Intraday Market Thoughts Archives

Triple confluence resistance in US crude oil coupled with a rare bullish pattern is in synch with our technical take on ES and EURUSD. This will be the strategy for early Monday Asia followed and into Europe. Full direct access to charts & Premium Intermarket Insights here: Titled "Four Trading Charts Ahead of G20" http://ashraflaidi.com/products/sub01/access/?a=502 Click here for a 1-time 1 week Trial http://ashraflaidi.com/products/sub01/

Gold damage reaches the 100 day MA, a technical level last reached in February. Silver breaks well below the 55 week MA and is now vulnerable to further declines. See the full analysis and trades in our latest Premium Intermarket Insights here: Titled "Trading Ahead of G20" http://ashraflaidi.com/products/sub01/access/?a=502 Click for a 1-time 1 week Trial http://ashraflaidi.com/products/sub01/

Improved sentiment was short lived. European data continues to weaken. SNB bulletin reiterated determination over EURCHF peg. UK mortgage approvals highest since May 2010. Volatility could increase later today during FOMC member Dudley speech.

Overall sentiment improved over night after G20 statement recognized the fragility of EU financial system and promised to take all necessary actions to stabilize the financial sector and ensure that banks have sufficient liquidity. Details are not available yet but it seems that G20 plans to increase the flexibility of the EFSF and leverage it up.

However, the relief did not last long as risk aversion started to dominate again over the past few hours sending the greenback higher and equity markets lower. Comments by ECB governing council member Klaas Knot that developments in Greece are not encouraging and Greek default cannot be ruled out contributed to reemerging concerns.

European data disappointed again when Italian Retail sales dropped 2.4% in July on annual basis after a -1.1% print in June. French Consumer confidence fell to 80 in September from 86 in August.

In Switzerland, the SNB bulletin reiterated that the SNB will enforce CHF cap with utmost determination and that the SNB still sees CHF high so it should continue to weaken. The SNB warned that the economic growth could come to a halt in second half of 2011.

GBP was the relative strength winner today after BBA mortgage approvals in August increased to 35.2K from 33.7K which is the highest print since May 2010. GBPUSD reached a high of 1.5472 but has since lost most of the gains.

Sobering news came out of China today. In an article published by MNI, Chinese government economist warned that property bubble in China is bigger than the US housing bubble was and that it is set to burst. Property bubbles bring systemic risk and it might be even worse then the United States added a researcher at the Chinese Academy of Social Sciences.

There are no data releases during the NY session.

Market volatility could increase at 1:30 pm ET when Federal Reserve Bank of New York president and FOMC member William Dudley delivers a speech in Washington about readiness for the next financial crisis. Q&A session is expected after the speech.

Global recession fears grow as G20 leaders urge action on growth, Swiss National Bank quarterly bulletin, Italian retail sales set to rise.

In response to repeated warnings by IMF chief Christine Lagarde that the global economy is in a dangerous phase, some G20 countries drafted a letter signed by Australia, Korea, Britain, Indonesia and Korea and sent it to President Sarkozy in his role as chairman of the G20, urging decisive action to support confidence, growth and credibility. The letter added that Europe must look at all possible options to ensure long term stability, urging rapid implementation of the measures agreed on July 21st .

Last night's commitment by G20 leaders to a strong and coordinated international response to address the renewed challenges facing the global economy was a start, but markets are tired of the incessant jawboning without the ensuing follow-up actions.

Comments by ECB member Luc Coene, suggested that measures could be enacted as soon as next month if economic data continues to disappoint, suggesting a rate cut may be on the cards. Investors will be analysing Trichet's speech later tonight for any indications about that course of action.

In any case the US dollar has benefited the most as, hitting 8 month highs against a basket of currencies in an almost action replay of 2008, commodities, commodity currencies and equities sold off hard on growth slowdown fears.

Even gold has slumped as investors rotated capital back into cash to cover losses on trading books, or for margin calls.

Today's meetings of the G20 and the IMF is hoped will provide the necessary settings for some form of consensus with respect to the current crisis and produce steps to address current market concerns. All sort of speculation will grow for a weekend statement, but the bar of expectations has now risen.

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The Swiss National Bank quarterly bulletin is likely to focus on the recent strength of the Swiss franc and its impact on the Swiss economy. The bank is also likely to reiterate its determination to defend the new 1.20 peg against the euro. It has certainly been helped in this regard by the recent actions of the Fed which have seen a flight back to the US dollar, taking USDCHF back above 0.9000.

