Intraday Market Thoughts Archives

Traders were hit with a shock after the close of markets on Friday as House Speaker Boehner said he will no longer pursue a major deficit reduction deal. Trading was slow during market hours on Friday and overall moves were considerably smaller than what we saw earlier in the week. AUD and USD were the top performers; CAD and CHF lagged. Fridays CFTC data showed an expansion of net USD shorts. EURO IS LIKELY TO CHART THE PATH of our DOUBLE TRADES in the Premium Section, especially after closing above its 55 & 100 DMAs as well as closing above the 200 WMA for the 17th consecutive week.

The breakdown of US debt negotiations is likely to support our current Premium trades in EURUSD and metals. See our Premium Trades under the latest edition "How high the Euro Now?" http://ashraflaidi.com/products/sub01/access/?a=460

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Markets sensed progress with debt ceiling negotiations as the Aug. 2 deadline nears but Boehner broke off discussions with the White House on Friday. He said a deal was never really close.

The vast type of plan that will address long-term debt and deficits now appears to be impossible and leaders will now focus on a short-term rise in the ceiling. Obama said he will insist on extending the debt ceiling until 2013, after the next election.

Earlier this week, ratings agencies warned about failing to reach a long-term deal and said they may cut the USs credit rating if no long-term plan was put in place.

Economic data focused on Canada where inflation slower far more than expected. The CPI fell to 3.1% y/y from 3.7% (exp: 3.5). The story was similar excluding food and energy as it hit 1.3% from 1.8% (exp: 2.0%). The later report on Canadian retail sales dulled some of the losses as they increased 0.1% compared to the -0.3% expected. Core sales were also better than expected.

The S&P 500 edged up a point to close the week at 1345. Its the highest weekly close since late April and forms a bullish outside reversal candlestick pattern. WTI crude closed the week slightly below $100 and gold gained $14 to close at $1601. On the week, CHF and USD were the worst performers (by far) while EUR and NZD were on top.

CFTC data showed USD shorts increasing against all but EUR and MXN. The only currency in a net negative position vs USD remains GBP but the net short fell to -7K from -25K as shorts were covered in the past week. The net euro long position fell to 9K from 12K. Yen longs expanded to 42K from 28K. New longs in commodity currencies were common, especially CAD and AUD.

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USD mixed ahead NY open. While the AUD and NZD trade above their yesterdays highs, EUR, GBP and JPY failed to reach new highs. CAD is being sold after inflation figures came out much lower. Canadian Retail Sales are next.

The common currency continues to consolidate after it gained nearly 300 points yesterday. Economic data releases came out mixed - German Ifo Business Climate index for July decreased to 112.9 from 114.5. However, Eurozone Industrial New Orders in May came out much higher than expected at 3.6% from previous contraction by 0.1%. This is the best result since October 2010 and yet the Euro was not able to rally. Reports yesterday said that the move up was fueled by leveraged players while real money funds were seen selling into the rally.

Canadian June Consumer Inflation figures came out much weaker than expected sending CAD lower against its trading counterparts. The headline CPI came out at -0.7% from previous increase of 0.7% and core CPI printed -0.6% from +0.5%. Right after the release USDCAD touched the 0.95 figure while an hour before the release it traded around 0.9440. Only on Tuesday, the BoC left rates unchanged at 1% but the CAD gained on expectation of rate hikes. With the annual CPI dropping from 3.7% to 3.1% within one month BoC may not be in a hurry to increase rates.

Fridays New York session has only one data release. At 8:30 am ET May Canadian Retail sales are expected to drop to -0.3% from previous +0.3%. Core Retail sales are expected to grow by 0.2% from unchanged reading in April.

Treasury Secretary Tim Geithner will meet with Ben Bernanke and William Dudley this morning. While the topic of this meeting has not been disclosed, it is likely that emergency measures in the event of US debt default will be discussed. Charles Plosser, Philadelphia Fed president, told Reuters earlier that the treasury is engaged in talks with the Fed. Such meetings do not inspire confidence that a debt-ceiling deal is near.

