Intraday Market Thoughts Archives

Regular Readers and Followers on Twitter were warned of a potential China tightening action at 7:24 am GMT (nearly 3 hours before it materialized) See here http://twitpic.com/4amuxf when most pundits were mulling the details of the yen intervention. The PBOC raised its reserve requirement ratio by 50-bps to 20% as part of its gradualist approach to reining in lending and combating inflation. My rationale for the PBOC prediction was based on the following: China benefits from a rising yen due to its prolonged purchases of Japanese Govt Bonds. Recall that the PBOC made its first interest rate hike since 2007 (not RRR) on Oct 19, less than one month after Japan made its first intervention since 2004. Any rate hike would upset risk appetite and dampen the G7 efforts to weaken yen. After all, China is not a member of the G7. SEE PRIOR IMTs for more detail . Meanwhile, EURUSD finally breached my 1.4120 target (See prev IMTs), I expect 1.4180s as the next key barrier.

http://twitpic.com/4amuxf

G7 Yen "No-Buy" Zone, UN Libya No-Fly Zone ----- Before I get into todays yen action, it is important to keep readers alert of a potential Chinese tightening action (RRR rather than rate hike. Recall that China benefits from a rising yen due to its prolonged purchases of Japanese Govt Bonds. Recall that the PBOC made its first interest rate hike since 2007 (not RRR) on Oct 19, less than one month after Japan made its first intervention since 2004 on Sep 2010. Any rate hike would upset risk appetite and dampen the G7 efforts to weaken yen. After all, China is not a member of the G7. Just stay alert this morning --------- WILL INTERVENTION WORK? Japans principal aim is to bring the yen to pre-earthquake levels. The durability of the latest yen weakness will mainly work to the extent of continued coordinated yen selling by the G7 central banks. --------- From an interest rate element, coordination stands robust chances of success considering rate hike expectations priced in for the Bank of England and the European Central Bank. The same applies for the Bank of Canada, whose currency is propped by supply and demand dynamics in the oil sector. This leaves us with the Federal Reserve, which may be the weakest (and most important) link considering expectations for further QE beyond June. DESPITE THE prospects for intervention success from an monetary policy stance, concerted action may fail (and yen rises anew) if financial markets react negatively to the aforementioned tightening aspirations of the BoE, ECB and BoC. MORE FREQUENT INSIGHTS ON TWITTER http://twitter.com/alaidi

What about EURJPY? With Japan announcing joined intervention mainly to support USDJPY, it is worth looking at EURJPY. EURUSD is finally responding positively to the intervention (as predicted in prior IMT) nearing 1.4070s and potentially onto the 1.4120s target. The KEY QUESTION NOW, is whether the unfolding risk appetite in FX resulting from intervention will kick into a sustainable bounce in equities and prevent key US indices from closing below their 55-day MAs. Recall, EURJPY longs was among the top 6 trades selected in my Jan 23 seminar and Workbook presented at last months Traders Expo in NY. The rationale of that trade was based on an improving likelihood for EURJPY to breakout of its 12-month 106-115 consolidation, with a hawkish ECB and post-fiscal year yen weakness. AUDUSD faces pressure at the 0.9980 trendline, USDCAD vulnerable 0.9760 and USDCHF capped at 0.9130. ASHRAFLAIDI.com will have a BOOTH AT THE LONDON TRADERS EXPO on April 8-9, 2011. Ashraf will conduct On-Booth Presentations, present a 1-hour seminar (Apr 9 14:30-15:30) and moderate a currency panel among 3 FX analysts. Register Free here: http://bit.ly/faq2Js First 20 visitors to the booth will obtain 2 free weeks to Ashrafs upcoming Premium FX Service.

G7 says will mount a coordinated intervention to stabilize the yen for the first time since 2000 (when G7 intervened in concert to support euro). USDJPY jumps 200pips to 81.28, along al other yen pairs, potentially eyeing 82.30. EURUSD and GBPUSD are in fact falling despite the shot in the arm to global equities as Nikkei rallies 3.2%. The fact that AUD and CAD are rallying vs. USD reflects the sharp move towards risk assets/currencies. This helps confirm EURUSD to find support above 1.3980s before it is expected to extend gains towards 1.4060 and 1.41. USDCHF sharply reverses its losses to rally 100 pips to 0.9080s.

Several readers continue to ask why the yen strengthens during global fears and market declines. I have written an entrie chapter in my book "Currency Trading & Intermarket Analysis" about this topic. CHAPTER 5 (RISK APPETITE IN THE MARKETS) discusses risk aversion, carry trades, and Japan's yen situation in providing the world with capital http://bit.ly/9GP6dc

Here is also an interview I did for CNBC in August discussing those very reasons about yen strength http://bit.ly/bYMesi

US equity gain after 3 straight losing days with the help of falling jobless claims, stronger than exp leading indicators index and improving Philly Fed survey. Japans Fin Ministry says will lead a battle against the yen ahead of Fridays G7 conference (6pm ET, 10 pm GMT, 7 am Tokyo time). FX intervention shall remain an option, which will make the previous support of 80 as the next resistance (79.83). EURUSD extends rally to 1.40, confirming why the euro is not the currency to fall victim to the global risk aversion and is among the leaders in rallying against USD and JPY on any rebound. (see this weeks article). 1.4060 and 1.4120 remain viable targets into subsequent days as long as markets remain in the black. AUD and NZD remain the preferred candidates for shorting. There was talk about a possible increase in Chinas reserve requirement ratio (RRR), but nothing materialized.

