Intraday Market Thoughts Archives

As US dollar index climbs to its 200-day moving average for the first time in 7 months and EURUSD falls to its 200-DMA for the first time over the same period, those traders anticipating the much-heralded USD rebound may finally see their forecasts realised? Or is this another fake bounce? Full charts & analysis

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Comments from the Bundesbank leader continue to point to a greater threat of ECB action in June. The Canadian dollar was the top performer Thursday while the yen lagged. The calendar is light in Asia. 1 of 2 USDCHF trades are in progress and both EURAUD shorts  have also been filled and in progress. Other trades in progress include GBPPUSD, EURJPY, USDCAD, NZDJPY, NZDUSD and gold.

The euro closed at a three-month low on Thursday as the reality of rate cuts and the potential for negative deposit rates set in. Bundesbank President Weidmann said the ECB is willing to take additional measures if necessary. Many ECB members have made similar statement but the Germany policymakers are the most hawkish it marks a departure from comments quoted earlier this week when Weidmann said “it's not clear if we even need to act.”

Technically, traders are fixated on Wednesday's spike low of 1.3635 and the 200-day moving average just a pip higher. Reading some commentary from the former director of general market operations at the ECB, he makes a compelling case that the rates market hasn't priced in negative rates yet and it's not particularly close so there could still be some downside ahead of the June 5 decision.

US economic news focused on the jobless claims report (slightly weak) and existing home sales (slightly strong) but the US dollar largely ignored the headlines and crept higher.

Canadian data was also in focus as retail sales fell 0.1% m/m versus +0.3% expected. What's interesting is that the loonie bottomed and then immediately turned around after the data. There were some positive revisions and it's a stale report (from March) but a currency that can rally on bad news is usually a good one. CAD traders await Friday's CPI figures from Canada, expected to rise from the prior month.

The opposite is the Australian dollar as it completely gave back the gains from the upbeat China PMI and finished near the lows of the day.

Asia-Pacific traders wind down the week with a quiet calendar but traders will be keeping a close eye on the Nikkei after Thursday's 2.1% rally. The chart is showing signs of a bottom around 14000 and we've noticed several analyst reports saying Japan's stocks are among the most undervalued. A rising Nikkei and USD/JPY have a fairly tight correlation.

A major reason to Dubai's stellar stock market performance (outperforming all indices this year and last) has been Morgan Stanley Capital International's upgrade of the UAE to its flagship emerging markets benchmark index, prompting EM fund managers around the globe to rush into UAE shares. There is also chatter about UAE stocks finding more demand from global fund managers in the event that MSCI upgrades Korea or Taiwan (or both) from its EM classification to that of developed market. The announcement is due on June 10. Full charts & analysis.

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The Fed hawks eventually won the battle over tapering but the latest skirmishes show doves retaking control. The US dollar weakened after the FOMC minutes while the pound was the best performer on the day.

The minutes of the April FOMC meeting showed the Fed is in no rush to hike rates. Officials are optimistic about the recovery but will wait for clear signs of acceleration or inflation before hiking rates. In the meantime, a dovish bent is emerging on the smaller questions. Dudley spoke out in favor of reinvesting expiring MBS and more whispers are emerging that the Fed will switch its target to reverse repos. The moves show that despite the upbeat public face at the Fed, worries about long-term low growth and inflation dominate.

The dollar fell after the FOMC minutes to cap a volatile day in USD/JPY trading. The pair slid after the BOJ talked about better capex in a move that makes more in July unlikely. The 200-day moving average gave way and the pair sank to 100.82 in Europe. That's near the critical support of the Feb lows and the pair reversed to 101.62. The minutes then sparked a fresh wave of selling down to 101.35.

The euro also made an important technical move, falling to a three month low on a break of 1.3644 that blasted through stops but turned around almost immediately. Weidmann fuelled gains by saying nothing has been decided for the June ECB meeting. The minutes added more fuel to the turnaround and the pair ended at 1.3686.

Overall it was a good day for yen crosses and risk trades as the S&P 500 gained 0.8%.

Up next is the preliminary Chinese manufacturing PMI from HSBC at 0145 GMT. The consensus estimate is for a reading of 48.1. With the Australian dollar under pressure a weak reading would renew the selling pressure.

As we approach next month's European Central Bank decision amid escalating probability for negative interest rates, the Swiss National Bank is closely monitoring the franc in the event of any unwanted decline in EURCHF. Full charts & analysis.

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Talk continues to swirl about the Fed shifting to reverse repos as its benchmark rate, we look at what it means. On Tuesday, the yen was the top performer while the Australian dollar lagged. The BOJ decision and Japanese trade balance are up later.

The short-term money market is its own beast but what happens there often spills over to other markets. On Monday, WSJ Fedwatcher Hilsenrath mused about the Fed abandoning Fed funds as it benchmark rate when it begins to hike because it could cause a squeeze as the ocean of Fed-inspired liquidity is tightened.

