Intraday Market Thoughts Archives

2012 nears its end with the Nokkie and Mexican Peso battling it out in the league of best FX performers, followed by the Singapore dollar, Kiwi and Swedish Krona. The Nokkie stood out in its being the sole outperformer, experiencing an interest rate cut.  AshrafLaidi.com will unveil its exclusive 2012 multi-asset performance review for Premium members, as well as intermarket preview for 2013. These will also assess the performance of Premium Insights since inception. Friday’s punishing equity session resulted from the impasse among the US House of Republicans regarding Plan B on raising taxes on the “rich”. Although equity indices finished off their lows, FX rates such as EURUSD and GBPUSD are showing gravestone doji formations, which could imply further erosion in the days to come—yet the weekly horizons remain more constructive.

UK public sector net borrowing rose; UK GDP revisions mixed; German GfK consumer climate fell; Gold consolidates losses. A busy session brings durable goods orders; core PCE; personal spending and income; UoM consumer confidence. Both gold shorts & the single silver short in Premium trades hit all targets, while the lone silver long is in progress. 1 of EURUSD stopped out, the other in progress.

Bundesbank president and the ECB governing council member Jens Weidmann reiterated today his criticism of the ECB's OMT program and warned against the tendency to share risks among the EZ countries. He said that the conditions attached to the OMT are not credible and added that the ECB put itself on a slippery slope.

In the UK, public sector net borrowing rose sharply in November and reached GBP 15.3 bln from previous GBP 6.0 bln and the final result of Q3 GDP was mixed. The sharp increase was revised lower to 0.9% q/q but higher to a flat reading from -0.1% y/y. A downward revision was seen in the production as well as the service sector. GBPUSD trades around 1.6240.

German GfK consumer climate worsened for January to 5.6 from December's 5.8 while analysts expected an improvement to 5.9. EURUSD trades around 1.32.

Spot gold consolidates sharp losses that it incurred over the past three days but it continues to trade near lows around 1647. Short term support is seen at 1627 ahead of a key support at 1530.

The US session begins at 8:30 am ET with durable goods orders that are anticipated to rise 0.2% in November while core orders are expected to decline 0.2%. Core PCE price index is seen steady in November at 0.1% and personal spending is seen rising 0.4% while personal income only 0.3%. University of Michigan consumer confidence at 9:55 am ET is expected to be revised to 74.9 from initial estimate 74.5.

Canadian statistics office will release October GDP at 8:30 ET that is expected to rise 0.1% m/m and 1.2% y/y. Consumer inflation is seen easing in November to 1.1% from previous 1.2%.

Equity futures 2% sell off as US House of Representatives kills Plan B on taxing the rich and will not resume vote until after Christmas. Yet even if the Plan B passed the Republican-led Senate, it is unlikely to make it into the Senate and even if it, Pres Obama would veto it. And the only way to overturn a presidential Veto is 2/3 majority vote by both Chambers which is virtually impossobe. As we near the close of the year, we hear more of the same; major central banks willing to do what it takes to keep yields down, markets stable and risk currencies supported. We talked today about the falling gold/oil ratio, with the force weighing on gold being investors’ exiting from Gold/EUR position. Reports of Morgan Stanley’s pulling the plug off its underperforming gold funds have also dragged the metal down sharply. Next year, in order for gold to avoid a decline below $1570s, interest rates must remain low. Central Banks' shift away from price stability will only drive up yields if the macro-econonomic show marked improvement while policy makers make no notable hawkish steps. We will closely track the EUR/USD-Gold-Yields Trifecta in order to better grasp the catalysts as well as the dependent factors. This week’s Premium Trades include 2 shorts in gold and a Dual Trades in silver (long and short). For these detailed trades and their rationale, take a look at the latest version of Premium Insights “Euro Sticks to the Script”.