As USDJPY hit a new record low of 77.03 in early Thursday Asian trade, much talk arises about the repatriation trade le by Japanese investors. As I often indicated during last autumns lows, USDJPY has a highly positive (NOT INVERSE) correlation with bond yields, thereby, tends to drive down USDJPY (rising yen) during falling yields (resulting from fresh QE, weak US/global economic figures and concerns with disinflation). And of course, bond yields also fall as bond prices rally on days like these (tumbling equities casting doubt on the global recovery). Aware of Japanese investors chase for yield, FX traders trend to anticipate the repatriation operations (unwinding of yen carry trade) via speculative purchases of the Japanese currency and further enforcing it upwards. I expect the release of Japan's industrial production, consumer demand and GDP growth data due in 1-2 months to act as the catalyst for eventual yen weakness, which will likely drive USDJPY about 3-5% from current levels (85-86) but unlikely go beyond that. PROSPECTS OF COORDINATED INTERVENTION stronger than ever now as markets approach "Worse Case Scenario" territory. This means the whipsaws breaking the shorts are more than likely, as was seen in 2007 and 2008. Seasonal yen weakness in April occurring after the conclusion of pre-fiscal year end repatriation is also likely to weigh on JPY in Q2. Buying USDJPY near the latest all-time lows may be produce a quick 70-100 pips, but maintaining a consistent success in such a volatile markets in the face of interventions, rumours and disasters could be dangerous, especially in a world of 50 or 100-1 leverage. If we saw 77, we may as well as 75 and 73 but chances of intervention shall grow stronger.

----- REMEMBER the relative consistency and reliability of EURUSD support near 1.3860-70s to rebound towards 1.3920-30s as the pair maintains its robustness in light of the dynamics I mentioned in the latest article. http://bit.ly/hzMCKX

Just as risk appetite used to take over at the expense of USD and JPY against major currencies, fear has gripped the markets, prompting the major averages well below the 55-day MAs, calling the next targets at 11480 and 1230 for Dow-30 and SP500 respectively. The latest targets from todays earlier IMTs and Twitter entries have been hit, 0.9770 in AUDUSD, 1.3870 in EURUSD and 0.9080s in USDCHF. With further risk aversion seen into weeks end (and not always necessarily at the session in hand), traders ought to wait for the intraday retracements (such as 30 and 40 pips bounces in AUDUSD, USDCHF and GBPUSD) to trigger fresh shorts. Note how shorting USDCHF continues to become an effective partial hedge for the long USD trade. And as I argued in my latest article (see here http://bit.ly/hzMCKX ) EURUSD remains supported at 1.3860-70s for on-the-dip entries into 1.3930-50s. THESE IMTs will become paid of a PREMIUM SECTION in AshrafLaidi.com starting from April. There will be a paid and non-paid section.

USDCAD and EURGBP are showing noteworthy developments. USDCAD weekly stochastics extend rebound from a 10-month low (slow stochastics 9, 3, 3) testing over the 25% band, as the pair faces interim resistance at 0.9980 in order for 1.0270s to take place. Yesterdays break above 0.99 may have been short-lived but could be a sneak preview of prolonged upside in the event of a lasting close sub 1280 in SP500. Those who have traded FX over 6-7 years ago may recall USDCADs 1-2 day lead for subsequent moves in USDX. ------------ EURGBP testing the 2.5 year trendline resistance addressed in the latest hotchart (see here: http://bit.ly/gikAn3 ).Must watch the 100-week MA of 0.8680s. A daily close at or above 0.87 could suggest extended gains towards 0.8880s. These fundamentals are occurring on the back of broader GBP weakness, which is also seen via short-lived gains in cable. Take a look at the LATEST ARTICLE on Beginning-of-the-month patterns in USDX http://bit.ly/hzMCKX

My latest article on the divergence between growing peripheral spreads and the hawkish ECB http://bit.ly/hzMCKX

Markets shrink their earlier losses as the Federal Reserve issues an almost identical FOMC statement to the January meetings, maintaining its view that "measures of underlying inflation have been subdued" despite "recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation". USD backing down from risk aversion buying, while EURUSD stands at the top of the days ranges as warned last night following the FOMC decision. The ECB is still expected by many to raise rates as early as April, hence, enabling EURUSD to hold above the Jan 12 trendline support (see last nights IMT). Accordingly, EURUSD remains among the pairs most likely to rebound the hardest (against USD). CHF dragged USD during the escalated selling in equities, bringing back the francs safehaven status. This could be considered as an ideal for partial USD hedge to shorts in AUDUSD, NZDUSD and longs in USDCAD. managed to rally against USD during the worst point of the the day in equities The 1% sell-off in Wall St maybe well received by the bulls considering the indices rebounded from 2.5% decline earlier in the day, but the fear of further nuclear and economic breakdown in Japan and Asia has not gone away. Look out for UK jobs figures and BoEs governor King speech tomorrow. LATEST CHART ON VIX http://chart.ly/yb9s786

