Intraday Market Thoughts Archives

The franc charged ahead once again on Friday but other forexmoves were relatively small despite another late fall in stocks. The Bank of Canada backed away from prior talk of rate hikes. We also look at weekly charts and the CFTC data on speculative positions. Silver finally wakes to gold's rally & hits $42.90s.

The S&P 500 fell 1.5% to close at 1123 with most of the losses coming late in the session. Late trading in forex was minimal with most of the moves coming around the New York open. The pound trade was particularly jumpy for the second day. GBP was unusually strong yesterday, leading to some bullish talk that was rewarded on Friday by a 130 pip spike above 1.66; but that move was short-lived as the pair retraced all its gains and was the worst performer on the day, closing at 1.6462. As Ashraf has mentioned, talk of US-based HP buying a UK software maker for $10 billion was likely driving the indecisive trade.

CHF was the top gainer on diminished talk of intervention and special policy measures to dampen the currency. USD/JPY fell below 76.00 for a moment but later rebounded and closed near unchanged levels.

CAD was in focus after comments from BOC leader Carney. He downgraded expectations of future hikes by saying the central bank will be prudent with respect to the possible withdrawal of policy stimulus. The July 19 BOC statement said that if events unfold as anticipated, some of the considerable monetary policy stimulus currently in place will be withdrawn.

Re-reading the BOC statement from exactly one month ago, its amazing to see how much has changed. At that point, the BOC was saying the global expansion was proceeding broadly as expected and commodity prices were expected to remain elevated (oil and copper down 10% since then). Today, Carney said he still expects growth to accelerate this half but that external headwinds are now blowing hard.

Weekly Moves

The dollar was broadly softer on the week, with CHF as the lone exception. We noted last Friday that the weekly chart in USD/CHF looked bullish and that proved to be the case as the pair gained 100 pips (after climbing as much as 220 on Wednesday).

- Gold touched a record $1881 before drifting back to a settle at $1852. Given that this was the seventh consecutive week for gains, we are getting a tad nervous about long-term gold longs. Those wishing to establish fresh positions may have a chance to buy on a pullback in the next week. Silver easily outperformed gold on Friday, gaining 4.3% to $42.77/oz.

- EUR/USD gained 110 pips on the week but the weekly chart continues to show a lack of conviction.

- Cable closed at the highest weekly level since May 22.

- Double dojis on the AUD/USD and AUD/CAD charts point to a large near-term move. A catalyst on the negative side may come from instability in Australian politics.

- USD/JPY put in the lowest weekly close ever and looks like it wants to break down. Strong nerves and a tight stop are a requirement in yen pairs as Japan ratchets up its rhetoric. A Japanese newspaper report on Friday suggested the BOJ may ease further.

- The S&P 500 fell 4.7% on the week -- the fourth consecutive weekly decline.

IMM Speculative Positions

Fridays CFTC data showed a small increase in the overall net USD short position to $16B from $15B. The main loser was CAD as net longs were cut to 4K from 23K. The euro was a winner as it rebounded from a net short -8K to +15K. CHF longs nearly doubled while JPY positions increased 12%. Speculators continue to be unimpressed by the pound, it was sold on the week and is the only G10 currency held short against USD at -3K.

Removing the noise off the daily moves in EURUSD, we bring to our Premium subscribers, an in-depth study of monthly cycles in the single currency. We dissect the fundamental and technical underpinnings for the pair over the next 3-5 months, which will be crucial in an increasingly deteriorating risk environment. Premium subscribers direct access to the piece: http://ashraflaidi.com/products/sub01/access/?a=479 NON-Subscribers click here: http://ashraflaidi.com/products/sub01/

Ashraf Laidi

Dow & S&P500 futures both down by 1.3%. Gold is less than $150 away from $2000. German July PPI increased to 0.7% from previous 0.1%. On a yearly basis, PPI jumped to 5.8% while analysts expected a rise of only 5.3%. Canada CPI in line with expectations.

