses in 2010. The days of $1.7 are behind us. Interim support stands at $1.6010, followed by $1.5800. Resistance drops to $1.62.

US dollar index surges to 77.50 (highest since Sep 8th) as EURUSD breaks below $1.44 for the first time in 3 months, further nearing our HotChart target of $1.4270. GBPUSD drops to $1.62, awaiting Nov retail sales (exp +0.5% from +0.4%), which could decide the fate of the currencys trajectory. Disappointing UK sales would risk retesting $1.6160, followed by $1.6130, while any rebound remains capped at $1.6370. USDCAD tests the 3-month trend line resistance from at 1.07, eyeing interim target at 1.0740.

There was no surprise in the FOMC statement maintaining the phrases exceptionally low rates for extended period. But the FOMC issued a slightly more favourable economic outlook with regards to the labour market, and specifying Feb 1st 2010 as the date by which most of the Federal Reserves special liquidity facilities will expire. We expect USD to accumulate further ground into the Asian session, dragging EURUSD towards $1.4470 and GBPUSD towards $1.6280. USDJPY seen regaining 90, but upside limited at 90.40-45.

FED's DILEMMA IN REVERSE; Unlike in 2007 when Fed funds futures were forcing the inflation-centric Bernanke to cut interest rate, markets today are demanding the Fed to raise interest rates. But Bernanke is TOO CAREFUL NOT to allow markets to force the Fed into a premature tightening of credit conditions. Separately, theres talk in the central bank arena that the Federal Reserve is under pressure to halt (or slow) the USD-based carry trades, which have been responsible for prompting excessive strengthening in the currencies of Eurozone, Canada, Australia and New Zealand. But with the USD Index entering its 3rd weekly gain (longest winning streak since March), the Fed may be under less pressure to talk up the currency or/and issue hawkish statement. We expect the FOMC statement to issue a brigther economic outlook (in the 1st paragraph of the FOMC statement) but to leave the inflation language unchanged. This may prompt some further knee-jerk selling in USD, followed by retracement later in the US session. The escalating credit/banking issues of the Eurozone and their sudden concentration in less than 10 days are too great to be ignored by FX traders.

Today's US Nov CPI (13:30 GMT) is expected +0.4% m/m from +0.3% (exp +1.8% y/y from -0.2%y/y), while core CPI expected at 0.1% from 0.2% (1.7% y/y frpm 1.7% y/y). Any upside surprise is likely to boost USD via higher yields and raise speculation the FOMC may change the wording with regards to inflation from the current description of subdued. GBP is higher after UK unemployment fell for the first decline in 9 months. EURGBP drops to 0.89 target, GBPUSD faces resistance at $1.6420.

ECB's final 12-month tender (loan offer to Eurozone banks) due at 10:00 GMT, expected to draw bids of 75 bln, lower than the prior 2 tenders. An amount well above 80 bln, (such as over 70bln) would be EUR-negative as it produces more supply of funds. The latest resurgence of sovereign credit woes in the Eurozone and the forced rescue of Austrias 6th largest bank may force banks to bid up their demand for emergence funding at the tender. EURUSD remains capped at $1.4590, with ongoing risk of retesting 1.4520, followed by 1.4470. EURGBP capped at 0.8980 while sustaining risk of renewed decline towards 0.8900.

As the USD builds further strength, Wednesday's FOMC statement is deemed as the only major negative for the US currency in the event it reiterates the usual indication of: low interest rates for a considerable period; low resource utilization; and benign inflation. Any sign of an upgrade in the Fed's view or FRB's growth forecasts, credit markets would favour the USD's yield differential on the interpretation that the Fed intends to withdraw liquidity earlier than foreseen. USDX 55-day MA now becoming a key support after having served as a resistance over the last 8 months.

Previous IMT stated the equities modest response to improved macro data, and even any modest gains in the US prompted tepid response in Asia. US dollar stabilization is not only resulting from seasonal window-dressing of the last 5-6 weeks of the calendar year, but also due to sovereign debt concerns with the major anti-USD currencies (EUR & GBP). JPY continues to retreat at each occasion USD edges forward (on improved US data or risk aversion), allowing traders a lasting choice between the two risk currencies. EURUSD daily resistance dragged down to $1.4680, USDCAD support lifts to 1.0520, targetting initial resistance at 1.0705.

Abu Dhabi bailed out Dubai World, US Nov retail sales were nearly double expectations and the SP500 has yet to regain the 1,120 level. And as oil prices no longer responding to improved risk appetite, USD strength and GBP weakness remain the name of the game. The fact that Abu Dhabi waited until the last minute (before the 2-week grace period) to help DW meet its short-term sukuk bond suggests that the bare minimum is being done to avert a new crisis. Cable looks to retest $1.6180 on the slightest downturn in appetite and EURUSD risks retesting $1.4590 from the current $1.4650s. Still difficult for cable to hit new highs after the London close.

GBPUSD to remain capped at $1.6380 and oil prices still face a declining ceiling (lower highs), currently at $72.00. Cadburys latest measures to ward off a takeover from Kraft is proving to limit any upside in GBPUSD. As long as USD index does not close back below its 55-day MA of 75.70, the US currency should help retain its recently acquired momentum. But in the meantime, it is the JPY that is gradually gaining ground, capping AUDJPY and NZDJPY.

DOLLAR & YEN DROP ON Abu Dhabi's last minute intervention to help Dubai World to repay Nakheel PJSCs maturing bond of $3.5 bln. GBP, which was at most risk of a Dubai failure is leading the FX fally against USD. GBPUSD seen retesting $1.6380, EURGBP seen targetting 0.8960 and GBPJPY capped at 145.50. Gold looks to break above 1,130, which could pave the way for 1,155.

Watch Ashraf's Gold take on CNBC earlier today http://bit.ly/7YvAzz as well his analysis on Central banks and risk appetite http://bit.ly/6uMgZH