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German IFO expected to slip further after recent sovereign debt uncertainty, as euro boosted by EU summit, US dollar slides as debt ceiling talks continue to weigh, Bank of Canada CPI

After the excitement of the last 24 hours which has seen equity market and the single currency surge, matters return to the matter of economic data. If yesterdays PMI data is anything to go by things dont augur well with Julys PMI data for Germany and the Euro zone slipping back sharply with euro zone PMI only barely managing to make it into expansionary territory at 50.4. Todays German July IFO is likely to show the same weakness given the recent turmoil inside Europe with the expectations index set to 105, from 106.3, while the current assessment is expected to slip to 122.3 from 123.3.

Given the market relief after yesterdays announcement of a new bailout package, it would appear that EU leaders have bought some much needed time for the single currency, The apparent acquiescence of the ECB in allowing a restructuring, and the Germans appearing to cross their red lines with respect to allowing the EFSFs functions to be broadened had to be done, however obstacles still remain. The problem is that the majority of the German population may have a different view and yesterdays events and there is also the fact that the changes to the EFSF will have to be ratified by all 27 member countries and their respective parliaments. There is also a concern that the EFSF is nowhere near big enough at 440bn if contagion hits Italy and Spain, which means to be effective it needs at least tripling in size. It is also worth noting that all of the 440bn may not be available as that sum includes Italy and/or Spains contribution, and as such could not be called upon.

The US dollar has been the main victim of this move back into risk as the debt ceiling tribulations rumble on. With Standard and Poors stating that a ratings downgrade was pretty much a 50/50 each way bet, whatever the outcome, the US dollar index has taken a drubbing, breaking through trend line support at 74.60 from the May lows at 72.70.

Speculation that a deal is close hasnt done anything to assuage concerns that time is running out, and the admission by FOMC member Charles Plosser that the Fed was making contingency plans in the event of default didnt exactly help allay fears.

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9 of our 11 Premium trades were executed at profit. Euro gained more than 2 cents, hitting all of our limits. S&P500, FTSE-100 and US crude oil also joined in the gains. FIND OUT OUR LATEST TRADES in this direct link http://ashraflaidi.com/products/sub01/access/?a=460 To become a subscriber, click here http://ashraflaidi.com/products/sub01/

Bank of Canada CPI for June is expected to slip back slightly, probably as a result of the lower oil prices brought about by the IEA intervention last month.

European leaders unleashed a broad-ranging plan to save Greece and stop contaigion from the region's debt crisis. Sentiment turned extremely positive on the news, stocks, commodities and the euro rallied. Australia's import price index will be released in the upcoming session.

Greece was handed 159 billion in fresh aid and the European bailout fund will be given the power to buy periphery debt in the secondary market. This is a wise move by European leaders to chase out shorts in the bond market.

The Greek Marshall Plan calls for EU investments and growth stimulation in Greece. Banks will be recapitalized with an estimated 25 billion via loans to the Greek government. The EFSF will issue loans at around 3.5% and the duration will be extended from 7.5 years to at least 15.

The riskier part of the plan involves cajoling bondholders to rollover debt. This is likely to create a credit event and trigger credit-defaul swaps. Leaders obviously believe this will not generate an adverse reaction but it's far from a sure thing.

As the news leaked out, EUR/USD climbed as high as 1.4435 from 1.4190. Technically, it sparked an outside bullish reversal candle. The close above 1.4309 surpasses the 100-day and the 55-day moving averages.

Oil climbed back above $100 per barrel and USD/CAD broke through support at 0.9445 to the lowest since Nov. 2007.