UK Public finances improved in July as the budget recorded a surplus of GBP 2B instead of an expected deficit of GBP 0.4 B. New bank tax and a progress in local governments finances contributed to better fiscal position. However, analysts note that this improvement is not enough to hit fiscal forecasts for the year. GBP has been strong despite weak data over the past few days so positive print should provide additional support for longer term players.

Canadian CPI came out in line with expectation at 0.2% after dropping by -0.7% in June. Core CPI also jumped back above the zero level and printed 0.2% as well. The CAD has been under pressure as both Brent oil and WTI have been selling off rather dramatically over the past two days. Slowing growth and low inflation means that it could take some time before rates are hiked. Next BOC rate decision is scheduled for September 7th.

The New York session will not bring any fundamental data releases today so trading will be determined by overall sentiment, capital flows and technicals. Traders should note that at 8:30 am ET FOMC Member William Dudley speaks about economic conditions at the Meadowlands Commission in Lyndhurst. Q&A session will follow his speech and given how dovish his comments usually are, the greenback could sell off.

Thursday's Premium shorts in S&P500 hit all targets, while silver positions are partly executed. Other trades include EURUSD, EURJPY, EURGBP, GBPUSD, GBPJPY, S&P500, silver, US crude http://ashraflaidi.com/products/sub01/access/?a=477 To get a trial a click here: http://ashraflaidi.com/products/sub01/

UK Public finances for July expected to improve, German PPI higher than expected, Canadian CPI expected to slide back. All of Thursday's 9 Premium Trades have been executed.

Fears about a global recession have increased in recent days on the back of some growth downgrades, and the inability of policymakers to get ahead of the current crisis; both in Europe and the US. Attention today is on options expiries, as well as some more data out of Europe and the UK.

After yesterday'ss disappointing UK retail sales numbers failed to dent the pounds recent rise, attention turns to the UK's deficit reduction measures and the public finances for July. Expectations are for borrowing to come down to 0.3bn in July, from 12bn in June. This would be a great opportunity for the figures to move back into line after the disappointing numbers we have seen thus far this fiscal year, where the recent numbers have shown that the Chancellor is behind the curve. Even dovish talk from the Bank of England hasnt been enough to undermine the pound in recent days though that probably has more to do with the fact that out of the US dollar and the single currency, it is the best of a pretty bad bunch. Yesterdays move saw the pound break above its 200 day MA on its trade weighted index for the first time since mid May.

German July PPI +0.7% in July, up from 0.1%. Analysts expected the figure unchanged at 0.1%. On an annual basis, PPI +5.8%, following +5.6% in June. The idea of rising prices and weak growth is already been seen in the US , giving worries of stagflation and further complicating central banks' mandate. recent rate hike.

Canadian CPI for July is also expected to slip back on an annualised basis with expectations for a fall from 3.1% in June to 2.8%. The month on month decline that we saw in June of 0.7% is expected to be partly reversed for July with a rise of 0.2%. The current weakness in the Canadian dollar could well see it push back through parity against the US dollar and todays inflation figures could be the catalyst for that after managing to hold above the 200 day MA support at 0.9800.

Gold continues to make new highs against the US dollar as investors continue to fret about the risks of a double dip recession in the US and in Europe after disappointing economic data from both sides of the Atlantic combined with growth downgrades from a number of major banks.

Thursday's Premium trades included EURUSD, EURJPY, EURGBP, GBPUSD, GBPJPY, S&P500, silver, US crude http://ashraflaidi.com/products/sub01/access/?a=477 To get a trial a click here: http://ashraflaidi.com/products/sub01/

After five days of relative calm, wicked volatility returned on Thursday as stocks tumbled, gold hit a record and bonds rallied to the highest in 50 years. The commodity currencies were the worst performers while JPY outperformed. Japans all-industry activity index will be released in the upcoming session. Ashraf's Intermarket Insights has 9 new trades, 8 of which are already executed & in progress.

Thursdays turmoil was initially sparked by talk of huge losses in European banks. A rumour circulated about a bank needed an emergency $500 million loan this week. The US session added concrete negative news as the Philly Fed plunged to -30.7. The 33-point drop was the largest ever one-month decline in the index and the details of the report were equally troubling with new orders and employment tumbling.

