Intraday Market Thoughts Archives

Ashraf tells CNBC the Fed chairman Bernanke is doing a better job at getting his message across; Distinguishing between the conditions required for tapering and those for raising interest rates. Ashraf also shares one of his latest FX strategies. Full interview

Better signs of US growth helped boost the dollar. In Europe, the ECB announced it would accept lower-tier collateral, perhaps setting the stage for its next move. The Canadian dollar piggybacked on upbeat US data to be the best performer while the yen lagged.  24 hours after issuing a Premium long in GBPJPY, the pair is up 200 pips. 2 new longs in GBPJPY were issued this afternoon alongside 2 new trades in USDJPY as Ashraf outlines the mechanics of Sunday's Upper House elections. EURJPY (2), USDCAD (1), USDCHF (1) and AUDUSD (1) trades are also in progress, which all can be accessed in the Latest Premium Insights.

A US Senator questioning Bernanke remarked that the second day of Humphrey Hawkins is like drinking day-old coffee and eating a stale donut and that summed up part-2 of Bernanke's testimony. He said it was “way too early” to make a call on tapering in September and said that rates won't rise at least until unemployment hits 6.5%.

The data pointed to better trends in employment and factories. The Philly Fed hit 19.8 compared to 8.0 expected, it was the highest reading since March 2011. Initial jobless claims were at 334K versus the 345K consensus. The reactions to both reports was dollar-positive, suggesting markets are growing more concerned with growth and less interested in the exact timing of the taper.

The ECB tried to slip changes in collateral rules past the prying eyes on market watchers. They started a press release saying “the ECB decided to further strengthen its risk control framework” but the contents of the notice were the opposite.

They will begin accepting A-rated ABS compared to strictly AAA previously. They will also investigate further measures including accepting mezzanine (lowest) tranches of structured ABS. Mezzanine tranche, A-rated ABS are a much higher risk than sovereign debt purchases, something that caused an uproar in the past.

Separately, the ECB made collateral rules for sovereign debt higher, suggesting it's no longer worried about bond yields, or that it's preparing new measures to depress yields – another LTRO perhaps?

Looking ahead, the G20 finance minister meetings begin in Russia on Friday. Currencies are not at the top of the agenda but concern about Fed tapering could get some notice. Major market-moving comments are unlikely but expect headlines from all the major political players.

The lone economic data point on the Asia-Pacific calendar is the Japan May all-industry index at 0530 GMT. The consensus is for a 1.2% m/m rise, something that signals the ongoing rebound in the Japanese economy.

The main mover could be positioning trades ahead of the Upper House elections in Japan on Sunday. An LDP-led super majority could have major impacts for the yen, something we discuss in the Premium insights.

GBPJPY adds 200 pips less than 24 hours after charting the fundamental and technical case for the pair in our Premium Insights. Japanese PM Abe's LDP is set to gain majority in the Upper House, with the help of its junior coalition partner New Komeito party. But what is simple majority vs outright majority? And what is a sufficient margin for protracted declines in the Japanese currency?  We answer all these questions in today's Premium Insights as both of yesterday's USDJPY longs hit all targets. Meanwhile, US Philly Fed survey hits 2-year highs and US jobless claims at 2-month lows, helping to firm up the greenback. We issue 2 new longs in GBPJPY alongside 2 new trades in USDJPY as we outline the mechanics of Sunday's Upper House elections. EURJPY (2), USDCAD (1), USDCHF (1) and AUDUSD (1) trades are also in progress, which all can be accessed in the Latest Premium Insights.

Favouring EURJPY and GBPJPY ahead of Japan's Sunday Upper House elections (set to end 6 years of parliamentary deadlock) as BoE's Carney leads the doves into neutrality can be a partial hedge for long term shorts in EURUSD, while PM Abe obtains support in Sunday's Upper House elections in carrying out his monetary expansion to combat against deflation. GBPJPY chart & analysis

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The market was looking for clarity from Bernanke but the Chairman said he's waiting for clarity from the data. On the day, the pound led while the yen lagged. Chinese property prices and Japanese department store sales are the highlights in Asia.

The takeaway continues to be that economic data is extremely important in the coming weeks and months. Look for larger-than-normal dollar moves on every releases.

In Canada, the BOC downgraded foreign growth forecasts and changed its tone on removing stimulus in Poloz's first decision as leader. His comments left considerable uncertainty, however, as he talked about potential upside risks in housing and strong private sector demand from the US – both would lead to sooner rate hikes.

In the upcoming session, a series of data points from Australia and New Zealand will keep traders on their toes but the only consequential releases are later from China and Japan. First, at 0130 GMT, China releases data on June property prices. With government tightening measures in place, there is a risk of a surprise drop.

Later, the focus turns to Japan with department store sales at 0530 GMT. Abenomics has been a modest success so far and the Nikkei has quietly risen 17% from the June lows.

Fed Chairman Bernanke's new message is being increasingly understood by the markets-- scaling down of asset purchases does not necessarily mean a tightening of policy as the Fed shall maintain policy accommodation. Today's testimony reiterated that as long as the economy maintains its current course, the path towards autumn tapering would eventually lead to the termination of purchases by next year. It does not matter whether this will actually happen. Instead, markets' positioning and interpretation plays the bigger role here...and so far, markets are unlikely to extend USD weakness beyond 5-7% in one week as long as the tapering is set to start this year. GBP outperforms across the board on an unexpected 9-0 MPC vote in favour of keeping QE at £375 bn, the first unanimously hawkish vote since October.  Better than expected UK jobs figures also helped. GBPUSD Premium longs hit their final target.

