Intraday Market Thoughts Archives

Watch Ashraf's interview discussing the USE OF RISK CASH, GLOBAL LIQUIDITY, Bovespa-USD CORRELATIONs, and the ongoing UK recession http://bit.ly/1UORGv as well as the 100 week MAs in oil and stocks

Euro stabilizes and lifts GBP along with it after ECB's Constancio says euro appreciation helps control inflation.

Stocks shrug off stronger than expected US existing home sales, with the selling weighing most significantly on the battered GBP. As GBPUSD drops 370 pips, we near the 1.6310 target mentioned in previous IMT (when cable was at 1.64), EURGBP nearing the 0.9230 target. The Bovespa is deteriorating as warned in the HotChart, which could further weigh on risk assets and risk currencies (AUD, GBP, NZD) and help USD and JPY stabilize. As OIL TESTS 80, USDCAD eyes that 1.0580 target. Canadian readers watch ASHRAF ON BCC at 10:50 EDT (14:50 GMT) discussing GBP, Emerging Markets and CAD. USDJPYnever regained 92, while EURUSD could extend retreat towards 1.4970.

While all eyes on the S&P500 nearing the 100-week MA and its 50% retracement, FX traders must WATCH the REAL USERS OF USD-denominated RISK CASH i.e. the emerging market indices of Brazil and India. The latest Hot-Chart shows WEEKLY BEARISH formations in Brazils Bovespa & Indias Sensex.

http://bit.ly/1R2e8d

GBPUSD tumbles across the board after UK GDP showed a record 5 consecutive quarterly contractions; (-0.4% q/q, -5.2% y/y), which is a stark reminder to those BoE members pursuing a less dovish tone. GBPUSD predictably failing below the $1.6730 resistance (right shoulder of the H&S formation), seen retesting interim support of $1.6310 (38% retracement of the rally from the $1.57 low), followed by $1.6200. Any disappointment in US existing home sales woudl fruther weigh on GBP. EURGBP seen capped at 0.9230. Watch Ashraf on CNBC at 10:05 am GMT (11:05 am BST) discussing sterling and those GDP figures.

UK Q3 GDP DUE at 8:30 am GMT (9:30 am BST) exp +0.2% q/q from previous -0.6% and exp -4.6% y/y from prev -5.50% y/y. German October IFO Business Climate index did rise but fell short of expectations as the Business Climate Index hit 91.9 (vs exp 92); Current Conditions at 87.3 (vs exp 88.0). EURUSD 4 HOUR chart suggests further pullback towards $1.4960. GBPUSD regains the $1.6660 resistance and is now ready to test the key $1.6730 obstacle, which is the right shoulder of the major H&S formation. A close above this level today would be an extreme positive for GBP. USDJPY regains 91.70, a break of which calls up 92.30.

Watch Ashraf's Video Commentary on FX & Equity indices as well as previewing today's UK GDP

http://www.youtube.com/user/CMCMarketsPLC

Bank of Canada Governor Carney expresses more concern with the strong loonie when he said persistent currency strength remains the major downside risk and that FX intervention is always an option. But any knee-jerk selling in CAD was quickly reversed when Carney reminded that the central banks main target was inflation and not the currency. Today's stronger than expected retail sales from Canada did boost the loonie but we expect renewed retest of the 1.05 and 1.0560s as the oil rally is seen fading at $82.00. USDJPY still capped at that 91.70 resistance, with downside target seen at 91.20, 90.70.

A fresh selling wave hits the dollar after Boston Feds Eric Rosengren (not a voting member in this years FOMC) said the decline of the dollar reflected investors improved confidence with the economy and their resulting appetite for risk. While such remarks are no more than a stating of the obvious as far the current FX market dynamics, they constitute an overt green light to sell the currency, especially when uttered by policymakers of the interest-rate setting body. Key resistance in S&P500stands at 1,100. Oil faces substantial barrier at $82.00. EURCHF garnered a 40 pt move as per yesterday's warning before retreating back to 1.51.