9 of our 11 Premium trades were executed at profit. Euro gained more than 2 cents, hitting all of our limits. S&P500, FTSE-100 and US crude oil also joined in the gains. FIND OUT OUR LATEST TRADES in this direct link http://ashraflaidi.com/products/sub01/access/?a=460 To become a subscriber, click here http://ashraflaidi.com/products/sub01/

The US dollar was broadly lower, mostly on risk appetite but partially because S&P said there is a 50% chance it will downgrade the US to AA in the next three months. They warned that a short-term agreement to boost the debt ceiling without a long-term deficit-cutting plan could cause the downgrade as soon as early August. Under this scenario, they see US long-term yields rising 25-50 bps with GDP growth also cut by 25-50 bps.

They said a failure to reach an agreement would likely shove the US economy back into recession. They think its possible the Treasury could delay other payments and push default beyond Aug. 11. The latest possible date they see is Aug. 15, when $62 billion in interest is payable.

Asia-Pacific Preview

The lone data point on the regional calendar is Australias second quarter import price index. The measure is expected to fall 1.1% compared to the 1.4% rise in Q1. A lower reading will help the case that inflationary pressures are ebbing and put modest downward pressure on AUD.

Euro dropped briefly after an announcement that Greek situation will include selective default before regaining 1,4190s. German and Eurozone manufacturing PMI both disappoint. UK Retail Sales improve. Focus turns to US jobless claims & Philly Fed index.

The market was optimistic as various solutions to Greece were presented earlier. During the Asian session, the euro strengthened further on the news that Germany and France reached a common solution. However, when details started to come in, the Euro dropped across the board and traded as low as 1.4140 against the dollar.

Merkel and Sarkozy agreed that a selective default on Greek debt is possible in order to allow private sector involvement. This position has been confirmed by J. C. Juncker, the head of Eurozone finance ministers. Reuters reports that even ECB has accepted selective default as a part of the solution.

The pressure on the euro increased after German Manufacturing PMI for July printed 52.1 from 54.6. This is the lowest reading since November 2009 and marks fourth month of back to back decreases. Eurozone Manufacturing PMI for July also disappointed when it dropped to 50.4 from 52.0 after gradually declining for four months to the lowest print since September 2009.

Positive news came out of the UK as June Retail Sales recovered to 0.7%. Last month was revised slightly up to -1.3%. It is not all encouraging though. The report shows that high prices caused the largest yearly fall in food stores sales since 1988.

The New York session will start at 8:30 am ET with Unemployment Claims that are still expected above 400K. More important Philly Fed Manufacturing Index for July is due at 10:00 am ET and is expected to increase to 3.4 from previous drop to -7.7 which was the first negative print since September 2010.

Traders should also note that at 10:00 am ET Fed Chairman Bernanke starts his testimony in Washington DC.

Both double trades in EURUSD & GBPUSD were executed at their respective limits; See detail here of these FOUR trades: http://tinyurl.com/3sqspbx

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Decision day for the euro at the EU summit, or not, German and Eurozone PMIs expected to soften, UK public finances and retail sales for June expected to improve, China PMI contracts

Todays EU summit could well be an inflection point for the single currency with EU leaders attempting to get some form of deal with respect to a new Greece bailout package, that wont be treated as a default by the market, and wont be treated as another fudge. Market patience has pretty much run its course, a fact acknowledged across Europe with EU commission Barroso berating the ECB, as well as French and German leaders for their inability to get ahead of the crisis.

Reports that Merkel and Sarkozy had managed to reach some form of common ground in a meeting overnight has sent the euro higher in Asia.

There are a number of options being pondered, one of which is a bank tax to help fund a bailout of Greece, while there is also a partial or selective default, as well as an outright default, neither of which is the preferred option. There has also been some talk of increasing the flexibility of the EFSF and increasing the size of it, though how that could be done without affecting Germanys credit rating is not quite clear, and it is unlikely the Germans would voluntarily agree to increase their borrowing costs in this manner.

Before that however there is the small matter of some economic data in the form of flash PMI manufacturing data for July for Germany and the Euro zone and it is likely to have dropped back slightly given the current political and economic turmoil in Europe at these times, though it is still expected to be above 50 by some margin.