Other economic data showed:

- Existing home sales falling 3.5% compared to the 3.5% rise expected.

- US initial jobless claims rising to 408K versus the 403K expected

- Leading indicators climbing 0.5% compared to +0.2% expected.

The S&P 500 fell 4.5% to 1141 and oil fell $5 to $82.

Thursday's Premium trades included EURUSD, EURJPY, EURGBP, GBPUSD, GBPJPY, S&P500, silver, US crude http://ashraflaidi.com/products/sub01/access/?a=477 To get a trial a click here: http://ashraflaidi.com/products/sub01/

Stocks are not even reflecting the full angst in markets. Bonds are pointing to something like a depression. Just hours after US CPI jumped 0.5% in July, the yield on the 10-year note fell below 2.00% for the first time since 1954. At that rate, almost a quarter of the yield is wiped out in a month.

Looking at the longer term, the CPI ran at 3.6% y/y. In the past year, US 10-year yields have only traded above 3.6% for two weeks (in Feb), so almost every single person who bought or held T-notes over the past year had a negative real return, oftentimes by more than 100 basis points.

Yet even at these levels, and with the US downgrade, no one appears to be selling bonds -- people would rather lose money than take any risk. Given this, its easy to see why so many investors are piling into gold, which gained $28 to settle at a record $1822.

Asia-Pacific Preview

The yen narrowly outperformed USD on Thursday but the gains would likely have been larger if Noda didnt caution that Japan may intervene again. The lone economic data point of interest is the June Japanese all-industry activity index. Expectations are for a 2.2% rise after a 2.0% increase in May but with all the turmoil in markets, its extremely unlikely this data point will have an immediate impact.

The 33-point drop in the August Philly Fed business survey is the single biggest point drop since 1968. The last time we had monthly declines of such magnitude was in October 2008 and January 2001, each predicting contractions in the ISM surveys and more importantly, protracted declines in equity indices over the ensuing 6-9 months. Today's Premium trades unveil 3 important charts on EURUSD, EURJPY and Philly Fed intermarket patterns. New trades also on GBPUSD, EURGBP, GBPJPY, silver and US crude. Premium Subscribers click here: http://ashraflaidi.com/products/sub01/access/?a=477 NON-Premium click here: http://ashraflaidi.com/products/sub01/

Ashraf LaIdi

USD is stronger across the board since London traders got to their desks. UK Retail Sales came out below expectations. Market turns to CPI, housing data and Philly Fed Index, which could is nearing the zero level.

GBP is weaker after UK July Retail sales disappointed when they came out at 0.2% after increasing by 0.8% in June. The yearly figure stayed unchanged. The weak print is blamed on frail labor market, stagnant earnings and elevated inflation. GBPUSD recovery after the weak labor market data yesterday was nothing short of remarkable. Debt problems that plague the Eurozone and the US are possibly the reason behind continued demand for the Sterling.

The New York session will start at 8:30 am ET with Unemployment claims that are expected to jump back above the 400K mark again and reach 402K after dropping to 395K a week earlier. More importantly, traders will get July consumer inflation data that are projected to increase by 0.2% after decreasing by -0.2% in June. Core CPI should also increase by 0.2% from previous 0.3%.

Considering the increase in PPI we obtained yesterday, CPI could surprise to the upside as producers are likely to pass higher costs onto consumers. In such a case, USD could strengthen as the Fed would be less likely to introduce additional QE.

Existing home sales are due at 10:00 am ET and are expected to increase to 4.91M from 4.77M. Philly Fed Index that is due at the same time is projected to increase to 4.0 from 3.2. While readings above 0 indicate improving conditions, it is important to keep in mind that this index reached high of 43.4 just five months ago.

Sterling shrugged off yesterday's dovish BOE minutes but could get hit by disappointing retail sales numbers, Japanese exports shrink again, Swiss franc continues to rise despite SNB measures, Rising US inflation tempers speculation about QE3.

