Intraday Market Thoughts Archives

*** ASHRAF IN NEW YORK ***

ASHRAFLAIDI.com at MONEY SHOW: (Feb 20-22)

AshrafLaidi.com booth will be present at the New York Traders Expo for 3 days,giving talks/seminars & chatting w/ whoever would like to stop by and talk markets: More details here:

http://bit.ly/hVHvRE

ASHRAF AT ABANA: (Feb 23)

Ashraf will speak on Wednesday, Feb 23 at the Arab American Bankers' Association of Nth America in a discussion on Commodities & Currencies.

More details here:

http://bit.ly/fVlnic

G20 WAR OF WORDS, NOT CURRENCIES: I do not see anything major from G20 that will be highly impactful on US dollar, but it is always important to observe how pressure is shifting away from China and onto US. Remember the Oct/Nov G20 meeting in Korea. At the Finance Ministers' summit in October, US Trsy Sec Tim Geithner started off w/ the usual demands for Beijing to move faster on FX. Most G7 Fin Mins agreed w/ him. But things changed at the leaders (presidents) part of the G20 summit in mid-November when fingers increasingly pointed to the Fed's QE2, branding it as a veiled competitive currency devaluation "beggar thy neighbour" which was responsible for the rapid appreciation in emerging mkt currencies. Thus, by the end of the Seoul G20 meetings, Geithner's demands were dampened as other leaders fired back at the US for its own unsustainable policies. I do expect the same pressure (or lack thereof) in Paris. One thing that could briefly weigh on USD is the G20s reiteration of the IMF's updated report from 2 days ago describing USD as "on the strong side", which is ANOTHER way of saying it needs to weaken against the Chinese yuan , i..e another way of saying China must further strengthen its currency. That could weigh on USD for a bit but not beyond 1-2 days. Average investors today no longer see G20 meetings as legitimate way for China bashing (on its currency) but a venue where 2 issues are raised about the US; 1) the Fed's controversial QE2 is depreciating its currency to the extent of triggering these "currency wars", or rather war of words. At the end of day, this will only reinforce investors interest that metals are a robust hedge for these cenbank policies. 2) the US is lacking the necessary "austerity policies" required to bring down the deficit, which are currently being implemented in UK & Eurozone. SEE PREV IMT for levels on EURUSD & EURGBP. AUDUSD still failing to break 1.0130s, but will need to close the week above 1.0150 to extend run-up to 1.0180s

STERLING & EUR ON THE RISE FROM RETAIL SALES & ECB TALK. EURO LIFTED by ECBs Bini Smaghi's rate hike comments (ECB may raise rates as price pressures mount) This helped lift $EURUSD by 60-70 pips to $1.3620s, now looking to break out of $1.3620s trendline resistance, eyeing $1.3685s. Shorts ought to be protected up to $1.3750s right shoulder. GBPUSD breaks above $1.62 as UK Jan retail sales jumped 1.9% (3x more than forecasts) from 1.4% in Dec. EURGBP stabilizes after retesting 0.8350s. The cross increasingly confirms its bearishness of the past 4 months as the wedge tightens towards the Jan 2009 trendline support of 0.8360. Looking for 0.82 as the next key support (200 week MA). CHINA RAISED its RRR by 50 bps but the news is now shadowed by the G20 remarks in Paris. AshrafLaidi.com BOOTH # 5802 at NEW YORK TRADERS' EXPO Sunday-Tuesday (Feb 20-22). http://bit.ly/hVHvRE

Ashraf's latest video market analysis DISTINGUISHING the CLASSIC GEOPOLITICAL SAFEHAVEN PLAYS on the latest MidEast tensions, charting EURJPY, EURUSD & SP500 relative to bond yields

http://youtu.be/XJlx-_qrdu0

US Crude eyes upside towards 87.30 from current 86.20, but watch the weekly candle,which could signal a bullish hammer.