The end of the world may be tomorrow, but it’s only the beginning for the Gold/Oil– stocks correlation. Gold falls, oil rises and stocks push higher. A declining Gold/Oil ratio continues to mean rising stocks.  The inverse relationship remains solid. I discussed this in Chapter 1 of my book. See full charts & analysis & what's ahead for equities http://www.cityindex.co.uk/market-analysis/market-news/3975512012/397551/

BOJ does Yen 10 trn more ; UK retail sales disappointed; Catalan separatists united. Market turns to GDP revision; jobless claims; existing home sales and Philly FED. Both $CL_F longs hit the final targets of 88.30 & 88.90 from last week as these were placed right below the 200-WMA in US crude oil. All updated Premium Insights are in effect.

Some risk aversion flows are stemming from the stalled fiscal cliff negotiations dissipated and USD with JPY weakened throughout the London session. European equities are trading within a narrow range.

JPY strengthened sharply by the end of the US session and throughout Asia. The BOJ kept the overnight call rate target unchanged at below 0.1% and expanded the asset purchase program by 10 trillion JPY to 101 trillion JPY total. This was the third easing announced in four months and yet more aggressive easing is anticipated at the next meeting on January 21^st. The BOJ also signaled the possibility of setting a higher inflation target. JPY pairs hardly responded and now trade slightly higher.

UK retail sales disappointed as they were flat in November from previous -0.7% while economists predicted a rise by 0.3%. Core sales grew 0.1%. Retail sales constitute about 1/5 of the UK GDP so fears that the economy could shrink again rose. GBPUSD ignored the data and rose to 1.6275.

In other news, Catalan separatists united and promised a referendum on independence from Spain in 2014 and the IMF said it cannot approve bailout terms for Cyprus in current form. It is asking for a debt cut.

The US session kicks off at 8:30 am ET with the third revision of Q3 GDP that is forecasted to rise to 2.8% from 2.7% y/y. Jobless claims are seen at 358K from previous 343K.

Existing home sales are due at 10:00 am and they are expected higher in November at 4.88M from 4.79M and Philly FED index that will flash on screens at the same time is anticipated to improve in December to -2.2 from previous -10.7.

Italy 10-year BTP yields break below their 200-week moving average for the 1^st time since Dec 2010. The first attempt occurred two weeks ago, followed by a rebound, but this week’s renewed decline is rather considerable. Add to it a rare DEATH CROSS and the chart becomes hard to miss.  Full analysis on Italian BTPs and Spanish bonos in here: http://www.cityindex.co.uk/market-analysis/market-news/3928602012/yields-on-italian-btps-break-support/

German Ifo rose; MPC 8-1 against QE; EURJPY hit 2012 high. Market turns to real estate data and later to NZ GDP. 16 new trades were added in last night’s Premium Insights. 1 of 2 Oil trades hit all targets

USD greenback is mixed in the ongoing session. EUR, GBP and CHF are stronger but AUD and NZD weakened. European equities are gaining about 0.5%.

EURUSD hits 1.33 on further run-up post Greece Upgrade by S&P and after the German Ifo Business climate bested expectations. It rose in December to 102.4 from previous 101.4, the expectations sub index rose to 97.9 and the current assessment fell to 107.1.

The MPC 9-0 to keep rates steady and 8-1 against further QE. David Miles was the only member who voted for GBP 25 bln in additional asset purchases. The MPC agreed with the treasuries decision to use coupons from BOE gilt portfolio to reduce T-bill issuance in 2012-13. CBI reported sales fell in December to 19 from previous 33. GBPUSD trades near session high around 1.6295 with an important weekly resistance just above.

JPY selling continued across the board during the London session. USDJPY rose to 84.55 and EURJPY hit fresh 2012 highs at 112.24.

The US session begins at 8:30 am ET with housing starts that are expected to decline in November to 0.87M from previous 0.89M while building permits are seen higher at 0.88M from 0.87M.

NZD traders are awaiting Q3 GDP due at 4:45 pm ET that is forecasted to slow to 0.4% from prior 0.6% q/q and to 2.5% from 2.6% y/y. The kiwi lost a large part of recent gains against the rest of the majors so a disappointing result would imply further downside.