Yesterdays revelation that the two hawks on the MPC, Spencer Dale and Martin Weale decided to pull their claws in and vote to keep rates unchanged was quite a surprise, even if the more dovish tone from the MPC was not. There was no evidence that the committee was predisposed to leaning towards more QE at this stage however, despite the disappointing unemployment numbers. Todays retail sales for July arent expected to offer much in the way of optimism either with expectations for July for a rise of 0.4%, down from Junes rise of 0.8%. With August numbers likely to disappoint even further due to this months riots, this could be as good as it gets for a couple of months.

Ashraf warned in yesterday's Premium trades that the BoE minutes could show fewer or no hawkish dissenters at all, and offered 2 GBP trades, which hit all limits.

In Japan the trade balance for July hit 72.5bn yen, down 90.8% from a year ago, with exports declining 3.3% as the strong yen continues to erode Japans competitiveness. Imports rose by 9.9% as speculation continues about how Japanese policymakers intend to address the continually appreciating currency as it continues to hover around all time highs against the dollar.

CHF has continued to rise after the Swiss National Bank stopped short of announcing a target rate for its currency. Even broad support from the Swiss government didnt bring about any lasting pullback. The bank chose to continue to boost liquidity in further attempts to reduce the appeal pf owning francs, however the likelihood of this working in the long term appears unlikely given how unsuccessful the Bank of Japans attempts have been in weakening the yen over the years.

In the US yesterdays PPI numbers suggest that inflation is more of a problem than the Fed would like to admit, and todays CPI figures could reinforce that. If that proves to be the case and Fed members Plosser and Fisher are right, then the likelihood of further stimulus being agreed at Jackson Hole later this month remains slim.

Premium subscribers can access Intermarket Insights directly here: http://www.ashraflaidi.com/products/sub01/access/?a=476

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The US dollar fell Wednesday on reports that Obama is preparing a stimulus program including tax cuts and infrastructure spending. AUD was the top performer followed by CHF and GBP. Japanese trade balance is the lone indicator in the upcoming session.

Various media reports suggest Obama will unveil plans to kickstart the economy in a speech on Sept. 6. Details appear to revolve around tax cuts for small businesses, infrastructure spending and longer unemployment benefits.

Plans to cut $1.5 trillion from the deficit over the next 10 years arent said to be affected but the steps Obama appears to be taking will do nothing to impress the ratings agencies or convince the market that the US government is serious about austerity.

At the same time, spending and lower taxes are probably what the US needs to do in order to stimulate growth. The advantages to further stimulus will be reflected positively in commodities, including commodity FX and precious metals as well as stocks.

The rumours from the White House outweighed commentary from the Feds Plosser and Fisher, who both dissented at the most recent FOMC meeting. Plosser talked up the US economy, especially fro 2012, but hes not working on much of a track record. Were guessing he thinks its the Feds job to inspire confidence. His said the Fed could hike before mid-2013 but the market was unmoved. Fisher was more constructive, saying its not the Feds job to protect the stock market and that Congress needs to do more for the economy.

Economic data showed that US core PPI expanded 0.4% in July compared to the 0.2% expected. Weekly data on US crude inventories was bearish but WTI crude climbed 1% to $87.56.

Gold settled at a record $1794 but silver outperformed to gain 1.3% and climb above $40. The S&P 500 gained 0.1% to close at 1194.

Japanese trade balance at 2350 GMT is expected to show a 120 billion deficit, similar to the 190 billion deficit in June. It will be the fourth consecutive deficit but the past three deficits have all been smaller than expected. Dont expect to see a significant reaction in JPY.

Despite the headline-grabbing credit downgrade of the US rating, the USD continues to find support during market sell-offs. The fundamental rationale is always attributed to recurring problems in Europe during risk aversion, but quickly switches over to US rates will remain low for some time whenever risk appetite is on the rise. Gold, silver and the Japanese yen remain the consistent winners, alongside the Swiss franc. But the latter will encounter much volatility, in which case JPY is to regain its safehaven luster. Over the past 1-month & 3 months, JPY is outperforming CHF vs most currencies. Wednesday's Premium trades focused on shorting GBP based on our expectations that the BoE minutes would show a dovish surprise. We issued calls on shorting GBPUSD and GBPJPY, all of which hit the targets. Our long EURUSD call was stopped out by 6 pips. Our long in S&P futures issued last night hit the 1207 target, while silver & gold calls remain in progress.