In Italy retail sales for July are expected to rise by 0.3%, negating the 0.2% fall seen in June. Even allowing for a decent figure here yesterdays announcement by the Italian government in slashing its growth forecasts for 2011 and 2012 has raised concerns that the recent budget cuts will only exacerbate the problems. With the ECB struggling and failing to keep a lid on Italian bond yields this will present a problem if the situation with respect to Greece continues to deteriorate with no agreement on the next tranche of bailout money and the troika set to return to Athens next week.

A second day of post-FOMC risk aversion left deep wounds in the risk trade and major technical damage on a number of fronts. AUD and NZD have led a bounce in early Asian trading as the market looks to the G20 for optimism. Japan is closed for a holiday.

It was truly a day of reckoning in markets as traders woke up to the reality that major economies are stagnant and the Fed is nearly tapped out. After deep falls in European trading most currencies stabilized in North America even as US stocks slumped.

Hopes for fiscal action are building as leaders meet in Washington for the G20. No communiqu is expected from the meeting but U.S. Tsy Sec Geithner hinted at the agenda, saying the US wants leaders to err on the side of providing more support. UK leaders later shot back, saying nations need coordinated action on fiscal consolidation.

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The other main topic will be stability in the banking sector, especially in Europe. Canadian Fin Min Flaherty warned there will be a global financial crisis if Europe doesnt deal with Greek problems. The FT reported that the EU will demand immediate recapitalization at 16 mid-sized banks but the European Banking Authority later denied the report.

With the data calendar light until markets close for the week, the G20 is the only credible hope for a reversal in market sentiment. As it stands, the declines in several currencies and commodities point to deepening technical weakness. EUR, CAD, AUD, Oil, silver and many others are clinging to critical levels.

With treasuries rallying and risk aversion at extreme levels, the knee jerk reaction is to buy USD/JPY but with the pair hovering near record lows, trepidation is holding traders in check. Comments on Thursday from Japanese leaders continued to repeat past warnings about taking decisive action against excessive yen rises but Fin Min Azumi also noted that yen rises will ease if confidence is restored. The final comment indicates that working to ensure stability (especially in Europe) is the governments chief priority, not intervention.

After our earlier update, we are issuing 2 new trades in EURUSD and 2 new trades in ESZ1 (SP500 Emini December), editing one of the day's earlier trades (which was not filled) and adding a new one after the other trade hit all limits. We are also issuing 1 new gold trade in addition to the 2 existing ones from earlier today. New charts on EURUSD, EURGBP and gold also added: Direct Access to subscribers http://ashraflaidi.com/products/sub01/access/?a=501 Non-members can get a trial here: http://ashraflaidi.com/products/sub01/

Our latest trades from the Premium Intermarket Insights are up. Deciding between chasing a move and fading the retracement will become the recurring questions as volatility surges and deleveraging deepens Here are the latest Premium Trades http://ashraflaidi.com/products/sub01/access/?a=501 Trialists can click here: http://ashraflaidi.com/products/sub01/

USD is stronger across the board with the exception of JPY in the ongoing session. Risk aversion is high and equity markets are deeply in red. EURUSD tumbled to 1.3427 on weak PMIs. Eurozone industrial orders dropped in July. Market turns to US Jobless claims, Canadian Retail sales.

European September PMIs all disappointed adding to growth concerns. Not only that they came out below expectations, they also confirmed further slowdown in both manufacturing and services sectors. Eurozone manufacturing PMI printed 48.4 from 49 showing a second sub 50 result back to back. Eurozone services PMI fell below 50 for the first time since August 2009 as it printed 49.1.

German manufacturing PMI fell to 50 from 50.9 and services PMI declined to 50.3 from 51.1. French manufacturing also showed second back to back contraction when it printed 47.3 from 49.1. French service sector still expanded but at a much slower rate as PMI printed 52.5 from previous 56.8.

Eurozone Industrial orders fell 2.1% in July from -1.2% in June which implies lower industrial production in the months ahead. Considering the disappointing PMIs and deterioration in sentiment, ECB rate cut is not far-fetched as the risk of a recession increases.

The NY session starts at 8:30 am ET with Jobless claims that are seen at 419K from previous 428K. Claims stubbornly continue to hover above the 400K mark and the trend from the past two months indicates that additional rise is likely.

Canadian Retail sales that are also due at 8:30 am ET are seen at -0.2% in July from previous 0.7%. However, Core sales are expected to increase 0.2% from -0.1%.

10:00 am ET will also bring August Leading indicators index expected lower at 0.2% from 0.9% and Eurozone Consumer confidence that is anticipated to worsen to -18 from previous -16.5.

Finance ministers and central bankers meet today at the G20 conference that will last till tomorrow. Washington also hosts annual IMF and World Bank meetings on the 23rd and 24th so expect volatility inducing comments.