VIX gaps higher on Tuesday, soaring above the 200-day MA (21.70) as global markets tumble following the explosions at 3 Japanese nuclear reactors. Watch the 21.70 level on the VIX, which is the 200-day MA as seen in the chart http://chart.ly/yb9s786 Most particularly negative for the markets (and positive for the VIX) would be a sustained closed above the 200-day MA, which means a sustainable rally after the Gap-Up. The chart shows http://chart.ly/yb9s786 the last time a close above 200dma following gap up took place was in Aug-Sep and the more striking example of Apr-May, which coincided with the Flash Crash in US indices. EURUSD found support at $1.3850s, well above the 1.3820s mentioned in the prior IMT. My rationale is based on expectation that USDX negativity would continue against EUR for as long as the Fed makes no signal towards undoing QE2 and as long as ECB keeps door open for rate hike (however unplausible or damaging a rate hike may be). We could see EURUSD extend as high as 1.3990s but will remain well below the 1.43 trendline resistance.

Markets gradually positioning to what could be a Japanese market meltdown after a 4th nuclear reactor blew up. Japans Nikkei-225 ended down 10% (considered a crash) after a having been -14% at some point earlier today. SP500 futures -30 pts at 1260 (further below the 55-day MA) and US Dow-30 futures -238 pts. The classic case of risk aversion is prompting renewed yen strength alongside the USD. AUDUSD breaks below its 200-day MA of 0.9960, eyeing prelim target of 0.99, while EURUSD seen supported at the trendline support of $1.3820 since Jan 10. The USD rally called last week is underway, but it is unlikely for EURUSD to close below this level in the event as long as the FOMC does not show any dissenters with QE2. Interestingly, todays FOMC meeting was expected to show the early signs of a departure away from QE2 via the possible hawkish dissenters, but the Committee may hold off from dissenting in light what is happening in Japan. Gold and silver are near their recent highs on safehaven fears while oil is down 2%. As US indices are now flat for the year, we expect at least another 2.5% decline in S&P500 and Dow-30 from these levels.

Eurozone leaders agreed to raise the lending

armory of the of the EFSF to EUR 440 billion, and up to EUR 500 billion for the EFSFs successorthe European Stability Mechanism (ESM). EU agreed for its European Financial Stability Facility to buy sovereign bonds

in the primary market -- but only in the exceptional event whereby a bailed out country enter into agreements with specific policy conditions. The ECB is displeased that EFSF bond purchases would be restricted to the primary market, meaning the central bank will have to continue buying bonds in the secondary market whenever the need arises, thereby further inflation its balance sheet. Meanwhile, Irelands refusal to harmonize (raise) its taxes closer to those in the EU led it to insistence to maintain low taxes did not get it the 100 bp reduction on its interest rate. EURUSD ignores falling stocks to test $1.40. In the event of no hawkish dissenters by the FOMC tomorrow, expectc EURUSD to retest $1.4040s, followed by 1.4120. Long EURUSD positions are being used as a partial hedge to long USD positions vs AUD and GBP. In the event that 1 or 2 FOMC members express their dissent with QE2, then markets should expect further losses in equities and solid stark stabilization in USD, but largely against AUD, NZD and CHF.

HELP JAPAN: Share the word & Donate: Traders for Japan Disaster Relief http://t.co/b4T1kKL

The authorities are working overtime at maintaining normalcy in the global financial markets. days after Saudi Arabia reiterated its role as oil-pumper of last resort in the face of +$100 oil escalating out of MidEast & Nth African unrest, the Bank of Japan delivers its version of shock-&-awe of in 7 trillion yen ($85 billion) in money market operations (purchases) in order to stabilize liquidity following the Fridays massive earthquake and tsunami. The 7 trillion yen is about 3 times greater what was expected and by far as the biggest single-day money market operation in Japan. But Nikkei-225 is down 5%, Topix is down 7% and the dollar is regaining some stability after having added to Fridays losses in early Asian session on the back of those Japanese interventions. AUDJPY seen testing prelim resistance of 83.40s before likely to succumb to fresh declines. AUDUSD hrly stochasics remain in a clear negative crossover. DO NOT UNDERESTIMATE the effectiveness if central bank interventions in shaking off the weak and overleveraged participants in FX. Therefore, if you are finally convinced that the major resistance in AUDUSD and GBPUSD stands at 1.0190s and 1.6350s, then it is no point for sellers of these points to receive a margin call below these levels. While it does not necessarily mean that cable and Aussie will both reach this level