Silver is up 14% year-to-date, compared to gold's 7%. It is the 4th best performing commodity after wheat, soybeans and platinum at 24%, 22% and 14% respectively. Speculative activity among futures’ traders has also been kinder for silver. Here are the triple charts & analysis for silver: http://www.cityindex.co.uk/market-analysis/market-news/3892412012/silvers-latest-selloff-2/

Four positive developments shown in EURUSD technicals in our latest Premium Insights as the pair breaks to 1.3220s. And as gold extends damage and oil pushes higher, what would be the outcome for commodity FX vs USD and JPY? Our Premium subscribers have continuously been updated with the technical and fundamental arguments arguing for 1.35 EURUSD since September (albeit target was erroneously aiming for early November). The decline to 1.2660s did not sway us to reconsider our stance, as it not only held above the 100-WMA, but also continued to respect our proprietary multi-speed oscillators. The challenge remains to time the short-term course, while capturing any relevant inflection points in the medium term. Direct Access to today’s Premium Trades on EURUSD, USDJPY, GBPUSD, AUDUSD, EURJPY, CADJPY, GBPUSD, Gold, Silver and US crude are laid out here: http://ashraflaidi.com/premium/euro-sticks-to-script

As EURUSD hits 1.3230s, we reiterate the importance of Gold's measure on FX signals. We showed in Friday's note how Gold in euro terms was testing below its 55-WMA for the first time since Dec 2008. It has now broken well below both its 200DMA & 55-WMA. It’s essential to assess various currencies against a common (non-FX) denominator such as metals to evaluate each currency’s secular performance. XAUUSD (Gold in USD) remains well ABOVE its 55, 100 and 200 week-moving averages (strengthening gold, weakening USD), while XAUEUR (Gold in EUR) is already at 5 mth LOWS (weak gold, stronger EUR). Such relative performance between EUR & USD with respect to gold argues the case for further EURUSD upside. This summer’s EUR flight to GOLD safety is in the process of continues to be unwound. And unlike the ECB, Fed has a 6.5% unemployment target that’s predominantly USD-negative. Additional (inevitable) releases of “favourable Fiscal Cliff talks” is the next shoe to drop from the risk-aversion trade. NEW TRADES from the PREMIUM INSIGHTS will follow later this evening.

Balanced RBA minutes; UK consumer inflation steady; Riksbank cuts; Spanish auction. The US session will bring US current account balance and later the same data from NZ. Watch the action in GOLD vs EUR as it further drops below its 55-WMA, showing a pattern not seen since 2008.

The optimism from the perceived progress on the fiscal cliff negotiations helped to push risk trades slightly higher at the beginning of the London session. However, most of these gains were lost later in the session.

The Aussie was steady after balanced RBA minutes showed no signs of additional easing in near term. The members noted growth stabilization in China and commodity prices and also the observed effects of lower lending rates. AUDUSD trades slightly lower around 1.0530.

The consumer inflation in the UK was steady and in line with expectations in November at 2.7%. The core figure remained at 2.6%. The headline number declined from 5.2% in 09/2011 to 2.2% in September 2012. GBPUSD pushed higher but gave up all gains and trades around 1.6205.

In other news, Sweden's Riksbank cut the key repo rate by 25 bp to 1.0% noting downside pressures from abroad. It also lowered GDP projections for 2013 and 2014.

Spain sold 3 and 6 month bill totaling EUR 3.523 bln vs. EUR 2.5-3.5 bln target. The average yields declined but cover was mixed.

The US data calendar is limited to Q3 current account deficit at 8:30 am ET that is expected to narrow to USD 105 bln from previous -117 bln. By the end of the session at 4:45 pm ET the statistics office of New Zealand will announce Q3 current account deficit that is seen wider at NZD 4.28 bln from previous NZD 1.8 bln deficit.

Minutes from this month's RBA rate cut meeting due tonight will likely show more indications of further easing for 2013. Ashraf's Premium Insights issued fresh longs on the eve of this month's anticipated rate cut, on the rationale that the rate easing was widely aimed at capping the Aussie rather  than averting a fullfledged slowdown. And so rather than chasing the Aussie above $1.06, the theme remains buying the dips vs USD and JPY, with AUDUSD 1.0490 a cnsiderable support. In JAPAN, it appears that the BoJ will discuss adjusting its inflation at Wednesday's 2-day meeting, but a decision won't be announced until January. This may offer the opportunity for a temporary pullback in JPY crosses, before renewed gains take hold at the New Year . MORE ANALYSIS & CHARTS here: http://www.cityindex.co.uk/market-analysis/market-news/3824842012/nikkei-looks-up-after-abe/