Premium subscribers can access todays Intermarket Insights directly here: http://www.ashraflaidi.com/products/sub01/access/?a=476

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Ashraf

GBP recovered after dropping due to weak data. Eurozone inflation slowed in July. CHF gains after SNB disappoints with lack of radical steps to curb CHF rise. Market turns to July PPI and Canadian Foreign Securities Purchases.

GBP dropped across the board after July Jobless Claims increased to 37.1K well above expected 20K and the Unemployment rate increased to 7.9% from previous 7.7%. Furthermore, the MPC meeting minutes showed that no member was calling for additional interest rate hikes. Some members considered increasing asset purchases while others noted that the case for more QE is not yet strong enough. In reaction, GBPUSD dropped from around 1.6430 to 1.6350 hitting all GBP targets mentioned in Ashrafs latest premium piece. GBP has since recovered and currently trades above the pre-release level around 1.6430.

Core Eurozone consumer inflation slowed to 1.2% in July from previous 1.6% while headline CPI stayed unchanged at 2.5%. Monthly inflation dropped by 0.6%. Slower growth in Eurozone combined with the ongoing debt crisis contributed to lower price level.

CHF gained after SNB did not announce any radical steps to curb the currencys rise. The SNB decided to increase money market liquidity but did not announce speculated peg against the Euro nor negative interest rates. The SNB continues to view the Franc as being massively overvalued and there is a talk that SNB could set an exchange rate floor. EURCHF has dropped from 1547 to 1220 immediately after the press conference.

The New York session starts at 8:30 am ET with July PPI that is expected to stay unchanged on a monthly basis after dropping by 0.4% in June. Core PPI is expected at 0.2%. Given the disappointingly slow growth in the US, there is likely to be little pressure on producers as sales slow down.

8:30 am ET will also bring Canadian Foreign securities purchases that are expected to decrease to CAD 10.3B after shooting to CAD 15.4B a month earlier.

Bank of England minutes could surprise and weaken sterling, UK Unemployment and average earnings, Euro zone CPI, Merkel and Sarkozy fail to appease markets.

Yesterdays UK July CPI figures showed inflation slowing down on a month to month basis, however the rise to 4.4% would not have been well received by the doves on the Monetary Policy Committee. There had been talk in recent weeks of the committee considering further QE in the wake of recent poor economic data, a view that wasnt ruled out by Mervyn King last week. Todays minutes could well give further clues as to the committees thinking on this, but in any case it would be extremely unlikely that further easing would do anything other than push an already elevated inflation rate even higher by pushing the pound down and raising import prices.

We are issuing FRESH TRADES on GBP ahead of the BoE meeting as well as new trades on EURUSD (2), EURGBP, gold, silver and S&P500.

Premium subscribers can access todays Intermarket Insights directly here: http://www.ashraflaidi.com/products/sub01/access/?a=476

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This month's increase in energy prices will push inflation towards the 5% level and do nothing to exert downward pressure on prices, and as such the Bank will likely trot out its usual platitudes that risks to recovery remain evenly balanced.

At the same time UK jobless claims for July are expected to increase by 20k for July, down slightly from Junes 24.6k, while the 3 month ILO measure is expected to stay at 7.7%. Average earnings are expected to stay constant at 2.3%, though if they also push higher it remains even more unlikely that further QE would be countenanced due to fears of second round effects.

In Europe inflation data on the CPI measure for July is expected to remain at 2.5%, though on the monthly measure it is expected to slip back 0.6%, suggesting that inflationary pressures are starting to diminish in Europe. Whether this will be enough to dissuade the ECB on its destructive course of raising rates is another matter, but who knows with the ECB, raising rates on the one hand, and then buying peripheral bonds with the other to drive yields down.

Yesterdays meeting between Merkel and Sarkozy while giving a roadmap to close fiscal ties between France and Germany didnt really add anything to the mix with respect to extra funding to the EFSF or the thorny subject of Euro bonds. The disappointing growth in Germany last quarter makes it much harder for Chancellor Merkel to make the case for further bailouts when the normally resilient German economy has virtually ground to a halt along with the rest of Europe.

