Intraday Market Thoughts Archives

SATURDAY's AUSSIE ELECTIONS between Labours Gillard and Conservatives Abbott will be the closest Australia has seen since 1961. Although Gillard has proposed a watered-down version of the super tax on commodities from 40% to 30%, it remains unclear whether a Labour a victory will be negative for the Aussie and Aussie stocks. If recent history holds correct, then Labour will stay stay in power, since no party has been defeated after 1 term. Online bookmaker sportsbet.com.au said the odds of a Gillard victory fell to $1.24 from $1.60 on a $1.0 bet, while the odds of a Hung Parliament feel to $3.85 from $9.00 last month. At the current junture of deteriorating risk appetite and a falling Aussie, the worst case scenario would be a Labour victory because of the taxes on resource companies, though some would argue that her victory would signifiy a win for the incumbent. AUDUSD WEEKLY shows the same technical pattern seen in late April, which led to a 10% selloff. AUDJPY eyes 75.30s, followed by 74. The ELECTION RESULTS coul come in as early as 1-2 hours after the close of US stocks.,

Ashrafs Video for Reuters Insider detailing the multi currency dynamics of gold to explain EURUSD dynamics. following this weeks warning about the EUR 960/oz resistance. http://bit.ly/bGLhIW

ECBs WEBER ROCKS THE EURO with some hawkish comments after saying ECB discussions revolving around removing monetary stimulus around Q1 2011. Irish 10yr yield spreads over Germany back up to 390 bps. While the 1.2730-40 support has been broken intraday, a weekly break would signify 1.2550s. CAD ADDS TO LOSSES after July annual core CPI slows to 1.6% from 1.7%. Dow futures double losses to 42 pts. Both EUR & GBP shed losses vs USD and JPY but EURGBP ACCELERATING SELLOFF testing 0.8160s, abreak of which to extend towards 0.9115-20.

CANADA JUL CPI is the only data item of the day, further inflation softening could add to CAD selling especially in the event of prolonged declines in appetite. Watch the annual core CPI (exp at 1.8% from 1.7%). USDCAD 3-hr shows immediate TL resistance at 1.0420, a break of which seen extending to 1.0470s. CADJPY eyeing 81.50s, but traders are reluctant to add on to selling after Japan Fin Min said he;s in talks w/ other G7 nations regarding FX. GBPUSD nears further towards the 200-day MA (1.4490s) confirming a deterioration in technicals. Bounces continue to be sold and $1.5445-50 stands as next key foundation. EURUSD approaching the all-important 1.2740 trend line support from the June low, with a WEEKLY CLOSE below 1.2740s could spell fresh losses towards 1.2550s. EURCHF has now declined by more than 400 pts from last last weeks alert of the 1.36 trendline, so careful about one of those typical Friday SNB interventions. Aussie on the defensive ahead of Saturdays closely contested elections.

Ashraf's Latest Video Market Analysis http://bit.ly/6OIyH discussing FX, BHP's Bid for Potash & S&P500

DATA DOUBLE PUNCH HITS MARKETS as US jobless claims jump by 500K (highest since Nov), Aug Philly Fed -7.7 (lowest since Jul 2009) put life back in the yen as risk aversion intensifies (S&P500 -1.6% testing 1075). USDJPY testing 84.80, AUDJPY eyes 75.50, EURCHF loses 200 pips now testing 1.3180 (see previous tweets warning about CHF benefiting from risk aversion as JPY fears intervention and USD fears QE). USDCAD did not reach my projected 1.0220, now facing key resistance at 1.0370 (previous TL support now resistance). Cable seen capped at 1.5680 and is expected to retest 1.5580. Again, EURUSD and GBPUSD are not losing as much ground as they usually do due to the fact that bad US data could push the Fed into fresh QE.

STERLING AVOIDS DIPPING below its 200-day MA of $1.55 thanks to stronger than expected 1.1% rise in July retail sales as well as smaller than exp public sector borrowing. Subsequent rally in cable seen capped at $1.5680, a level that could be reached during afternoon London trade, but watch out from the increasingly habitual pullback in sterling after the London close, thus a reversal towards $1.5580s. Any break above $1.5690 is seen capped at $1.5730. EURGBP downtrend remains intact, with hourly wedge w/in 0.8270 and 0.8210, a break below which calls up 0.8140. USDCAD eyeing 1.0220 target from yesterday, with path strengthed in the event of NO DISAPPOINTMENT from Canada leading indicators index due at 14:00 GMT.