AshrafLaidi.com Booth # 5802 will exhibit at NEW YORK TRADERS' EXPO Sunday-Tuesday (Feb 20-22). BOOTH # 5802 http://bit.ly/hVHvRE

REBOUNDING EQUITIES explain part of the USD selling but the IMF's latest update indicating the US dollar is on the strong side of fundamentals, suggesting that some depreciation would help a more balanced growth is also weighing on the currency. FX traders are well aware that such remarks are a veiled restatement of pressuring China on its currency; the US dollar is overvalued against the Chinese yuan. DOES THE IMF MATTER? The IMF's FX pronouncements have always managed to impact the market, especially as they are taken to be the unofficial mouth piece of the G5 and also theUS.

*** AUDUSD hart whose 4-hour chart 1.0060s resistance was broken . THE PATTERN WITHIN A PATTERN is the Head & Shoulder better seen on the AUDUSD BREAKS the 1.0070 right shoulder on the 4-hour chart, whose left shoulder stands 1.0070 (Jan 19), head at 1.02 (Feb 7) now eyeing the next barrier at 1.0130, trendline from Feb 2nd thru Feb 9th.

USDs LATE WEDNESDAY's SELL-OFF is a wake-up call to aggressive USD longs in emerging on hesitancy from risk currencies, but these remain well confined w/in their ranges. ONE EXAMPLE is AUDUSD whose 4-hour chart 1.0060s resistance remains intact. THE PATTERN WITHIN A PATTERN is the Head & Shoulder better seen on the AUDUSD 4-hour chart, whose left shoulder stands 1.0070 (Jan 19), head at 1.02 (Feb 7) and right shoulder at 1.0070 (Feb 14). Such H&S pattern is part of the greater H&S (left shoulder on Nov), which we already talked about. 4 hour stochastics turning lower, suggesting next support at 0.9950, which has yet to break. Immediate cap found at 1.0075. EURGBP shows little progress above 0.8440s before retreating gradually back to 0.84, still eyeing 0.8350, and vulnerable to a potential break below 0.82. AshrafLaidi.com Booth will exhibit at NEW YORK TRADERS' EXPO Sunday-Tuesday (Feb 20-22). http://bit.ly/hVHvRE

Ashraf discusses with CNBC guests the intricacies of UK inflation, sterling & Yield spreads involving gilts and treasuries http://bit.ly/hhuw3b

FX MARKETS ONCE AGAIN PROVE their forward-looking nature by dragging sterling across the board despite the Bank of England inflation reports upgrade of its short-term inflation outlook to 4-5% while reiterating a sub-2% CPI at the end of the 2-year period. Since the BoE is well aware of its historical tendency to underestimate inflation and overestimate growth, it continues to err on the side of caution.

*** WHAT vs HOW **** While the what is evident; BoE to predict one-off jump in CPI, the how remains unclear. How will BoEs projected slowdown in inflation from 4-5% back to below 2% take place? Will this occur via rate hikes (which are priced in by the market but not officially by the BoE) or will it materialize via the ongoing slack in the economy and austerity policies? And when we remind that the 12% increase in sterling trade weighted since Jan 2009 should dampen the BoEs repeated claims of FX-driven inflation effects--which were mainly a case of the 2007-2009 weaknessthe case for import inflation becomes mute. Figuring out the how to weakening inflation is crucial for FX & bond markets relying on the growth and yield differential play. Yields on both 10 and 2 year gilts are down 5 bps, while the spread between UK & US 2-year yields has weakened (UK minus US) to 0.65%--the lowest in 3 weeks. Sterling eyes more downside against the USD, but is looking the other way against EUR. GBPUSD suffered from a case of lower highs after failing to break above the Feb 7 high of $1.6180. EURGBP bounced off the 0.8360 trendline support but rebound seen capped at 0.8480-00 before the ultimate retreat back to 0.8100 as seen in the chart below.

JUST AS CHINESE CPI was ignored due to the data rejig, US Jan retail sales commanded no attention as the 0.3% increase in both the headline and core figures was attributed to extreme inclement weather. What was the divergence between falling risk currencies and lofty equities has now turned to a convergence downwards for both, to the benefit of the US dollar. The fact that AUDUSD is unable to hold above parity despite rebounding gold attests to the eroding confidence in the high yielder and the confirmation of the Head&Shoulder formation in the pair. As long as 1.0180s continues to hold, AUDUSD is seen retesting the interim 0.9870 support. THE ASHRAFLAIDI.COM LISTSERVER SHALL RETURN TO NORMAL today and IMTs will be sent out by email was the case before.