Euro rebounded back above 1.44 despite no concrete action from Merkel/Sarkozy summit. In the US, risk aversion ramped up despite better-than-expected industrial production. We examine the forces at work in EUR trades. By

As Ashraf said earlier, the Merkel/Sarkozy meeting was low on substance but it did not rule out the idea of eurobonds. The takeaway from the meeting was not action but about pledges to further integrate European economies, finances and laws. These two nations are the driving forces in the euro experiment and even if major reforms in the Eurozone take place (such as removing Greece), there appears to be a strong desire to unify policy.

Integrated leadership and affirmations to work toward constitutional deficit limits would be incredibly bullish for the euro if: a) periphery finances werent in such dire shape b) US and European economies were performing at capacity.

Of course, that's not the case but we cant forget that outside of the sovereign debt crisis, positive things are taking place in Europe. Think of long-term European integration as a positive force battling repeated calamity in the periphery. This was reflected in the bounce in EUR/USD above 1.44 and should also be seen as a positive for risk assets.

Outside of the eurozone drama, mild risk aversion was the theme. The S&P 500 fell 1% to 1193 despite solid US economic data.

The automotive sector was behind the 0.9% July rise in US industrial production as vehicle manufacturing drove the rise above the +0.5% expected. Supply chain disruptions had slowed production by as much as 8% beginning April but the 5.2% monthly rise in July now closes the gap. Outside of autos, manufacturing production grew by a solid 0.3% but still REMAINS 7% FROM PRE-CRISIS HIGHS. We expect much of this to be filled in over the coming year but it will only add modestly to employment and GDP.

Canadian manufacturing sales fell 1.5% in June compared to the -0.5% expected. It was the third consecutive monthly decline; with USD demand slipping and CAD remaining near record levels, the outlook is negative.

Cable capped four sessions of gains by touching the highest since May but the pair then stalled out below 1.65 in an area of intense resistance. We believe this area of resistance will hold but keep an eye on the daily chart. Take a look at our the Premium trade positioning in EURGBP as well as the latest in sIlver. http://www.ashraflaidi.com/products/sub01/access/?a=475

The Asia-Pacific calendar is bare on Wednesday

Euro rebounded right after the Sarkozy/Merkel conference as the leaders mentioned "integration" & "Unified" fiscal policy, which are always positive for the euro but they also hinted that a common eurozone bond was not part of their near-term plans. Euro had dropped towards 1.4350s after disappointing German GDP, but remained above the 1.4350 stop addressed in the Intermarket Insights (see more below). GBP regains 1.64 after July CPI came out at 4.4% y/y up from previous 4.2% and slightly higher than expected 4. The 3 Premium trades on GBP involved tactical trades on .

..tactical trades on EURGBP, GBPUSD & GBPJPY assuming higher than expected UK inflation figures. Shorts at $1.6440 were suggested at 23:20 GMT. Silver regains the 40 target, after an initial drop, which was anticipated in our Premium piece. Our shorts in US crude, AUDNZD and EURJPY hit their targets. US July housing starts slowed 1.5% to 604K from 629K while building permits fell by more than expected, down 3.2%. July industrial production jumped 0.9% from 0.2%, beating expectations of 0.5.

Premium subscribers click here for direct access http://ashraflaidi.com/products/sub01/access/?a=475 NONsubscribers click here to get a 1-time free 1-week trial http://ashraflaidi.com/products/sub01/

Ashraf Laidi

Euro struggling after disappointing Q2 German growth data, markets await meeting of Sarkozy and Merkel in Paris, while GBP traders brace for UK July inflation. RBA sounds a dovish tone, on concerns about Europe/US. See the link to Ashrafs latest Premium trades on EURUSD, EURGBP, GBPUSD, GBPJPY, silver and US crude oil.

German Q2 GDP growth slowed to nearly a standstill, at 0.1% q/q, from a downward revised 1.3% in Q1 against initially reported 1.5%. Looking at Fridays disappointing French GDP, it was no surprise that German figures would slow so sharply considering the recent sluggish figures.