In the UK June retail sales are expected to improve from Mays awful 1.6% decline, bouncing back by 0.5%, however they are still expected to paint a picture of an economy just about bumping along the bottom, reinforcing the concerns shown in yesterdays Bank of England minutes.

The June public finances data will also be closely scrutinised for to ensure that the Chancellor remains on course in his deficit cutting plans for 2011. April and May werent exactly great starts to the year so Mr Osborne will be hoping for a figure below expectations of the 10.4bn expected and certainly he will be hoping for an improvement from Mays 15.2bn.

In China in the first signs of a contraction in manufacturing activity showed the HSBC flash Manufacturing PMI come in at 48.9, raising fears that the Chinese economy is slowing down too quickly.

In the US the debt ceiling negotiations continue to rumble on while weekly jobless claims are due out later.

BOTH of our EURUSD trades have been executed, with the long hitting all limits and the short working.

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The US dollar was the worst-performing major on Wednesday as politicians wrangled over a debt ceiling deal and European leaders prepared for Thursdays summit. The yen and euro were the top performers. The upcoming session features Japanese trade data and a key quarterly survey on the Australian economy.

The White House said Obama is in eleventh hour debt ceiling negotiations as he met with Congressional leaders. At this point, no deal seems likely by the weekend but Obama said he is open to a short-term deal to raise the debt ceiling if its tied to a larger deal. He emphasized it will only be a very brief extension. He meets with House Republicans late in the day in what could be a pivotal event.

Fitch had some kind words, saying there appears to be progress toward a credible plan. The S&P 500 fell 1 point to 1325 in lackluster trading.

Several plans and ideas leaked out ahead of Thursdays emergency EU meetings. Germany said no agreements have been reached.

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USD/CAD neared a 3 month low after the Bank of Canada's Monetary Policy Report. Officials upgrade the forecasts for core and headline inflation considerably in the near term but said headline likely peaked at 3.4% in Q2. The report emphasized that the BOC plans to gradually raise rate in the year ahead likely more than any other major central bank. Talk about a high Canadian dollar weighing on trade hindered CAD. USD/CAD fell below 0.9500 but the key support level is the April low of 0.9445.

Markets await Australia's NABs quarterly survey at 0130 GMT. The National Australian Banks business confidence index showed confidence declining in June but current conditions modestly higher. The Q1 survey put business confidence at 11 and current conditions at 2. There is no consensus for Q2 but the market is likely pricing in a deterioration in confidence but not a negative number.

Wednesday's Premium intermarket trades focus on the spread between German 10 year bond yield and their US counterpart, which continues to underpin the single currency vs. the US dollar. We look at the evolving technicals of the GE-US spread to justify our positioning in EURUSD. We also add 2 NEW TRADES in in GBPUSD to the mix. Our longs in S&P500 and US crude have hit most of their targets, while USDJPY is pips away from the preliminary targets. DIRECT ACCESS to the day's premium piece: http://ashraflaidi.com/products/sub01/access/?a=459

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AL

USD is lower across the board as risk appetite improved on hopes that the US debt ceiling and the Greek debt problems will be solved. German PPI comes as expected. Market turns to US Existing Home sales and Bank of Canadas Monetary Policy report.

Euro inches higher against many currencies despite German chancellor Angela Merkel warning against being overly optimistic ahead of Thursdays summit. If the US agrees on its debt ceiling issue and if the Eurozone summit fails to deliver a solution for Greece then the Euro would face a significant risk of a selloff.

Euro is 8 pips away from the highest of our long targets from Tuesday's Premium trades. Our S&P500 longs are also on their way of being hit. Here the direct link to yesterday's Premium Intermarket Insights http://tinyurl.com/3d8m3rd

Some European banks are already protesting against the idea of a bank tax revealed in the policy paper that outlines various solutions to the Greek debt problem. Banks claim that if the tax is levied it would punish institutions that are not exposed to Greece and threaten to file lawsuits should the tax be imposed on them.

On the data front, German PPI June came out in line with expectations at 0.1%, slightly higher than previous unchanged print.

