Intraday Market Thoughts Archives

7 of the 91 banks failed the Eurozone Stress Tests, whose scenarios included: -0.3% in 2010 and 2011 GDP, a double-dip recession, 20% decline in stock markets in 2010-11 and a 4-notch credit ratings downgrade of Eurozone securitized products. LISTEN TO ASHRAF's INTERVIEW discussing the Stress Tests http://link.reuters.com/syb39m #

Equity markets are little changed, while GBPUSD retains momentum to regain $1.5480s into early next week. EURUSD seen remaining supported at $1.2770 but with renewed chances to retest $1.2930.

Ashraf's Reaction to the Just-released Stress Test Methodology on Reuters TV

http://link.reuters.com/syb39m

US-GERMAN 10 yr spread down to 25 bps, New 9-month low.. remember the 1st chart in this article http://bit.ly/akoJbs $$. GBPUSD seen regaining 1.5480-90 before mid of next week.

CAD ATTEMPTS RESILIENCY in the face of softer than expected Canadian June annual CPI at 1.0% from Mays 1.4%, with annual core slipping to 1.7% from 1.8%. Not enough risk aversion is occurring for USDCAD to break above the Jul 20 trend line resistance of 1.0450 just as yesterdays 1 June trend lien support of 1.3440s held. OILs POWERFUL breach of the 100 and 200day MAs in a single day to $79 continues to support loonie. USDCAD daily chart is INCREASINGLY SYMMETRICAL, suggesting that risks of an upside/ downside breakout are balanced. 1.0355-60 remains strongly underpinned for now, attracting buyers as US equity indices approach their 200-day MAs. AUDUSD nearing its 200-day MA at 0.8970s, which is also 3-mth TL resistance. Beware of outstretched gains in the midst of remaining concerns from global central banks. More frequent coverage on stress tests is found on twitter at http://twitter.com/alaidi

UK Q2 GDP KNOCKS IT OUT OF THE PARK, rising 1.1% q/q vs. expected +0.5%, and +1/6% y/y vs. exp +1.1%. This is the first annual rise in 8 quarters. Services sector rose 0.9% q/q highest since Q1 2007. Although the FTSE-100 is up only 2 pts, there is sufficient risk appetite (from Asia) to boost EURUSD and GBPUSD. Germanys IFO survey also had strong showing, with all 3 indices beating expectations (see data calendar for details). EURUSD, GBPUSD and GBPJPY breaking last nights IMT targets. $EURUSD now looks for $1.3020, GBPUSD looks to extend gains towards $1.5450, while GBPJPY eyes 134.60. USDCAD seen hovering between 1.0350 and 1.040 ahead of CAN CPI later in the day.

UK GDP FIGURES: Due at 8:30 am GMT (9:30 BST) The preliminary figure of UK Q2 GDP expected +0.5% q/q from +0.3% in Q1, which is the 3rd straight quarterly positive GDP growth. On a y/y basis, Q2 GDP exp +1.1% from 0.2%, the 1st positive y/y figure in 8 quarters. Positive figures could further boost GBPJPY to 133.70-80s especially in the event that risk appetite remains in positive mode. GBPUSD eyes $1.5320-30 but no break of $1.5340. Any negative disappointment could see a retreat towards $1.5180. The other part of the puzzle will be the outcome of the Stress Tests, which are due after the London close. EURUSD ooking for fresh attempt towards $1.2970.

S&P500 TRADES ABOVE 55-DAY MA for the first time since May, so a close above 1090 could spur the bulls to probe the 200-day MA of 1113. The DJIAs 200-day MA stands at 10390, a test of which could suggest further selling in USD. MARKETS IGNORE DATA as stocks extended their rally despite the jump in jobless claims hitting at USD and JPY. USDCAD respected the 1.0475 resistance before being pulled back toward 1.0370 trend line support from Jul 15 low. USDCHF break break to new 7-month low, eyeing 1.0360.

UNEXPECTED DECLINE IN CANADIAN June retail sales (-0.2% from prev -0.2%) and the 37K jump in US jobless claims to 464K is failing to put a dent in US equity futures but is weighing considerably on CAD as USDCAD pushes up to 1.0460s, testing the 1.0475 trend line resistance on the 4-hourschart. CAD traders await the Bank of Canadas Monetary Policy Report (10:30 am EDT, 14:30 GMT) for further detail on those downward growth revisions by the BoC. A break of 1.05 would likely to be accompanied by deteriorating risk appetite, which is not the case at the moment as Dow-futures are +107 pts. Also watch oil prices retreating back below 200-day MA of 77.50. EUR hit 1.2880 target, but intraday momentum is seen fading at 1.2930s. Bernankes testimony to the House of Reps will be the same as yesterdays speech but the Q&A could shed further light on Bernankes outlook. US 2-yr yields hit fresh record lo of 0.55, which remains negative for USDCHF.