Japan’s PM to-be Shinzo Abe and his LDP party swept the 480-member lower house with 2/3 majority. Abe has been synonymous with yen weakness due to the aggressive easing monetary policy he has advocated until inflation rises to +2-3%. Here's what it means for the Nikkei-225 -- Charts & Analaysis http://www.cityindex.co.uk/market-analysis/market-news/3824842012/nikkei-looks-up-after-abe/

Pressure on the BOJ to increase after LDP landslide victory; new easing from BOJ; Eurozone trade surplus declined. Market turns to Empire state manufacturing; TIC data and a number of speeches.

The JPY moved sharply lower at the beginning of Asia after Shinzo Abe's LDP won the election on Sunday in a landslide. The new LDP/NKP coalition will have two thirds majority which will increase the pressure on the BOJ to be more aggressive in its fight against the strong currency and deflation. USDJPY jumped to 84.40s and EURJPY soared to 9 month high near 111.20. However, later in Asia and throughout London trading, JPY rose and the gap on many JPY pairs was closed.

The BOJ meets on Wednesday night/Thursday morning. While a new easing program could be revealed, it seems more likely that it will be announced on the next meeting on January 21^st after the new government is formed.  

The sole item on the European data calendar was Eurozone trade surplus that declined in October to EUR 7.9 bln from previous 11.3 bln.

The US session begins at 8:30 am ET with Empire state manufacturing that is expected to improve to -0.7 in December from previous -5.2 followed by net TIC flows that are anticipated higher in October at USD 24.3 bln from prior USD 3.3 bln.

Canadian foreign securities purchases are due at 8:30 am and they are seen lower in October at CAD 9.85 bln from previous 13.92 bln.

Markets will then focus on a number of speeches. The ECB president Draghi will begin his testimony before the economic committee in Brussels at 9:30 am; the FED governor Jeremy Stein will speak about dollar funding in Frankfurt at 11:00 am and the FOMC member Jeffrey Lacker will participate in a discussion at the economic conference in Charlotte beginning at 1:00 pm.

Ashraf’s call for EUR/USD at 1.40 got a boost on Friday as the pair climbed to the highest since May. The New Zealand dollar was the best performer on the week while the yen lagged. The weekly Commitments of Traders report showed AUD longs at a record.

Friday was an unusual day in markets. Stocks in Shanghai surged 4.3% after a mildly stronger-than-expected China PMI. The Asian optimism didn’t spread, however, and commodity currencies and the euro were flat or lower in early US trading.

The inability of risk trades to rally was especially puzzling because US economic indicators upbeat. The Markit manufacturing PMI rose to the highest since April, easily beating expectations. Industrial production was also strong.

Shortly after the European close, a wave of US dollar selling washed over markets. The timing of the moves was unusual but the direction made sense given the earlier news flow.

In any case, the euro blasted higher eventually touching above 1.3172, which was the September high. A weekly close above that level would have given euro bulls reasons for optimism but the high was breached by a single pip and then retraced.

Monday’s price action will be key. A further break of 1.3172 clears the way higher while a failure raises the possibility of a double top.

The strength in the commodity currencies has been formidable. The kiwi has gained in virtually every trading session in December, easily outpacing the rest of the market in that period. The RBA rate cut barely left a blip on the Australian dollar radar.

Oddly, CAD has been the black sheep of the bloc. Last week’s Nexen/Progress takeovers were bullish and China announced a further $2B investment in Canadian oil on Friday. It would be no surprise to see Canadian dollar strength (USD/CAD weakness) as it catches up to its commodity cousins.

Commitments of Traders

The weekly data from the CFTC as of the close on Tuesday showed a fresh 5 year high in yen shorts. Australian dollar longs also broke above 100K for the first time on record. The combination should make AUD/JPY longs nervous.

JPY net short 94K vs 90K EUR net short 32K vs 33K GBP net long 28K vs 27K AUD net long 103K vs 92K CAD net long 62K vs 57K NZD net long 25K vs 21K