New York session will start at 8:30 am ET with May Canadian Wholesale Sales. Analysts are expecting an improvement to 0.2% from previous -0.1%. CAD traders should also pay attention at 10:30 am when Bank of Canada releases its Monetary Policy Report and then also at 11:15 am ET when BoC holds press conference.

US June Existing home sales are due at 10:00 am ET. They are expected to increase to 4.92M from 4.81M. Even though the sales have somewhat improved over the past year, they continue to be well below levels seen before the financial crisis. The present foreclosure rate is still high so it will likely take more time before the housing market starts to improve.

Somewhat unusually, at 10:00 am ET Eurostat releases its Eurozone Consumer Confidence for July. The confidence is expected stay at -10 which is a zone where confidence has stayed over the past 10 months.

Euro recovers despite possible ECB default split, Obama backs gang of six compromise, BoE minutes show no change in split, further boosting GBP. The trades from our Premium Intermarket Insights are nearing most of their targets.

The release of this month's BoE MPC minutes showed no change in the split (7 voted for no change in rates, 2 voted for a hike and Posen remains the ony voter for further stimulus). Interestingly, the majority of the MPC made no explicit reference to QE--something the market was focusing on ahead of the release.

Euro recovered some ground from the lows seen earlier this week despite IMF warnings of the dangers of further prevarication in finding a solution to the debt crisis. Anyone hoping for a solution this week would have had their optimism tempered by Angela Merkels assertion that any solution would take time and that Europes problems would not be resolved with one big fix.

A successful Spanish t-bill auction yesterday bought the euro some respite yesterday, however there did appear the first signs of ECB wavering on the subject of a debt default when ECB governing council member Jens Nowotny touted the idea that the ECB might be prepared to countenance a selective default of Greek debt as a way forward, putting him at odds with recent comments made by ECB President Trichet. Whether he was preparing the ground for a tactical softening of the ECBs position is not known, but given the lack of any denial it would seem that a movement on that position may well be coming. Today Portugal looks to sell 3 and 6 month T-Bills.

Optimism over a resolution to the debt ceiling negotiations in the US grew overnight after President Obama backed a bi-partisan gang of six proposal of $3.7trn to end the current impasse between Democrats and Republicans. There still remains some way to go though as Republican Speaker of the House of Representatives John Boehner quickly poured cold water on the proposals stating that they remained some way short if Republican expectations. Be that as it may some Republicans do appear to be breaking ranks with some support for the compromise.

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Signs of an agreement on the US debt ceiling led to blockbuster day on markets. Hopes for a dramatic resolution to the European debt crisis were dimmed. The commodity currencies were the outperformers with NZD, AUD and CAD leading while CHF and JPY lagged.

Obama endorsed a plan that was introduced by the bi-partisan Gang of Six that would reduce the deficit by $3.7 trillion over 10 years. The deficit is expected at roughly $1.2 trillion in fiscal 2011. The plan has so far gained support but it is broad, ambitious and the risk is that it fail apart on the details, which are vague so far. The broad strokes include spending cuts and overhauls to Medicare and Social Security.

THE KEY HURDLE MAY BE PROPOSED REVISIONS TO THE TAX CODE, something that has been rejected by House Republicans. The race is now on to hammer out the details and sign-off on legislation in time to beat the Aug. 2 deadline. We feel most of the good news may be priced in here and would be very surprised if the process of passing this legislation is smooth. The White House and Senate appear on board but there has been no word from the Republican-controlled House. THE DOLLAR WILL BE VULNERABLE to headlines from House majority leader Cantor and Speaker Boehner.

The debt news helped the S&P 500 surge 1.6% to 1327 in the largest rally of 2011. The loser on the debt ceiling news was precious metals; gold fell $15 to $1585 and silver was lower $1.38 to $38.96.

Germanys Merkel lowered expectations for Thursdays EU summit, saying a spectacular solution to the debt crisis is unlikely. EUR/USD was trading over 1.42 before her comments but has since slipped to 1.4150.