Ashraf's Video Charts Analysis for Thomson Reuters Insider on 3-4 year trendlines in GBPUSD ahead of tomorrow's BoE Inflation report.

http://bit.ly/eR970u

BRITISH POUND POWERS AHEAD as UK Jan CPI hits 4%, the highest since Aug 2008, twice double the Bank of Englands target. 10-year gilts push up to 3.87% but still below the last weeks high of 3.93%. The theme of intermediate longs in GBPUSD (idea communicated last week) up to 1.6170-00 coupled with EURUSD shorts (targeting 1.3440, 1.3350s) suggests a short in EURGBP, which now targets 0.8370 support (see prev IMT) for ultimate objective of 0.8100 as seen in this chart. Markets await the snow-filled US Jan figures on US retail sales (exp 0.6% from 0.6% and ex autos exp 0.5% from prev 0.5%). WATCH GOLD TESTING its 55-day MA (1373) for the first time since Jan 13, a break of which could potentially call up 1388.

EURGBP CROSS IS KNOWN as the FORGOTTEN ONE..Always looking promising, but takes a while to deliver..yet it REMAINS ON TRACK WEEKLY http://chart.ly/82qkyja I first mentioned it in November on here...& it has NOT broken the downtrend since then. http://bit.ly/aNlesp

TUESDAY's UK JAN CPI will likely deliver its share rising rate hike expectations (currently pricing two 25-bps hikes for 2011). Analysts median expectations according to MNI stand at 4.2%, with 4.0%-4.4% range. Although BoEs Mervyn King predicted CPI would further increase above the 4% level, such figures are unlikely to prevent a knee-jerk reaction rise in GBP, primarily against JPY (especially on rising yields hurting yen) and EUR (dragged by ECB succession uncertainty & Feb 25 Irish elections). Having said, any figure above +3.8% would be well above the 3.55% predicted for Q1 in the latest BoE inflation report. Wednesday's BoE inflation report will likely announce an upgrade in the Bank's projections for the oft-mentioned temporary inflation jump, but any sterling gains will be subject to the Report's GDP growth expectations and whether a downgrade is communicated. EURGBP at risk of breaking down to 0.810ss. SEE CHART AT UPCOMING IMT.

PREVIEWING CHINA & UK INFLATION: China and the UK; the 2 countries with the most worrisome inflation rates will release their January CPI on Tuesday. Chinas CPI (2:00 GMT) expected at 5.1%-5.3% y/y (highest since Aug 2008) from 4.6% in Dec, while UK CPI (9:30 GMT) expected at 4.1%-4.3% y/y (highest since Nov 2008). TALK THAT China CPI would be dragged down by a possible adjustment in the weight of food from the current 34% could also help fuel equities higher. The share of food in US and UK CPI stands at 13.7% and 10.8% respectively. The expectation that a downside surprise in China CPI (regardless of reweighting) boosting equities rests on the rationale that the diminishing likelihood of further rate hikes reduces the risk of a Chinese hard landing. But markets require broader cooling off in bank lending and property purchases beyond retail price growth. One aspect of greater certainty is further gradual appreciation in the Chinese yuan, which rose 3.5% from Jan 2010 to date. Beijings ideal arrangement would be the ability to maintain orderly currency appreciation of 2-3% per year without disrupting the external and domestic sectors. The latter can be attained with pro-active monetary policy management (ahead-of-the-curve tightening) in order to contain actual and expected inflation. EURGBP looming approach towards the 7-month trendline support of 0.8360, a break of which would technically pave the way for the 0.8050s (lowest since Oct 2008). EURUSD STILL SEEN at 1.3220.

Ashraf's interview earlier today on AlJazeera English about the US budget and the economic race between China and Japan: http://youtu.be/jYqqtKDxZ3E

Ashraf will be on AlJazeera English at 11:05 GMT discussing the latest White House Budget and previewing tomorrow's UK Jan Inflation figures, which are expected to show a 4.1% rise from 3.7%. Wednesday's release of the BoE's inflation report could also be another excuse to further boost rate hike expectations for later this year. The case for EURGBP shorts remains intact, eyeing 0.8360, followed by the key 0.831 support. I still look for $1.32 as med term target for EURUSD.