GBP loses further ground after UK Sep retail sales came in flat on a month-to-month basis vs. expectations of a 0.5% increase. After having failed to regain $1.6660, GBPUSD extends losses towards 1.6490s. Yesterdays late session sell-off in US equities following the downgrade of Wells Fargo triggered broad losses in Asia and Europe, offering a modest boost to USD. We expect prelim support standing at $1.64555, followed by $1.6370. USDCAD looks to regain 1.0570, while CADJPY proves a fresh failure at 87. USDJPY still fails to regain that 91.70 resistance and is bound for further losses towards 90.80.

USDJPY has been immune to the broad attack on the US dollar mainly due to escalating selling in JPY (the other low yielding currency) as well as concern from Japanese officials regarding excessive yen strength. Unlike in recent USD-selling episodes, USDJPY remained robust. Looking ahead, the 91.70-90.30 range is expected to prevail with 91.70 serving as the 38% retracement of the decline from the Aug high, and 90.30 as interim target for dolalr bears as well as risk aversion play. Any disappointing US figures acting as a source of risk aversion could drag it back towards 90.50s.

EURCHF INTERVENTION ZONE. EURCHF nears the 1.5090-1.5100 region, known for recurring interventionist buying from the Swiss National Bank over the past 5 months. And with most interventions having occurred on a Thursday, tomorrow, could prove ripe for fresh franc selling. Thursday interventions have coincided with either SNB policy meetings, or on tenders from the ECB, which involved converting euros for francs and dragging down the EURCHF rate to the SNB's line-in-the-sand level of 1.5090-1.5100. Interim upside seen at 1.5135-40, followed by 1.5190.

STERLING EXTENDS GAINS after the BoE minutes show unanimous vote to maintain QE at 175 billion. Noting that QE has boosted asset prices and money supply growth substantially, the minutes may suggest that further QE beyond November is not yet a done deal. GBPUSD WEEKLY targets the right shoulder at $1.67 after breaking $1.65. Oct CBI Survey due at 10:00 GMT (exp -45, prev -48). Any improvement in the survey could further boost cable towards $1.66 and GBPCAD towards 1.7630 from current 1.7380. CAD still struggles across the board following yesterday's remarks from the Bank of Canada.

The BANK OF ENGLAND MINUTES from the September meeting due in 20 mins. Recall the minutes from the August meeting showed BoE Chief King in favour of boosting QE by 25 billion, more than the amount agreed by the majority on the committee. STERLING PUSHES HIGHER after BoEs King stepped up his warning for higher inflation, stating the rise in oil prices, the decline in sterling and phasing out of the one-off reduction in VAT. But King did hint over an extension of quantitative easing in November to counter the weakness of money spending.

Ashraf's take on EURUSD and sterling crosses at the FXStreet ITC in Barcelona last week http://bit.ly/4zEEdM

Meanwhille. CAD losses intensify across the board following BoC jawboning, OPEC's oil concern and stocks pullback

CAD DROPS ACROSS THE BOARD as the Bank of Canada reiterates its concern with Loonie strength in todays interest rate announcement. USDCAD eyes trend line resistance at 1.0360, a breach of which will retest 1.0430. As long as the right shoulder on 1.0360-65 remains intact, USDCAD bearishness would revisit 1.0280 and 1.0240. Look for CADJPY HEAD &SHOULDER holding at 87.10, before an extended retreat emerges towards 86.10 and 85.70. JPY STRENGTH is being shadowed by USD weakness. GBPUSD breaks out of 1.6430s looking for next resistance at 1.6480--61.8% retracement of the 1.6725-1.5702 move.

There is NO CHANGE IN STERLING WEAKNESS. GBPUSD still struggles at $1.64, EURGBP consolidates at the 0.91 base and GBPJPY dissipates at 148.50s. Qatar Holding sales of 379 million shares in Barclays puts a small dent in risk appetite. But the overall concern for GBP is not only the inability for the BoE to talk exit strategy but also the widely expected move towards further asset purchases (QE), which should be GBP negative. While we reiterate the 5-week topping failure at 1.64, we could see a gains stretch towards 1.6450s before pullingback towards the 1.6310s.