Ashraf's long recommendations in stocks and crude from earlier today have already hit initial targets. Several euro and yen trades are in progress as well.

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Other news:

- Goldman Sachs announced 1000 layoffs after earning $1.85 per share compared to the $2.30 expected.

- Bank of America and Johnson & Johnson also missed while Coca-Cola beat.

- The big news came after hours as Apple crushed the consensus by earning $7.79 vs. $5.42.

- US housing starts rose to 630K from 550K, easily beating the 570K expected.

The Asia-Pacific session features muted news flow. A headline from Nikkei suggested Honda has cut its Chinese car sales target by 13%. If this is due to slower-than-expected consumer spending, we may see AUD pulled down early in Asia-Pacific trading. We also get the Conference Boards leading index for China at 0200 GMT.

If you follow fundamentals, you would attribute the euros rise to the Reuters policy paper, outlining solutions for Eurozone debt, and to reports of a looming agreement in Greek debt. And if you follow strictly technicals, you would explain the bounce via the strength of the $1.40 support, coinciding with the important 200-week moving average in EURUSD. Here are our latest Premium Trades from the Intermarket Insights http://tinyurl.com/3d8m3rd

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AL

Eurozone Policy Paper Boosts Sentiment; Onto BoC Rate Announcement

USD drops amid improving sentiment based on Eurozone policy paper. Euro ignores disappointing German and Eurozone ZEW indices. Markets awaits BoC rate decision and US housing data.

USD started to weaken across the board even before London traders got to their desks. The much improved sentiment can be attributed to a policy paper that describes three main options how to tackle the Greek problem. The options range from debt buyback with credit enhancements to taxing the banking sector with no buybacks. Also included is the French plan that would lower bond rates while extending maturities. As there are various options on the table, there are growing chances that Eurozone leaders will reach an agreement in Thursdays summit.

On the data front, German ZEW Economic Sentiment index dropped to -15.1 in July from Junes -9 and Eurozone ZEW Economic Sentiment fell to -7 from previous -5.9.

Gold pulled back slightly off the new highs but continues to trade above $1600. Until Thursdays meeting or more importantly until the US debt ceiling situation is resolved gold is likely to continue ralling.

New York session kicks off at 8:30 am ET with Canadian Leading Indicators index for June which is expected to improve to 1.2% from previous 1.0%. The reaction is likely to be muted as CAD traders will wait for the much more important Bank of Canada rate decision at 9:00 am ET. Interest rates are expected stay where they have been since September 2010 at 1.0%.

Both CPI and core CPI have been gradually increasing and jumped higher last month. The labor market has been improving steadily, albeit at a slow rate. Even though the interest rate will likely stay the same today, the CAD could rally on the accompanying BoC rate statement that could signal upcoming interest rate increases.

News from the US include housing data released at 8:30 am ET. Building Permits are expected to reach 0.61M, the same result as a month earlier. Analysts expect the Housing Starts to improve to 0.58M from previous 0.56M.

Debt problems remain a worry despite soothing noises by policymakers on both sides of the Atlantic, German and Eurozone ZEW survey due, RBA minutes show dovish/hawkish tone

New gold price highs against the US dollar, the euro and the pound continue to highlight the fact that despite soothing noises from policymakers on both sides of the Atlantic, investors remain concerned about the prospects of any type of agreement this week in Europe and in time for August 2nd in the US. In the case of the US agreement would have to be reached well before the 2nd August in order for the legislation to be passed in time.

ECB President Jean Claude Trichet last night reinforced his message that the current risks to the euro zone economic outlook looks balanced and that the exit of any euro member is not envisaged in any respect. This despite the fact that the new Portugal Prime Minister announced a 2bn hole in the countrys public finances left by the previous incumbents no doubt, making the hole that Portugal has to dig itself out of even bigger than originally thought.