BERNANKE's "UNUSUALLY UNCERTAIN" label for the US economic outlook was sufficiently uncertain to scare away US and Asian markets but it is important to bear in mind that EURUSD closed the US session at $1.2756, which is ABOVE the trendline support of $1.2745-50 noted in the prior IMT. This means the recent upleg remains intact and $1.2880 is a prelim target for today for a possible $1.3030. $1.3130 is still in focus as was mentioned during the last 2 weeks (and Sundays webinar). EURJPY broke below the 110.60 prelim target of the HotChart, suggesting that any rebound would be lower than the prior range high of 113.30 before renewed downside ensues towards 109.60. AUDUSD eyes 0.8880 resistance (61.8% retracement), which is just above the 100-day MA. A NY below 0.8880-90 would imply a high profile failure of this congestion zone before renewed declines towards 0.8680s. A bullish break to call up 0.8980.

USD STRESSED OUT BY BERNANKE? Since markets are widely expecting Bernankes testimony to highlight the Feds downgrade for US growth and inflation, most FX players see it as an opportunity to sell USD into the end of the US session. Yet, it is relatively common for markets to bid up currencies 2-3 hours before their anticipated decline. Weve seen this in several FOMC meetings in H2 2009 when markets would bid up USD during the day before ultimately dumping it in mid NY afternoon when the FOM C affirms low US rates for an extended period. Unlike in other Fed testimonies, todays speech will occur at 18:00 GMT (19:00 BST), which means by the time Senators begin to pressure Bernanke about the need for further policy stimuli, markets would grow less liquid and US bond yields will see less support, thereby further dragging down USD. BUT there are TWO FACTORS, which could lead to this exception i.e. help USD; i) a resulting stocks decline, whose risk aversion could eventually support USD; (ii) EUR-negative news about related to the stress test. EURUSD still seen support at $1.2745-50 -- June 30 trend line-at which cautious buying to ensue ahead of Thursdays Asian trade.

US 2-YEAR YIELDS remain at 0.58%, flirting with their all time lows as not only the Fed funds rate is seen unchanged for at least another 9 months but also due to the possibility of further easing. Aside from reiterating rates will remain low for an extended period, he could raise easing alternatives to cutting rates, such as lengthening maturity of its Agency/mortgage back securities or reducing interest on bank reserves (in order to encourage banks to lend out more), in which case renewed USD weakness will ensue. Also keep an eye on 10 yr yields flaling below the 2.90% level. AUDUSD maybe among the big winners from a dovish testimony in the event that equities are emboldened by a dovish Bernanke. 0.8880-00 will be the resistance to break (61.8% retracement of the Apr-May decline), a An intraday pullback to 0.8750 is not ruled out but daily tone remains well bid. AUDJPY seupported at 76.20 before a possible bounce to 77.50 in Asian session in event of positive equity reaction to Bernanke.

US 2-YEAR YIELDS remain at 0.58%, flirting with their all time lows as not only the Fed funds rate is seen unchanged for at least another 9 months but also due to the possibility of further easing. Aside from reiterating rates will remain low for an extended period, he could raise easing alternatives to cutting rates, such as lengthening maturity of its Agency/mortgage back securities or reducing interest on bank reserves (in order to encourage banks to lend out more), in which case renewed USD weakness will ensue. Also keep an eye on 10 yr yields flaling below the 2.90% level. AUDUSD maybe among the big winners from a dovish testimony in the event that equities are emboldened by a dovish Bernanke. 0.8880 will be the resistance to break (61.8% retracement of the Apr-May decline). An intraday pullback to 0.8750 is not ruled out but daily tone remains well bid.

THE LOONIE RALLY extended into Asian trade as US crude oil closed Tuesday at its 200-day MA of $77.57. IT WOULD BE INACCURATE to attribute CADs strengthening to the BoC rate hike, as the decision was accompanied by a downward revision of 2010 and 2011 Canadian GDP growth, which proved CAD negative for at a good 2 hours. More appropriately, CAD gains emerged on the heels of the broadening rally in risk appetite around Tuesday London close, which was accelerated by French and Spanish newspaper articles quoting Spanish economics minister and France Fin Min that all their banks will pass the tests. USDCAD eyes 1.0320 trend line support, a break of which to extend losses towards 1.0280. Bernanke to speak at 14:00 pm EDT (18:00 GMT) and NOT as 10:00 am EDT (14:00 GMT) as has been usually the case.

Ashraf's Video Market Analysis discussing jittery FX market action despite falling equities http://bit.ly/bFFVSO

Goldman's revenues miss weighed on EUR to benefit of USD and JPY but positive talk rleated to stress tests such as FITCH endorsements of the testis erasing USD & JPY longs.

