Intraday Market Thoughts Archives

Gold cut through resistance levels like Suarez cut through the English defense on Thursday, sparking a massive rally in gold.  The three lions can take some solace in the strength of their currency as the pound led the FX market and touched the highest since 2008. Comment's from Kuroda are due later.  After yesterday's new Premium note on GBPUSD and EURUSD were issued, sterling went deeper in the money with 170 pips in the green after the 190-pip play in the prior long hit its final target at 1.6990. We also altered the final target in one of the 2 EURUSD shorts. 3 charts on GBPUSD and EURUSD.  All the trades are in the Premium Insights.

The only thing worse than being a gold bear on Thursday was being a gold bear and an English football fan. The $41 climb to $1320 was the largest one-day rise in 9 months and sent gold to the highest since April. The 55, 100 and 200-day moving averages broke along with the downtrend since April and the May high.

The rally was kicked off by the continued dovish tilt at the Fed. Shorts repeatedly tried to stall the advance at the key levels but were squeezed into submission. Short term indicators are now extremely overbought and if that doesn't spark a retracement in gold then the sellers may appear at $1331. Overall, a parabolic move like the one in gold emphasizes the need to manage risk because there's no telling when it will stop.

Another chart that could have a long way to run is cable. The pound took advantage of the weak dollar and touched 1.7063 on Thursday and finally closed above 1.7000 however the close was fractionally below the 2009 high of 1.7043 and that's an important level to watch.

Economists continue to bring forward estimates for UK rate hikes and more confirmation of a hike this year underpin the fundamental case for the pound. The risks are on the US dollar side where a solid Philly Fed and good jobless claims numbers underscored an economy that's on the upswing after a terrible first quarter.

USD/JPY sagged to 101.74 but rebounded to 102.00 later. The focus will be on the yen when BOJ governor Kuroda speaks at 0636 GMT (that unusual time is not a typo). His comments are at a banking conference so they're likely to have a monetary policy bent.

Markets expected some nod toward the hawks at the FOMC, especially after Tuesday's CPI report but the undercut the dollar by offering nearly nothing. Commodity currencies and the pound were the chief beneficiaries as the dollar slumped. Those moves will consolidate as the market awaits kiwi GDP.  

Most of the risks ahead of the FOMC were tilted toward the hawkish side. The Fed could have indicated an earlier timeline for hiking or some modest worries on inflation but instead the statement was basically unchanged.

In her press conference, Yellen backed away from the rough six-month timeline for rate hikes that she introduced in March while saying inflation has been roughly as expected.

The Fed's forecast for growth this year was trimmed to 2.1-2.3% from 2.8-3.0% but Yellen underscored that temporary factors were to blame and continued to sound upbeat. Still the Fed's estimate of long-term normal growth was lowered by a tick.

The reaction was exactly what you would expect on more-dovish than expected news. Stocks rallied to a record high, Treasury yields fell and the US dollar slumped.

The Australian dollar erased the post-RBA minute slump and gained 70 pips to above 0.9400. Cable also edged above 1.7000 but once again failed to push the move.

The top performer on the day was the New Zealand dollar as it rose to the highest since May 7. The focus will stay on the kiwi with Q1 GDP due at 2245 GMT. The consensus is for a healthy 1.1% quarter-over-quarter rise (4.4% annualized). That kind of growth will continue to underpin the high-flying currency. 

And here is the video I shot, juggling World Cups & Market Cycles   Full Video

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The Fed hawks have been swooped in to warn about many imagined inflation problems since the crises but they may finally have something real to worry about. The US dollar was the top performer on Tuesday while the Australian dollar lagged. Japanese trade data is up next.

In the span of four months, y/y inflation in the US has risen by a full percentage point. CPI hit 2.1% versus 2.0% expected in the May report. More importantly, the price gains were broad based and core CPI rose the most single 2011.