FX TRADERS SWIFLTLY CONCLUDE THAT NO EXIT STRATEGY IS POSSIBLE after hearing BERNANKE speak. Bernanke said that adopting a FISCAL strategy (responsibility of the US Treasury NOT the Fed) " is critically important in order to maintaining confidence in our economy and confidence in our currency". While the Fed has made it clear it would NOT be exiting its MONETARY policy strategy any time soon (despite much talk on when it would be appropriate to do so), it has now vocally placed the onus on the Treasury as far as fiscal policy is concerned. Currency traders hearing such remarks would quickly conclude that an exit strategy from NEITHER fiscal nor monetary stimuli is likely soon, which only empowers them to sell the dollar further--especially as earnings catapult stocks and risk appetite higher. EURUSD hit $1.4980, NZDUSD surged to 0.7575 and AUDUSD retests 0.93. Meanwhile, French Fin Min Lagarde digs deep in her purse of FX rhetoric designed to contain euro strength, by saying the Eurozone needs a strong dollar and that the Eurozone finance ministers have jointly reiterated the issue at todays Econfin meeting. Lagarde also used the policy element by estimating that no exit strategy would be pursued until 2011 when the situation in terms of growth stabilizes.

Although GBPJPY struggles to regain the 148.60s level (38% retracement of the 163-139.70 decline), weekly oscillators (stochastics, MACD) are showing improved prospects for the pair, suggesting extended upside towards 150.80. Nonetheless, the daily oscillators suggest that 146.80 could emerge prior to the upcoming rally. Although the Bank of Japan has signalled improved conditions, markets are reluctant to buy yen in the face of rallying equities and potential jawboning from Japanese policymakers.

EUROGROUP MEETING. EURUSD continues to face resistance at the psychological $1.50 figure, which is partly standing as a result of euro weakness emerging against AUD, NZD and CAD. EUR traders to scrutinize remarks from today's Eurogroup meeting (15:00 GMT) for whether any euro-jawboning to emerge from the politicians as warned about by Eurogroup head Jean Claude Juncker. Today's quarterly earnings from Apple (exp $1.42 /share from $1.26/share) and Texas Instruments ($0.39/s from $0.43/s) will be instrumental could serve as a trigger for fresh EUR momentum in the event of positive earnings and outloolk.

GBP renews declines and once again proves the only loser against the tumbling greenback. This time, comments from the Bank of Englands Adam Posen signalled an upcoming increase in the banks 175 billion asset-purchase program when he said Im not worried about overshooting inflation right now. While Federal reserve speakers are attempting to signal the beginning of withdrawing liquidity, the BoE is widely expected to prolong its asset purchase program when it ends next month. Separately, Ernst & Youngs Item Club said There could still be substantial pain and that the impact of the stimulus programs has been disappointing. GBPUSD proves another 5-week failure at $1.64, now eyeing interim support at $1.6230, with any recovery capped at 1.6320 for the London session. USDCAD eyes interim support at 1.0310 as oil retreats off its highs on the changeover to the new contract. USDJPYeyes 89.80 w/ trend line resist weighing on 90.70.

ANOTHER 5-WEEK TOP? GBPUSD looking to regain $1.64 after UK house prices posted their first annual increase since June 2008, according to the Rightmoves October report. The m/m increase was 2.8% --biggest in 20 months. But $1.64 remains a stubborn trend line resistance since Aug 5 and could prove to be ANOTHER 5-WEEK TOP. Latest CFTC data report net euro longs vs. USD fell to +43,367 contracts last week from prior weeks +51,045 contracts, which was the largest net longs since the January 8, 2008. Note that the record net longs in EUR vs USD stood at 119,538 contracts, which attained in May 15, 2007TEN MONTHS BEFORE EURUSD hit a record high (and gold hit record high). Interestingly, the record high in net EUR SHORTS vs. USD hot 40,654 contracts (net shorts) in September 16, 2008. JPY net longs vs. USD continue to fall. According to UBS, cash positions reach their lowest levels since January 2004 as asset allocators chase equities.