Intraday Market Thoughts Archives

The most important element to determining a Fed taper this year shall remain the accompanying data and market climate. If the projected decline in US unemployment does materialize, and the jobless rate drops below 7.0%, then will the Fed truly be able to reduce purchases to say, $70 bn or $65 bn even if a new global economic everberation strikes. So what if there is a complete seizing of China's credit markets? Rest of analysis and SHIBOR charts here

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Bernanke laid out a roadmap to ending QE and the dollar rocketed higher. The US dollar gained around 100 pips across the board while the Australian dollar lagged and fell to the lowest since 2010. Chinese and New Zealand data now prepares to steal the spotlight. 3 of today's trades were stopped out, while 3 remain in progress and 2 await fill. All of today's Premium trades are found in the latest Premium Insights.

Bernanke was clear in his press conference following the FOMC decision. The Fed released forecasts and if the data is broadly consistent with those forecasts, the Fed would begin to moderate QE later this year.

The forecasts are on the optimistic side as Bernanke admitted. The central tendency of Fed members is to 2.3-2.6% growth this year which is substantially faster than the 1.9% consensus. They also see unemployment at 7.2-7.3% at year-end compared to 7.6% currently.

Bernanke outlined that QE would probably be completely around the time unemployment hits 7.0%, which is around mid-2014 according to forecasts.

The market reacted swiftly and the dollar soared. EUR/USD dropped as low as 1.3261 from 1.3406 and USD/JPY rallied to 97.03 from 95.22. The Australian dollar wilted as it took out the three year lows, falling to 0.9722 from 0.9550.

The bond market rushed to the exits with 10-year yields rising 17 bps to a 16-month high. The S&P 500 fell 1.4% to 1629.

The major question now is what will happen to emerging markets as US rates rise. China has shown signs of a credit crunch over the past week and state-run newspapers indicated the PBOC won't provide any relief. HSBC slashed its China growth forecast to 7.4% compared to 8.2% previously. For 2014, they downgraded estimates a full point to 7.4%.

The HSBC China flash PMI for June is scheduled for 0145 GMT. The consensus is for a slight decline to 49.1 from 49.2 but fears about a disorderly breakdown in China are growing.

The earlier data point in the upcoming session is New Zealand first quarter GDP. The consensus is for a 0.5% quarterly rise, which is a substantial slowdown from 1.5% in the December quarter.

The reactions in FX markets to the upcoming Fed decision ensuing in the 2-6 hours following the announcements are often reversed in the next day. Considering that the FOMC announcement and the summary of economic projections are both due at 14:00 ET (19:00 BST), followed by Bernanke's press conference 30 mins later. Since the FOMC statement will be released simultaneously with the economic projections, there will be plenty of reasons/revelations to which the market will react. The FOMC statement will be scrutinized for qualitative changes (non-quantitative changes) such as an upgrade in the phraseology on labour markets, economic growth and price stability/inflation. The economic projections (quantitative) will provide more discernible means for comparing the Fed's outlook on GDP growth, inflation and unemployment. Due to the large potential for changes, upgrades and downgrades, markets have tremendous scope for interpretations (and misinterpretation), which means large sharp volatility in FX, commodities, bonds and equity indices. Any 30-40 pip moves from the initial FOMC announcement are highly likely to be reversed before matters stabilise into and during the Bernanke press conference. We have issued 3 new trades in EURUSD, 2 new in GBPUSD and 2 new in AUDUSD ahead of the FOMC decision/Fed economic projections (14:00 ET, 19:00 BST) and Bernanke conference (14:30 ET).

Ashraf's tells CNBC why he expects the US dollar to have the last word despite expecting no Fed tapering for this year Full video here

Considering Fed Chairman Bernanke's accommodation of the financial markets since QE1 in March 2009, the Chairman's readiness to stimulate has continuously been the path of least resistance and of the most support by financial markets.  Tapering the current round of asset purchases is highly unlikely, despite any rhetorical preparations and testing for the markets. Rest of article

Ashraf will speak at CITY AM's Active Trader's Conference this Friday in London, alongside more than 6 other speakers. Ashraf's panel "Masters of Forex" is at 4pm  http://www.cityamactivetrader.com/?page_id=14 

Ashraf will speak at CITY AM's Active Trader's Conference this Friday in London, alongside more than 6 other speakers. Ashraf's panel "Masters of Forex" is at 4pm  http://www.cityamactivetrader.com/?page_id=14 

The market is desperate for a sense of when the Fed will taper as the reaction to an FT story showed. The euro was the top performer while NZD and JPY lagged. The highlight of Asian trading is the release of the June RBA minutes. Premium Insights return on Tuesday.

The market got a taste of what's coming at Wednesday's FOMC after a FT story hinted at tapering. The tone of the story suggested a leak from the Fed. The reaction was modest dollar strength and substantial weakness in stocks.

The swiftness of the market reaction even troubled the story's author and he took to twitter where he said “people need to chill out. The Fed does not leak anything to any journalist to steer markets.”

Instead of chilling out, the market completely reversed and sold the US dollar heavily. The euro rose 40 pips to 1.3380, just shy of the four-month high set last week.

Earlier in the day, cable hit the highest since February 11 as optimism about the economy builds. We warn that Carney's start at the Bank of England could be a game-changer if he introduces dovish policies.

US economic data was generally upbeat with the Empire Fed at +7.8 compared to a flat reading expected and the NAHB homebuilder sentiment report hitting a 6-year high at 52 versus 45 expected.

The schedule in Asia is busy. At 0130 GMT, the RBA will release the minutes of the June meeting. At the same time, China releases property price data for May. Thirty minutes later the Conference Board releases the May China leading index. Later, a 0430 GM, Japan delivers industrial production data.

Yesterday we talked about two big stories that were both AUD negatives yet the Australian dollar finished nearly flat on the day. When a currency doesn't fall on bad news, it's often a sign a bottom is near.

The pillars of Australian dollar strength for the last decade have been China and investment; weekend news points to weakness in both. The yen was easily the best performer last week while the US dollar lagged. CFTC positioning data showed EUR shorts quitting. Ashraf will return from overseas on Mondaay evening and Premium Insights return as normal. 2 EURUSD and 2 GBPUSD hit all targets from the last week's insights.

Early trading puts the yen ahead slightly while AUD and CHF lag. The Australian dollar may come under more pressure as the market digests the latest round of bad news.

The first is from a report in the 21st Century Business Herald which cites an internal review by China's commerce ministry. It said actual year-on-year export growth was only 7%, far weaker than the official 17.4% reading.

Traders have long suspected Chinese data were manipulated but this would be a huge revelation and undermine the credibility of the economy. Foreign investors may also re-think allocating money to China and that could cause a trickle back into US dollars.

The other story is a decision by Mitsubishi to shut down a nearly $6 billion iron ore project. We have long warned about the waning appetite for Australian investment and some of the weakness is already priced into AUD but headlines like this re-affirm the theme.

Commitments of Traders

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

EUR -8K vs -52K prior JPY -73K vs -83K prior GBP -54K vs -78K prior AUD -63K vs -59K prior CAD -36K vs -40K prior NZD +3K vs +6K prior CHF -21K vs -26K prior US Dollar Index longs at 43K vs 44K prior

The big takeaway is the capitulation of euro shorts. We have warned that the market was stuck in some euro short positions from unfavorable levels. The wipe out of EUR shorts shows that last week's strength may have had an element of short-covering, rather than a change in fundamentals.