GOLD vs OTHER COMMODITIES: http://chart.ly/sdcswe GOLD HITS FRESH 6-WEEK HIGHS $1232/oz, while GOLD/EUR breaks above the key right shoulder resistance of EUR 960/oz, paving the door for EUR 980/oz. On Monday, I identified the weekly gap up in GOLD/EUR, which has the ingredients of further GOLD/USD gains. Out of the last 8 years, the Q4 proved the best quarter, with 7 out of the last 8 years showing positive percentage gains, followed by Q3 and Q1 rising in 6 of the last 8 quarters. $1270 is the next key target before $1,320 is seen before end of Q3.

YENs TRADE-WEIGHTED INDEX http://chart.ly/4dt85t the chart in the link is Deutsche Banks JPY Traded-Weighted Index, showing the currency testing the highs of January 2009. Despite the similarity of the price pattern with Jan 2009, there are differences. GLOBAL BOND YIELDS TODAY are dragged by a more secular force than in early 2009 when the primary reason to falling yields back then was simply aggressive deleveraging from tumbling world markets. Today, the combination of slowing global growth and disinflationary pressures is weighing on bond yields, which discourages Japanese investors search for foreign yield. THE LAST YEN-SELLING INTERVENTION cycle from the Bank of Japan occurred between Jan 2002 and March 2004 (spent 35 trln yen), during which US fed funds rate hit a then 4-decade low of 1.00% and deflation was the Fed's main price fear. The Greenspan put of 2001-3 weighed on the US dollar, prompting Tokyo to act against excessive yen strength. The main reason to why Japans interventions ended in March 2004 was the Feds eventual signalling of higher interest rates, which materialized in June of that year. As long as markets expect the Fed to engage in a new round of asset purchases later this year, chances of operational (not verbal) FX intervention from Japan are minimal. The golden rule for any successful central bank intervention is for interest rate policies to be in line with the currency preferences of the central banks. And so as long as the Fed hints, signals or keeps the door open for new QE options, USD will remain pressured, particularly against the yen. I continue to expect 81 yen to appear in late Q3 and any intervention will be limited to verbal jawboning.

STERLING RALLIED immediately after the BoE minutes showed Andrew Sentence continued to call for a 25-bp rate hike. While this was no real surprise, some players thought that perhaps Sentence would not dissent considering the emerging slowdown in inflation across the G7. Considering yesterdays sharp slowdown in UK July CORE inflation, it appears as todays sterling rally is a little premature. After having tested its 200-day MA at $1.5498, GBPUSD rocketed over 1.7 cents but once again failed to take out the important $1.5720-30 resistance. With no major US economic releases, US equities could attempt to build on yesterdays gains, but 1100 on the S&P500 would have to be broken on the close to sustain the momentum of the rebound. Dow-30 made an intraday cross above the 200-day MA of 10,445, but failed to close above it. Watch out for the 10,450-10,500 territory, a CLOSE above which would be a vital positive for the bulls. EURGBP proved downtrend remained intact on inability to regain 0.83, now gradually eyeing 0.8210. CADJPY looking to finally regain 83.30s, as did NZDJPY at 61.30s.

WATCH BoE MINUTES: Wednesdays release of the minutes from the August MPC meeting could add to GBP losses. The currency has been hit hard after Tuesdays unexpectedly weak July CPI (see earlier IMT for detail). The inflation story is a big deal. For the past 4 months, strong UK inflation was the main reason why Andrew Sentance of the BoE has been calling for rate hikes . and there were even some expectations that other members would join him. This has also been the MAIN REASON TO THE RALLY IN GBPUSD since June---UK being the only country w/ above target inflation, therefore, the one with most realistic chances of any near term rate hike. HOWEVER, Tuesdays smaller than exp CPI (See previous IMT) changes much of those expectations, which explains Tuesdays GBP selloff, which was a textbook fundamental sell-off, falling against everything even against the weak YEN. Losses were sharpest against AUD and CAD as commodity currencies were especially boosted by Wall Streets rally, which I warned about in yesterdays IMT based on the BULLISH HAMMER CANDLE in indices. The BoE minutes will likely show Andrew Sentence to reiterate his vote for a rate hike, but just in the unlikely event that he is joined by another dissenter, we could see sharp pop higher in GBPUSD. See prev IMT on GBP technicals.

GBPUSD RESTS RIGHT ON THE 2-month trend line support at $1.5565-70, following the all-important July inflation figures (see prev IMT). This is the GBPUSD equivalent of last weeks EURUSD trendline support, which held up at $1.3740s. GBPUSD does remain above its 200-day MA ($1.55), but has yet to break above $1.57, which is the 55-WEEK MA as well as the trendline resistance from the August high. Failure to regain $1.5680s could be seen as technical signal to drive down below the vital $1.55 trendline support, which would be made possible by another fundamental event such as todays soft CPI figures. BIAS IS NOW SLANTED against cable, with all eyes on the prelim support of $1.55. EURGBP seen capped at 0.8320s.