Rising Spanish and Italian 10 year bond yields continue to weigh on sentiment despite rumours of Chinese buying of EURUSD in the US afternoon session last night. With these yields at post euro record highs todays Spanish auction of 4.5bn of 12 and 18 month t-bills is likely to be closely monitored with respect to the rates and bid to cover ratios relative to previous auctions.

In the US the Republican controlled house is due to vote on its $2.4trn worth of measures to raise the debt ceiling in what is purely seen as a cosmetic move given that President Obama has already said he will veto it. The President is determined that tax rises and the closure of tax loopholes must accompany any spending cuts delivered.

Later this morning the latest ZEW economic sentiment surveys for July for Germany and the Euro zone are set to be published and given the recent negative sentiment it would be a major surprise if they werent worse than Junes figures. Expectations for Germany are for a decline of -12.5 from -9 in June, while Eurozone ZEW is expected to slip to -7.4, from -5.9.

The latest July RBA minutes showed that a slightly more dovish tone with the reference to tighter policy at some stage, conspicuous by its absence, which has played slightly negatively sending the AUD lower in the Asia session. The next quarterly inflation report at the end of July will be closely monitored especially in light of Westpacs report last week that rates could be lower by the end of the year.

Later this afternoon US Housing starts for June are due as well as the Bank of Canada rate decision.

The usual suspects sparked worries on Monday: Europe's sovereign crisis and the US debt ceiling. The euro fell early in the day but rebounded late. Japan returns from holiday and the RBA minutes will be released in tonight's Asian session.

European sovereign spreads widened early, pressuring the euro to a low of 1.4014. Italian 10-years climbed above 6% and Greek 10s hit a record above 18%. TECHNICALS AND RUMORS SPARKED THE EURO REBOUND. EUR/USD bounced from the lows and then formed a double bottom at the days lows, sparking a rally to 1.4120, down only 30 pips on the day. Talk of Chinese buying and a rumour that leaders will propose expanding bailout funds and/or powers at Thursdays EU emergency meeting also fuelled the rebound.

CHF and CAD were the days laggards while JPY and NZD led. Gold rallied for the eighth consecutive session to a record $1608. The S&P 500 fell 0.8% to 1305. Ashrafs short recommendation in the S&P 500 hit its target and several other trades are ongoing and in the money.

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US lawmakers didnt make any visible progress on debt limit talks, even with the ratings agency vultures circling. We see a growing chance of a punishing round of risk aversion and dollar volatility IF THERE ARE STILL SIGNS OF A STALEMATE LATE ON WEDNESDAY. On Monday, Obama said he will veto any bill featuring a balanced budget requirement such as the one House Republicans will vote on Tuesday.

Corporate news is unlikely to improve the mood in the day ahead. Cisco announced 11,500 layoffs and Borders (the second-largest book store in the US) could not find a bidder for the chain and announced it will liquidate. Good news came from IBM, which handily beat earnings expectations.

Asia-Pacific Preview

The minutes of the July 5 RBA meeting will be released at 0130 GMT in the only economic event of the session. Volatility could come from Japan, as markets re-open after Mondays holiday. At the July 5 meeting, the RBA said its mildly restrictive stance on monetary policy remained appropriate. The Australian dollar fell on the statement as Stevens said a slower pace of employment growth was likely to continue. Talk that the RBA could cut rates later this year continues to circulate and weigh on AUD.

Gold & silver powered up by a trifecta of factors; i) Uncertainty ahead of latest EU Summit & lack of clear progress in Greek debt talks; ii) US debt ceiling impasse leading credit agencies to not only warn about the credit outlook but also to raise probabilities as high as 50/50 of a downgrading in the actual debt rating before year-end; iii) References to possible further monetary stimulus (QE3) by Bernanke. The shorts in our SP500 Premium trades have hit all limits, while shorts in US crude, EURJPY & EURUSD have been executed. Find out where are the limits/stops as well as the rest of the trades on gold and silver in this direct link for our Premium subscribers http://tinyurl.com/3tk7wjr To become a subscriber to our Intermarket Insights, please click here: http://ashraflaidi.com/products/sub01/According to Market News International, Fitch Ratings says they've been asked by clients to study potential repercussions of a US default. Fitch estimates "that USD-denominated MMFs have approximately $1.3 trillion in exposure to U.S. Treasury/Agency securities and short-term repurchase agreements (repos) collateralized by U.S. Treasury/Agency securities. MMFs are not forced to sell defaulted securities, absent large redemptions. Liquidity pressures, therefore, should only arise from heightened redemption activity." More market information/analysis from MNI FX Bullets available as part of our Premium offering.