Baidu beeaks a 12-month trendline & is apt to take on a 24-month channel, while BoA may be slowly but surely adding more ground ahead of today's earnings. Full charts & analysis

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The only thing more anticipated than Ben Bernanke's testimony on Wednesday is the birth of the Royal baby. Dollar longs raced to the exits on fears of a repeat of last week's rout. Ahead of the testimony the BOJ and BOE publish meeting minutes.

The Australian dollar led the rout on the USD Tuesday, steadily climbing to 0.9250 from 0.9100 at the start of the day. It was a similar dollar slide elsewhere and for no compelling reason, except to reduce positions ahead of the testimony.

The dollar momentarily jerked higher following CPI numbers. Prices rose 1.8% y/y compared to 1.6% expected but even the hawks at the Fed aren't concerned. FOMC dissenter Esther George said her opposition to QE is because of financial risks and said inflation appears 'moderate'.

George's comments also presented a mystery. The FOMC minutes said 'about half' of the committee wanted to end asset purchases by year end but George – supposedly the most hawkish member – said she wants them to end in the first half of 2014.

George was upbeat on the jobs market but one area of the US economy showing undoubted signs of strength is housing. The NAHB builder sentiment survey jumped to 57 compared to 52 expected – the highest reading since 2006.

Given the moves Tuesday, the market is primed for dovish commentary from Bernanke. What's becoming increasingly clear is that Bernanke is fighting against the hawks who want to taper QE. If he speaks for the FOMC, expect a more hawkish tilt; if he speaks for himself, look for a dovish tilt. Either way, the confusion in the market is likely to lead to a large move.

At 1950 GMT, the minutes of the June 10-11 BOJ meeting will be released. Note that these are not the minutes of the most-recent meeting, which took place last week. Afterwards, markets will quiet for several hours in anticipation of the BOE minutes at 0430 GMT.

محاضرة أشرف العايدي اليوم على الإنترنت الساعة 10 مساء بتوقيت مكة (8 م لندن)

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The US sizzled in European trading, sending USD/JPY above 100.00 and EUR/USD below 1.30 but a poor reading on June retail sales reversed the gains. Overall sales rose 0.4% compared to 0.8% expected. With volatile auto and gas sales stripped out, sales fell 0.1% compared to the +0.4% consensus – it was the lowest reading since June 2012. 

Economists had expected rising housing prices, equities, jobs and consumer sentiment to boost spending but the improvement didn't materialize. Afterwards, a number of economists downgraded Q2 growth forecasts below 1%. At that pace, it will be nearly impossible for the Fed to taper in September.

EUR/USD jumped after the release and eventually hit 1.3075, just shy of the Asian high of 1.3080. USD/JPY finished the day a half-cent higher at 99.75 but was well below the 100.47 session high. Overall, the market is struggling for direction ahead of Bernanke's testimony on Wed-Thurs.

One market that isn't struggling for direction is the S&P 500, which closed 0.14% for an eighth consecutive gain. The winning streak matches a January climb for the longest rally of the year but the 4.3% cumulative gain dwarfs the 2.3% rally earlier in the year. The index is now just 5 points from the record high set in May.

The main event on the calendar is the minutes of July RBA meeting at 0130 GMT. The market is pricing a more-than 60% chance of a rate cut in August following comments from Stevens. He said the board deliberated for a long time at the last meeting and it will be interesting to see how close they were to cutting.

Never since the 1990s has gold fallen more than 35% off highs. None of the declines since 2006 exceeded that level from its cycle highs. As the metal attempts to complete its first rising month since March, the debate ensues between the bulls and bears. Full Charts & Analysis here

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The Australian dollar is the early leader, shortly after the weekly market open but that could change with second quarter Chinese GDP numbers upcoming. The Swiss franc was the leader last week while the Australian dollar lagged. The CFTC Commitments of Traders report showed a jump in euro shorts.We issued 2 trades in EURUSD today, following yesterday's USDJPY and 2 GBPUSD trades, which were charted alongside weekly and monthly technicals in the stochastics of the UK-US 10-year spreads. All these trades and charts are in the latest Premium Insights.

The market continues to reel from Bernanke's comments last week and the wild round of dollar weakness. Markets are thin to start the week because Japan is closed for holiday.

The immediate focus turns to China and GDP numbers, which will be released shortly. After the weak import/exports numbers last week the bias is for a reading weaker than the +1.8% q/q figure expected. The y/y reading is expected at +7.5%. Along with GDP, industrial production and retail sales numbers will be released. Production is expected to rise 9.1% y/y.

Commitments of Traders

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

EUR -41K vs -16K prior JPY -80K vs -71K prior GBP -34K vs -31K prior AUD -63K vs -70K prior CAD -24K vs -16K prior NZD -1K vs -1K prior CHF -1K vs +flat prior US Dollar Index longs at 29K vs 16K prior

The market was piling into euro shorts just ahead of the comments from Bernanke. The squeeze likely sent many traders scrambling for the exits.