The composition of the Fed is growing more hawkish and the likes of Prosser and Fisher will be vocal ahead of Wednesday's decision. Previously the meeting lacked a theme but now traders will be on guard against inflationary worries.

Action tomorrow is extremely unlikely beside the regular taper but now any inflation comment or hawkish dot forecast will grab the spotlight.

You could see the nature of the FX reaction on Tuesday's market as the dollar climbed 30-40 pips.‎ Look for much more if the Fed emphasizes information.

The other central bank most worried about inflation is the BOE but the data was softer Tuesday and that caused a temporary dip in cable. The pair rebounded to test 1.70 again but was rebuffed. The bulls are getting anxious.

The market will now turn to Japan where trade balance numbers are due at 2350 GMT along with the BOJ minutes. Exports are expected down 1.3% y/y but the reports are unlikely to jar the market.

The idea that the ECB will wait-and-see on its latest easing maneuvers is nothing new but headlines saying that gave the euro a lift. On the day the Swiss franc was tops while the Aussie lagged. The RBA meeting minutes are up next.  

How a market reacts to news is often more important than the news itself. Bloomberg cited two unnamed Eurozone central bank officials in a story saying the ECB will refrain from any new measures in the “coming months” as they assess the impact of the latest moves.

That should come as no surprise, the first TLTRO isn't due until September and the bank review will come later. ECB officials have also been very clear that QE was still in the discussion stage.

In any case, the euro jumped to 1.3579 from 1.3530 on the headlines. That might show more reluctance to break 1.35 than anything else. Monday's fall to 1.3513 was the third test of the level in the past two weeks and the bears are beginning to lose patience.

In a similar situation, cable managed to break 1.70 as we warned yesterday but the high was 1.7011 and then it was a quick trip back down to 1.6980.

In both cases, it's tough to judge if there is a real lack of enthusiasm in the market of if the onset of summer and the World Cup are taking some of the energy from the market.

Another spot to watch in the day ahead might be the precious metals complex. Gold and silver were both down on a day when the US dollar was mostly weaker. June seasonals are very week, especially for silver, but gold and silver are bucking the trend so far this month with gold up 1.8% and silver up 4.5%.

The Asia-Pacific session in the day ahead isn't particularly action packed but one spoke to watch is the 0130 GMT release of the June RBA minutes. Expect some anti-AUD jawboning but any optimism about the economy or worry about inflation pressures will dominate. 

England's World Cup hopes took a hit on the weekend but the pound opened within striking distance of 1.70. Last week the kiwi was the top performer while the euro languished. The week begins with UK house prices and an RBA speech.

The early focus on Monday will be cable as it edged about 6 pips higher to 1.6974 shortly after trading started for the week. Attempts to break the level failed on Friday and in May but unless the bears begin to mount a defense, a break is inevitable.

There is talk of an options-related barrier defense but Carney's comment about rate hikes coming sooner than markets expect that was delivered on Thursday is a game changer. The OIS market is pricing in a 50% chance of a hike before year end but that factor is liable to rise and take the pound along with it.

The focus will stay on the pound because at 2301 GMT, Rightmove releases its June house price index as UK officials zero in on housing. In May, prices were up 8.9% y/y.

Weekend news was limited but the focus remains on Iraq where rebels were halted and government forces mounted a pushback. That could cool oil prices in the early going but last week's breakout is a bullish signal.

Coming up later, at 0320 GMT, the RBA's Kent speaks in Sydney. Look for some anti-AUD jawboning but it's a longshot to have any effect. If anything, optimism about the economy is more likely to boost the aussie.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -57K vs -33K prior JPY -82K vs -74K prior GBP +36K vs +35K prior AUD +28K vs +22K prior CAD -24K vs -23K prior CHF +3K vs +2K prior NZD +17K vs +18K prior

The thrust higher in EUR/USD didn't spook the bears (nor us) and euro shorts continued to add to positions. More of a squeeze would have made us more comfortable holding shorts but the net short still isn't at an extreme.