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USD is higher against most currency pairs. Euro drops back to 1.40, relief short covering rally may come on Thursday. Risk aversion pushes EURCHF to new all time low. See link to latest Premium Trades below.

Euro dropped about 130 points since Asian open and trades right above the 1.40 figure. It is hard to imagine any meaningful recovery without a fundamental catalyst. The catalyst could be the meeting of Euro zone leaders on Thursday when they plan to reach an agreement on the second bailout for Greece.

The severity of the current situation in Europe is evidenced by Greek, Spanish, Portuguese, Irish and Italian five year credit default swaps reaching their respective record highs.

The prevalent risk aversion continues to support the CHF as EURCHF drops to new all time low at 1.1374. USDCHF fell to 0.8045 but has since recovered and trades above Asian session opening levels. While Swiss exporters hurt, large companies plan to capitalize on the currency strength. As WSJ reports, the Francs strength might bring a wave of mergers and acquisitions, especially in the pharmaceutical, food and energy sectors.

Our MONDAY PREMIUM TRADES are here http://tinyurl.com/3tk7wjr . To become a member, please click here: http://ashraflaidi.com/products/sub01/

US TIC Long-Term Purchases of US securities in May tumbled to $23.6 bln from $30.6 bln (vs prev $40 bln)

US National Association of Home Builders's Housing Market Index rose to 15 in July from June's 15

Gold hits the $1600 level on safe haven flows escaping the US & Eurozone debt fears. Bank stress tests prove to be anything but, as attention turns to Greeces second bailout, US debt ceiling discussions remain in stalemate, UK house prices slip back, New Zealand CPI hits 21 year high.

Fridays European banking stress tests turned out to be anything but stressful with only 8 banks from 91 tested falling below the minimum tier 1 ratio of 5% and another sixteen needing at least 25.8bn of extra funds to get their tier 1 capital ratios above 6%.

Despite widespread scepticism about the credibility of the tests, with no Irish or Portuguese banks failing the main focus this week will be on this weeks meeting with respect to another 100bn bailout of Greece.

There remains widespread disagreement between the European Central Bank, who remain opposed to any type of default, and the Bundesbank who rule out any type of Eurobond plan that would underwrite all peripheral debt at what they see as at taxpayers expense.

In a sign that markets are losing faith with politicians ability to get on top of the crisis Italian 10 year bond yields continued to rise even after the passing of the austerity budget in the Italian parliament. It is a worrying development for Europes third largest economy and a sign that Prime Minister Berlusconi has lost the confidence of the markets and is seen as a liability.

In the US things arent much better with continued wrangling between Democrats and Republicans over the raising of the debt ceiling. The Republicans are set to vote on their own $2.4trn worth of cuts in the House they control, which in reality means nothing given that it would not pass through the Democrat controlled chamber. President Obama remains committed to including tax rises in any new measures, something the Republicans remain ideologically opposed to.

In the UK in further signs of a slowing economy Right Move house prices for July fell 1.6%, wiping out Junes gain of 0.6% and highlighting the precarious state of the UK economy in the face of rising prices and economic uncertainty. These figures would seem to reinforce the Bank of Englands concerns about the UK economy ahead of the release of the latest minutes this Wednesday.

New Zealand CPI hits a 21 year high at 5.3% year on year, rising more than expected and sending the kiwi to new record highs against the US dollar.

Arabic speakers can watch Ashraf today on AlArabiya at 11:40 GMT (15:40 Dubai Time).

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