GOLDs LOWER HIGHS testing the 100-day MA of 1180 but with the price and stochastics suggesting $1,220 is behind us for now and the next downside target stands at 1165-70, a break of which could lead to 1120. The main drivers of a fresh gold rally remain 1) renewed Euro crisis/bad news on stress test front or 2) increased chances of quantitative easing (QE) from the Fed. UNCONFIRMED RUMOURS of that all Spanish banks have passed the stress tests said to be propping the risk trade at the expense of USDF and JPY but no evidence of such talk. US stocks erase of their earlier losses, lifting all yen crosses, but USDJPY is seen initially capped at 87.55-60 as the daily stochastics remain negative. EURJPY negative bias remains w/ stops from the shorts above 113.30.

CAD DROPS ACROSS THE BOARD on combination of a dovish rate hike from the Bank of Canadas and broadening risk aversion. The BoC did raise rates to 0.75% as was expected but cut its 2010 GDP growth forecast to 3.5% from 3.7%, while indicating Canadian housing activity declining markedly. USDCAD upside eyes subsequent resistance at 1.0620. EURUSD failed to regain $1.30, extending losses below $1.29. The revenues miss by Goldman Sachs and further declines in US housing starts (lowest since Oct 2009) have weighed negatively on risk appetite. EURUSD is seen supported at $1.22770 trend line support, ahead of Fridays stress test.. AUDUSD seen retesting 0.8680. YEN CROSSES EXTEND LOSSES with EURJPY 113.40 once again proving key resistance before calling anticipated 111.20. AUDJPY eyes 75.55.

STERLING EXTENDS SELLING vs. USD and EUR as UK public sector borrowing hit a new record high in June reaching 21 bln, with net debt at 64% of GDP. UK July CBI Trends survey is due at 10 am GMT (11am BST) expected at -24 from -23. More data disappointment from the UK could see cable breach $1.5190, while GBPJPY is seen eyeing 131.70, after recurring failure of 133.40s. EURUSD touched $1.3028 and is expected to retest the level before preliminary $1.3080 and $1.3130 later in the week ahead. Barring any negative surprises from Fridays publication of the European stress tests, we could see EURUSD build a new floor above $1.29. EURGBP eyes 0.8580. GOLDMAN SACHS earnings before the bell and Apple after the Bell. HERE's the RECORDING OF ASHRAF's SUNDAY WEBINAR for Hamzei Analytics http://bit.ly/7Fnxe

Ashrafs INTERVIEW on BNN earlier today http://bit.ly/c08IiA discussing the euro resiliency, stress tests and the Canadian dollar ahead of Tuesdays Bank of Canada decision. The BoC is widely expected to add to last months 25-bp rate hike, with a similar tightening to 0.75%, but the CAD reaction shall depend on whether the BoC will downgrade its Q2 GDP outlook from the prior 3.8%. After flagging the Euro crisis as a risk, the BoC could well add the US slowdown to its red flags, in which case could lend support to USDCAD above 1.05. OIL MAKES ANOTHER decline from 77.30/40 region fukrther weighing on CAD, which could retest 1.0590-95.

STERLING WEAKEST OF THE LOT shrugging the rise in risk appetite and the resulting gains in EUR. The rally in EURUSD seems more sustainable than the bounce in US stocks, especially after the US NAHB housing survey slopped to 14 in July from a downwardly revised 16. Last weeks forecast for a lower EURGBP has further deteriorated after the clear breakout above the 0.84 resistance. Weekly stochastics in EURGBP point towards 0.8530 and 0.8580, purely on a technical play especially as the breach of the May trendline resistance ensues. Sticking with my $1.30 target for EURUSD followed by $1.3070, which could occur BEFORE the results of the European stress tests due on Friday at 16:00 GMT. WATCH US 10- yr YIELD flirt with 2.90% after more begative US data. CAD TRADERS WATCH FOR BoC RATE DECISION tomorrow, More on this later on.

MOODYs JOINS THE PARTY LATE AGAIN as it downgrades Ireland's bond rating to Aa2 from Aa, the same equivalent bond rating issued by S&P in December. Note that Fitch downgraded Ireland to AA- 13 months ago. Euro shrugs the news and rallies the recovery in late Asian session. Just as we saw EURUSD among the most MODEST losers against the USD during Fridays selloff, were seeing EURUSD a notable gainer in todays trading, which supports expectations for a $1.3030 today, followed by a possible $1.3130 later this week when Fed Chairman Ben Bernanke issues his semi annual testimony to Congress on Wednesday, further explaining the FOMCs downgrades of the US economy. See the chart of EURUSD vs GE-US 10 spread breaking trendline resistance http://www.ashraflaidi.com/articles/yen-takes-slack-from-usd.asp

Ashraf's Webinar with HamzeiAnalytics can be accessed here:

FULL RECORDING:

http://hamzeianalytics.com/Educational_Webinars.asp

Will need to install Citrix Codec linked there