Intraday Market Thoughts Archives

GBPUSD & GBPCHFCOMBO. STERLING was not spared by the market this week, faring as the biggest loser among a group of currencies month-to-date, week-to-date and today. More losses are seen ahead. I warned on Monday that it would be an austere week for GBP based on the spending review and expected QE2 vote by MPCs Posen. The disappointing CBI data and unexpected decline in retail sales did not help either. While the GBPUSD HotChart remains valid http://bit.ly/bahqjD eyeing $1.5555 & possible $1.53, TAKE A LOOK AT GBPCHF longs as a possible hedge for GBPUSD shorts. WEEKLY & DAILY GBPCHF suggest interim upside extending to prelim target of $1.55 & 1.57. Such is a possible combo trade, which would be especially fuelled by further USDX gains towards 79.50s.

Watch Ashrafs Video with BNN earlier today, discussing this weekends G20 meeting of Finance Ministers, the non-likelihood of an FX deal regarding current-account targets and the onset for further USDJPY selling/intervention http://bit.ly/b4fMCf

See the latest HotChart on GBPUSD Inflection Point

http://www.ashraflaidi.com/hot-chart/?a=1954

STERLING SEES THE FISCAL VALIDATION OF BoE QE2, which could start as early as December. $81 bln in spending cuts is no peanuts for a country barely showing positive growth and its housing sector largely skewed by London. The $1.6 double top in GBPUSD suggests $1.5650 will be retested for an eventual break towards $1.5350. As EURGBP soars to 6-month highs, testing the 22-month trendline resistance at 0.8915-20. But with escalating preoccupations from Eurozone officials about euro strength, GBPJPY (126.80) and GBPUSD (1.5650) appear as the preferred way to act against sterling.

CHINA DATA VALIDATION of Tuesday's rate hike may emerge in tonight's China Q3 GDP, CPI and retail sales. 3Q GDP exp +9.5%, CPI exp 3.6% vs prev 3.5%, retail sales exp 18.5%, industrial production exp 14.0%. These strong figs may have been the reason for this week's rate hike, which helps keep US pressure off China for now. A strong data showing may well further help Asian mkts and risk appetite.

USD DROPPED back as risk appetite took over as FX traders realising that yesterday's USD rally was a overdone considering that the Fed remains the only central bank on its way with the BIGGEST QE (way more than Japan's 5 trln yen) while the ECB by contrast is looking the other way. As I said yesterday, the euro is on its way to consolidate around 13700 and 14000 until the Fed decision/midterm elections/G20.

Watch Ashrafs call last Friday for a Chinese rate in the interview below, with the hike call on 6:20 mins http://bit.ly/dxeNT2

Here is Interview #2 (on commodities) http://bit.ly/9sFOrx

Here is Interview #3 (on GBPCAD & other crosses) http://bit.ly/clMvR5

Do not get too carries away on the EURUSD downmove for now as we need to close below $1.37 in order for faster selling to ensue. Short of that, consolidaton is likely between $1.37 & 1.3950s as shown in yesterday's chart

THE TRICK IS NOT TO CHASE the market but to look ahead. Followers of this website and my interviews (posted on here especially over past 2 weeks) have been inundated with my repeated calls that the only effective way for any lasting USD stability is i) renewed Ezone troubles and/or ii) a Chinese rate hike (not hiking reserve ratios). It finally happens now and effectively drags down currencies. AUDUSD hits 0.9730 target. You have seen this EURUSD CHART http://chart.ly/yag8wlm , this USDX CHART http://chart.ly/yqjeuyt and this GBPCAD chart http://chart.ly/t2d6d85 Out of the office but supported you for 5.5 hrs nonstop via twitter through the ZEW survey, PBOC rate hike and BoC rate rate decision. Twitter/alaidi

BANK OF CANADA holds dovishly and CHINA FINALLY RAISES RATES; for the first time since December 2007 means more losses for Chinas PBOC, which is sterilizing China-bound inflows by issuing higher yielding Chinese bonds to drain otherwise inflationary yuan. The problem arises when these proceeds are deposited in lower yielding US treasuries. Looking at my interviews of the past 2 months, I had been calling for an actual rate hike as hiking reserve ratios is NOT effective in containing lending. The rate hike, however, is a necessary stabilizer of real estate lending and an important step towards pushing depositors rates closer to zero (since inflation is now a full point above the 2.5% deposit rate). AUDUSD approaches 0.9730 target called seconds after the PBOC announcement . GBPUSD RISK BREAKING below 5-month TL support at $1.5700 after failing to close the week above $1.6. Weekly stochastics point to an ominous negative crossover, which could extend losses towards $1.53 if we see a weekly close below $1.57. All these calls have been announced on Twitter as Im still on the road.