Yesterdays rebound in equity markets could well be put down to the calm before the storm given that Italy, Spain and France all had national holidays and markets were fairly quiet ahead of todays long awaited meeting between German chancellor Angela Merkel, newly back from holiday and French president Nicolas Sarkozy. If markets were hoping for a some form of solution to the long running saga with respect to the sovereign debt crisis they could well be in for a big disappointment. Italian finance minister Tremontis call for some form of euro bond got the markets speculating yesterday but in reality given the political barriers to such a measure it really is wishful thinking.

In the UK the latest inflation data for July is due out with expectations for prices on a month by month basis to slide back on both the CPI and RPI measure, largely as a result of falling commodity prices and some discounting by retailers. CPI is expected to decline 0.1% and RPI by 0.2%, however the year on year numbers are expected to start rising again with CPI expected to rise from 4.2% to 4.3% though RPI is expected to remain unchanged at 5%. Any additional weakness is however likely to be temporary given recent price rises by utility companies which are expected to come into effect this month.

The latest Premium trades has ideas on trading ahead of today's UK CPI; Premium subscribers click here for direct access http://ashraflaidi.com/products/sub01/access/?a=475 NONsubscribers click here to get a 1-time free 1-week trial http://ashraflaidi.com/products/sub01/

In Australia, the release of the latest RBA minutes earlier this morning showed a slightly more dovish outlook, as the bank expressed concern about the turmoil in financial markets affecting growth prospects for the economy. Even though the meeting was held before last weeks bout of stock market weakness and disappointing economic data, policymakers were concerned about how the problems in Europe would be resolved. The minutes also stated that the case against tightening at this meeting was that the downside risks to demand had probably increased.

There are 3 trades on GBP ahead of Tuesdays July CPI report (GBPUSD, EURGBP & GBPJPY), suggesting a tactical approach ahead of the report. We also have new trades on EURUSD, AUDNZD, silver and US crude oil . Euro awaiting Tuesday's meeting between Sarkozy & Merkel, and on whether a major announcement regarding the issue of Eurobonds will be made. Several traders are considering euro bonds a strong euro positive. Premium subscribers click here for direct access http://ashraflaidi.com/products/sub01/access/?a=475 NONsubscribers click here to get a 1-time free 1-week trial http://ashraflaidi.com/products/sub01/

Ashraf Laidi

Risk assets gained for the third consecutive session on Monday on M&A news and talk of further Fed action. EUR led followed closely by AUD; CHF was the laggard. The Aug 2 RBA minutes are the key event of the upcoming session. TICS data weighing on USD. Ashraf's Premium trades from the Intermarket Insights will be posted shortly after this IMT.

The relief rally continued Monday in stocks and FX followed a similar path. The S&P 500 gained 2% to close at 1203. The rally was pinned on mergers after Google bought Motorola Mobility and Bank of America sold assets to TD Bank.

Asian and European trading focused on EUR and CHF but shifted to risk assets in New York. After brushing up against 0.8000 early in European trading, USD/CHF tracked lower for the rest of the session and closed far from the highs at 0.7840. EUR/USD rallied to the highest since July 27 late in Europe but flattened out in US trading.

Economic data was second tier and downbeat. The Empire Fed fell to -7.7 from -3.8; an improvement to -0.4 was expected. The NAHB housing survey remained at 15, as expected.

TIC data on capital flows into the US showed foreigners buying just $3.7 billion in long-term US assets in June, far below the $24.2 billion in May and the $30.1 billion expected. Funds appeared to be doing the selling as it was concentrated in Caribbean tax havens. Its far too early to make any broad generalizations but this data point certainly raises the stakes for the July report, which will show the impact of debt ceiling negotiations and the August report, which will show the impacts of S&Ps downgrade.

Gold and silver made a runs higher in North American trading, in part due to comments from Atlanta Fed President Lockhart (voter in 2012) who said there is plenty the Fed can do if the economy slows. I can assure you the Federal Reserve is not out of bullets, he said.