A CNBC reporter said today that sources indicate a shift to a reverse repo rate is coming. In some ways the move is inconsequential because it will continue to anchor rates but if you were expecting a rise in Fed funds then it's dovish because it avoids some of the potential problems.

It also shows that the Fed is hyper-sensitive to strain in money markets and wants to keep money flowing as easy as possible. More details might be forthcoming in Wednesday's FOMC minutes.

The Fed's Dudley was a highlight on the speaker schedule and said he sees a 'relatively slow' pace of tightening when rates rise.The move comes as junk bond yields trade near record lows and central bankers around the world ramp up warnings about investors reaching for yield.

Markets remain skittish as the S&P 500 flirted with the 55-day moving average and 10-year yields touched 2.50%. Yen crosses were the main losers especially AUD/JPY and CAD/JPY – two of the most risk-sensitive trades.

Up next is the BOJ decision. No moves on rates or QE are expected and most analysts don't see any action until September so market moves are unlikely. We'll look to Kuroda for more hints. The decision is generally between 0230 GMT and 0400 GMT.

Japanese trade balance and Australia's wage cost index are other highlights.

Whether we expect USDCHF to break above its 100-DMA this time around, what's the better tactical play in CHF ahead of the Eurozone event-risk. After having been stopped out by 7 pips from our Mar 20 USDCHF long trade at 0.8710, what is the next action plan? We issue fresh CHF trades and 3 charts (Net CHF longs positioning, CHFJPY & & 100-DMA spot). 2 existing GBPUSD Premium trades are in progress ahead of Wednesday's UK retail sales & MPC minutes as are the existing shorts in USDJPY, NZDUSD and NZDJPY. All charts & trades in latest premium Insights.

Comments continue to pour in from ECB policymakers suggesting action in June is virtually a done deal but the euro was the best performer Monday, showing moves might be priced in. AUD was the laggard on iron ore and ratings concerns. Australian will remain in focus with the RBA in focus in the hours ahead, inlcuding a speech from the RBA deputy governor Debelle.

The ECB's Mersch was straightforward in comments about monetary policy on Monday. He said the likelihood of ECB action next month has grown substantially and that the governing council is unanimous in its willingness to deploy conventional and non-conventional measures to counter the risks of long-term low inflation.

Nowotny mentioned Japan's lost decades in highlighting the risks and he added a comment about FX adding to low inflation risks.

The euro briefly rose to a four-day high of 1.3734 but slid back down to 1.3709 after the comments. Still, the fact that the euro was higher on the day suggests ECB action is largely priced in.

The other notable move in US trading was a slide in AUD. The trigger was a series of comments in the Australian press from an S&P official who said the sovereign rating could be at risk unless the government takes steps toward austerity. That's no surprise but with iron ore falling close to a nearly 2-year low it was enough to send AUD/USD to 0.9326.

The calendar focuses on Australia in the hours ahead starting with the March conference board leading index at 0000 GMT. The prior reading was 0.3% but this indicator is unlikely to move the market.

A bigger event is the release of the minutes of the May RBA meeting at 0130 GMT. If the RBA wants to clarify anything from the minutes, look to deputy governor Debelle's speech at 0230 GMT in Adelaide.

For Japan the main event is the April report on department store sales at 0530 GMT. That will be an early barometer on the impact of the consumption tax hike.

The last time stocks had been these levels relative to yields was in summer 2013. But the last time stocks were at this level relative to yields during a rising trajectory was in spring-summer 2012 when the Fed was halfway into its operation twist. Full charts & analysis here.

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Several central bank officials spoke on the weekend and that could drive early moves. Last week the yen was the top performer while the Swiss franc lagged; it was the second week of that pattern. The new session begins with Japanese machine orders and UK house prices.

BOE Governor Mark Carney spoke with Sky News on the weekend and lamented the state of UK housing. He's worried about higher prices and the lack of supply. The BOE appears to be laser focused on housing and less worried about inflation, that suggests action will be targeted with rates staying low.

The ECB's Coeure talked about the possibility of 15 bps‎ rate cuts. The big question traders are wrestling with is whether or not cuts are fully priced in.

The final bit of central bank news was from Bernanke, who is on the talking circuit. Reuters spoke with those who have attended the private dinners and they left with the impression that rates will remain low for years.

Up next, at 2301 GMT, Rightmove releases its latest numbers on UK house prices. The BOE is expected to introduce some kind of housing curbs in June and a build on the 7.3% y/y price rise in April could give them extra incentive.

At 2350 GMT, the focus shifts to Japan for March machine orders. They're expected to rise 5.8% in the month after an 8.8% decline in February. The risks for yen traders on this release are low.

Commitments of Traders

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

• EUR -2K vs +32.5K prior
• JPY -65K vs -61K prior
• GBP +32K vs +41K prior
• AUD +17K vs +8K prior
• CAD -26K vs -32K prior
• CHF +7K vs +13K prior
• NZD +19K vs +21K prior

We've been monitoring yen positions closely and it's a surprise to see shorts expanding at a time when the yen is strengthening.