EURO FUN IS OVER FOR NOW & consolidation is ahead of us (See chart http://chart.ly/yag8wlm ) for a few weeks. The pair may have broken below its Sep 10 trendline support under $1.40, but that is not the 1st time we see 1 false break, which was the case in the 2nd half of August. Buba's WEBER will hit the wires at 14:00 GMT (Same time as Dovish Dudley), so watch out for more hawkish comments from the man whos widely tipped to succeed Trichet at the ECBs helm, only he doesnt care much for sounding diplomatic or being the only dissenter to continued bond purchases. Mixed ZEW survey may have helped EURUSD regain $1.3920s, I dont see much beyond $1.40, while more attention should be paid at the $1.3780s support. FED's DOVES WILL HIT THE WIRES; FRBNYs Dudley at 14:00 GMT (same as Weber) & nonvoters Lockhart, Fisher & Kocherlakota also speaking. LINK TO MY 2-HOUR SEMINAR IN BARCELONA TODAY at 18:30 http://bit.ly/9IEfZ6

USDX RESPECTS THE CLEARLY-TELEGRAPHED TRENDLINE SUPPORT OF 76, but any considerable rally BEYOND 80 is unlikely to materialize ahead before the Midterm elections/FOMC/G20 meeting. BOTH FUNDS & TECHS FORCES have conspired to stabilize USD selling, while EUR (Trichet/Weber), GBP (delaying spending cuts) and CAD (Dovish BoC tomorrow) each face their own fundamental reasons for backing off for now. The fundamental arguments behind the USD rally are widely attributed to Bernankes reluctance to give details on the size of Q2 due next month. This is owing to the Feds lack of visibility as well as lack of consensus regarding further stimulus. Please see previous IMTs and tweets on the possible US-China deal on FX discussed in length since Friday. I will be travelling until Friday, so for frequent updates and analysis, please follow me on http://twitter.com/alaidi

US DOLLAR TURNAROUND or STABILIZATION? Fundamentals aside, the USD Index charts http://chart.ly/yqjeuyt show a bullish pattern on both the DAILY and WEEKLY, forming a classic doji on the weekly, a doji on Thursday and a bullish hammer on Friday. This coincides with the EURUSD break below $1.40, now extending to my $1.3820 target from my last nights updates on Twitter/alaidi. We could see more EUR losses below $1.38, but markets are unlikely to show anything below $1.3750s ahead of the G20 meeting starting Nov 12 and the FOMC decision of Nov 3. USDCAD recovery is likely to show more legs ahead of tomorrows BoC decision, expected to signal the door shut on further rate hikes for this year. USCAD breaks out of 1.02 resistance, eyeing nest target at 1.0310. Medium term resistance seen emerging at 1.0465. Watch the $78.10-12 support for oil. GBPCAD remains propped by the extent of CAD relative to GBP.

The London-based Centre for Economics and Business Research (CEBR) predicts the Bank of England will increase its emergency bond-purchase plan (QE2) by GBP 100 billion ($160 billion) to stimulate the economy as the government cuts spending. Interest rates will remain at 0.5% until at least late 2012). Weve already heard reports about the UK Treasury looking into postponing some of its plans to cut spending. In fact, the IMF is suggesting these spending cuts should be reconsidered if they risked driving UK growth back into recession. Here is my video from September 3rd explaining why any QE2 from the Fed will drive the BoE into the doing the same, with a chart on the similarity of BoE/Fed interest rate differentials in 4:15 mins VIDEO LINK: http://bit.ly/bD3cta

Ashraf' speaks with ESTRATEGIAS TV (English w/ Spanish Subtitles) discussing the warning signs in the latest global currency tensions, the yen, the yuan and EURUSD 11:59 mins interview http://youtu.be/UGt7XvA5LTs Ashraf's NEXT EUROPEAN SEMINAR in Barcelona, 19 October - Hotel Condex. Register here: http://bit.ly/9IEfZ6