US JUL INDUS PRODUCTION +1.0%, twice more than expected, with capacity utilization rising at its strongest pace since Sep 2008 at 74.8. YEN CROSSES seen making the best of the day as Japanese intervention is in focus. NZDJPY eyes 61.20, CADJPY seen at 83.20. AUD builds on gains after a neutral RBA minutes. A close above 0.9030 in AUDUSD could eye 0.9090s. EURGBP eyes pressure at 0.82880s as the downtrend remains firmly intact. Once again, I advise readers to view my tweets for more timely analysis since it takes some time for these mailings to get to your mailbox. Keep an eye on US-10 yr yields for a gauge on markets interpretation of the data. Were still below 2.6%, but a weekly close between 2.65 % and 2.67% would be weekly bullish candle, setting up for possible gains in appetite in the subsequent week. OIL faces strong resistance at $78, where both the 100 and 200-day MAs stand.

THE BULLISH HAMMER CANDLE I referred to in yesterdays IMT 3 hrs before the NY close may be materializing in both the S&P500 and the Dow-30. Such a pattern is usually bullish, which means we can see brief run-up into the next 2-3 days, with the 1095 and 10400 objectives in S&P500 and Dow-30 respectively. This would support some buying in EURUSD towards 1.2930s. Softer than expected UK INFLATION data has weighed on GBP all day as the July CORE CPI grew by 2.6% from 3.1%, its slowest pace since Nov 2009. Any further gains from improved risk appetite face pressure at $1.5730s. EURUSD eyes an extensions of gains towards $1.2930s. EURCHF eyes TL resistance at 1.3450s, with subsequent pressure weighing at 1.3570. US Indus production due at 13:15 GMT exp +0.5% from +0.1%, which would be an added boost for equities and EURUSD to chart its $1.2930 route.

BENIGN STOCKS & ACTIVE FX. I made the observation on Friday that despite directionless trading in equity indices, USD had rallied across the board as yen pulled lower following talk of a possible action from Tokyo against the yen. Were seeing the same thing today, whereby, stocks (S&P500, Dow-30) drift around neutral territory meaninglessly while the YEN (not USD) and CHF push higher against all major FX. This leads me to conclude that FX remains in risk-aversion mode without any notable losses in equities because the major indices are already in red-flag territory, with SP500 below 55, 100 and 200-day MAs. As long as S&P500 and Dow-30 continues to close below 1,100 and 10,440s this week, the -10% scenario of June-July will likely remain. ====== HAVING SAID THAT, watch out from a POSSIBLE BULLISH DAILY HAMMER in S&P500 and Dow-30, which could signal a temporary rally during a relatively empty calendar summer week. This pattern merits more scrutiny later today.

GOLD SEASONALS of the last 8 years indicate Q4 is the best quarter, showing % gains in 7 out of the last 8 years , followed by Q3 and Q1 rising in 6 of the last 8 years. The current gold rally COULD BE ESPECIALLY POWERFUL as it combines the onset of further treasuries purchases by the Fed and broadening questions about Eurozone debt, this time from Ireland. The Irish-German 10 year yield spread is testing the 4.0% territory, which is 20-bps away from the all time high reached in June 2009. Watch Gold in EUR terms and a close above EUR 960/oz. GOLD/USD HAS NOW BROKEN ABOVE its 55, 100 and 200-day MAs FOR THE FIRST TIME since April (when Eurzone debt crisis erupted and fed a 15% rally in gold). $1,270-80 is seen before end of Q4.

JPY CHF USD BALANCE OF POWER is being dominated by the Swiss franc as Japans Q2 GDP slows to 0.1% from 1.1%. Despite the news, JPY is second best performer of the day as Asian/European bourses remain in negative territory, while S&P500 watchers await whether the index further drops below its 55-day MA (1087) instead of regaining its 200-day MA (1115). CHF builds on last weeks advances as yen scrutiny slows the pace of gains and QE anticipation from the Fed places USD strength in focus. While SNB intervention cannot be ruled out, Switzerland is neither involved in QE or on the verge of a growth contraction. thus giving CHF plenty of room for fresh gains and any CHF selling by the SNB will have a limited effect. I focused on EURCHF last week with the bottom right chart in the link http://chart.ly/s8qbhr following chart at the break of the 1.36 trendline. 400 pips later, I call for cautiousness as we near the 1.3260 territory, with SNB-led rebounds seen capped at 1.35. EURUSD falling resistance to $1.2870s, suggests fresh selling around these levels in the event of a break of $1.2830s.

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