RBA Minutes Upcoming

The lone data point on the Asia-Pacific calendar is the 0130 GMT release of the RBA minutes from Aug 2. In the statement on Aug. 2, the RBA said it was holding, in part due to the acute sense of uncertainty in global financial markets over recent weeks. That comment proved wise as it came BEFORE a 200 point drop in the S&P 500. When the minutes of the prior RBA meeting were released on July 18, they gave AUD a boost. We can envision a similar scenario here if the RBA highlights the strength of the domestic economy or if the minutes highlight a lively debate about potential hikes because of high Q2 CPI (+3.6% y/y versus +3.3% in Q1).

USD is mixed since London open. BoE Miles comments underpin GBP and CHF continues to weaken. Market awaits manufacturing and capital flows data.

CHF continues to be sold across the board as Reuters suggests that SNB will introduce and defend a limit on CHF strength. This news combined with the ongoing speculation that SNB will peg the Franc to the Euro sent CHF sharply lower over the past three days. EURCHF trades 300+ pips above Fridays close and USDCHF reached 0.7997 which is nearly 1000 points above lows reached on August 9th.

GBP is higher after BoE Miles said that additional asset purchases are not needed now and that monetary policy will eventually move back to normal. As a result, GBPUSD broke above recent highs and currently trades above the 1.63 level.

Any Euro strength is likely to fade as German government spokesman said that Eurobonds will not be discussed at tomorrows meeting between Merkel and Sarkozy. Any breakthrough in talks is therefore unlikely.

The New York session starts at 8:30 am ET with August Empire State Manufacturing Index that is expected to improve to 0.8 from previous -3.8. Negative prints that we saw during June and July indicate worsening conditions so print above zero would be an encouraging sign of stabilization.

At 9:00 am ET the US Treasury releases TIC data indicating capital flows. On net basis, the demand for longer term securities is expected to improve slightly to USD 30.4B from previous USD 23.6B. Over the past four months prints have stabilized in the USD 25-30B range which is still somewhat low from a historical perspective.

Last news from the US comes at 10:00 am when the NAHB releases its Housing Market Index. In August the index is expected to stay unchanged at 15 which is at the lower part of the recent range.

Italian finance minister Tremonti calls for euro bond solution to debt crisis, France growth fears continue in face of new budget cuts, Japanese economy contracts further in Q2. By

This weekend's intervention by Italian finance minister Giulio Tremonti in once again calling for a euro bond solution to the current fiscal crisis in Europe, was another attempt to try and increase the pressure on Germany to stand surety behind the rest of Europes huge debt burden. His intervention was no doubt designed to raise the stakes ahead of tomorrows meeting of German chancellor Angela Merkel and French President Nicolas Sarkozy in Paris.

Tremonti said that the current crisis would be nowhere near as critical if the mechanism had been in place. The call was swiftly dismissed out of hand by German finance minister Schauble as unworkable while member countries control their own monetary policy.

Concerns about the rate of growth in France continue to worry investors in the wake of last Fridays Q2 GDP numbers which showed that the French economy showed no growth at all after a 0.9% rise in Q1, reinforcing concerns about the triple A rating of Europe's second largest economy. With economic data across the euro zone flat lining or even slumping it is becoming clear that the current crisis is affecting sentiment across Europe. With Sarkozy asking his ministers to come up with new budget cuts in the coming weeks there is a concern that further austerity could actually make the problem worse without a proper strategy for growth.

Concerns about the strength of the Japanese yen continue to weigh on the Japanese economy in the aftermath of the earthquake and subsequent tsunami in March. The recent rise in the yen on the back of safe haven buying continues to hamper Japanese companies and this mornings Q2 growth figures highlight the problems facing the Japanese economy. GDP contracted 0.3% in Q2, less than analysts forecast for a 0.7% contraction and a 0.9% contraction in Q1, as reconstruction work begins in earnest and help pull one of the worlds largest export economys back onto its feet.

Japanese finance minister Noda warned last night in the wake of these figures that hes ready to sanction further measures to intervene to weaken the yen, as one of the worlds biggest exporters continue to struggle out of recession.