This morning's European PMIs are expected to show further slowdown amid growth concerns, New Zealand GDP disappoints, Chinese HSBC manufacturing PMI remains in contraction, Swiss ZEW survey expected to show further weakness, Hang Seng hits 2-year low, US weekly jobless claims expected to fall back. Post-FOMC Premium Intermarket Insights hit more targets throughout Asia.

In the wake of all the concerns about the European banking system, concerns about new austerity programs for Greece, Italian bank downgrades and rising bond yields, we return to the small matter of economic data in Europe, and the release of flash PMI data for September with French, German and Euro zone services and manufacturing PMI data due.

With respect to manufacturing PMI, both France and Europe PMI both contracted in August, and they are both expected to contract further in September with French PMI expected to worsen from 49.1 to 48.6, and European PMI expected to worsen from 49 to 48.6.

It is the German data that will be of the most interest given that in August it did show expansion of 50.9, and it is expected to drop to 50.2, just about remaining in expansionary territory.

Any drop below 50 will increase fears, which are already elevated, that Europes largest economy is starting to misfire.

September services PMI data for all three are also expected to slip back, but they are all expected to remain in expansionary territory.

In New Zealand growth for the last quarter came in at 0.1% below expectations of 0.5%, and reducing any concerns that the RBNZ would be minded to raise rates in the near future, while last nights measures by the Fed are likely to continue to see the kiwi come under pressure with key support on the 200 day MA at 0.7975.

Ashrafs Post-FOMC Premium Intermarket Insights hit more targets throughout Asia. Unfortunately, the shorts in CADJPY and ES (SP500 minis) were not filled as the market fell precipitously. Here are the FULL PREMIUM TRADES on EURUSD, EURJPY, EURGBP,US Crude, S&P500, CADJPY, Gold & Silver. DIRECT ACCESS HERE: http://ashraflaidi.com/products/sub01/access/?a=499 Trialists link here: http://www.ashraflaidi.com/products/sub01/

In China manufacturing continues to show weakness with HSBC manufacturing PMI decreasing from last months 49.9 to come in at 49.4, falling to a two month low indicating a continuing slowdown in the wider economy.

The recent concerns about the rise in the Swiss franc and the implementation of the currency peg has been reinforced in recent days by the marked deterioration in Swiss economic data. Todays ZEW economic expectations is expected to show the impact the recent rise of the Swiss franc has had on economic expectations in Switzerland with hopes that it doesnt worsen from last months plunge to -71.4.

In the wake of operation twist yesterday US weekly jobless claims are expected to continue to highlight the continued problems with unemployment in the US.

Wednesday's Operation Twist by the Fed confirms US monetary policy will be inadequately dovish to boost EURUSD and weigh on USD. More EURUSD losses to come. Meanwhile, the ECB will continue shifting to lower gear as GERMANY halts. Here are the charts & analysis: http://ashraflaidi.com/articles/fed-twist-ecb-turn-euro-shouts.asp

The Fed implemented an aggressive $400 billion Operation Twist but it wasnt enough to satisfy the nervous market. NZD and AUD fell badly after the decision while USD and JPY led. The second quarter report on NZ GDP is up next. Ashraf's Premium calls produced 4/4 in EURUSD & 2/2 in EURUSD. New Trades were added later in the day. See below.

The Federal Reserve unveiled a plan to sell maturities out to three years and invest the proceeds in 6-30yr Treasuries at Wednesdays FOMC meeting. The Fed will also re-invest expiring Agencies (and MBS) in an effort to lower home-lending costs.

This so-called Operation Twist was slightly more aggressive than the $250-$300 billion consensus but the failure to hint at QE3 left the market wanting more. A warning that the Fed sees significant downside risks to the economic outlook compounded the negative sentiment.

The dollar rallied immediately and strongly. EUR/USD fell below 1.36 from nearly 1.38 prior to the statement. Similar dollar gains came against AUD, GBP, CAD and NZD.

Technically, the moves in EUR/USD, USD/CAD and AUD/USD look convincing.

Stocks appear to be falling into their familiar pattern of kicking and screaming when they dont get what they want (QE3, in this case). The S&P 500 fell 2.9% to 1167. Downward pressure also came from downgrades to Bank of America, Wells Fargo and several Italian banks.

The rumor mill was busy in the hours before the FOMC decision including talk of a French government bank recapitalization, an Austrian downgrade and the resignation of Italian PM Berlusconi. None of which came to pass.

Asia-Pacific Preview

Early in the session, at 2245 GMT, New Zealand will release Q2 GDP. The consensus is for a 0.5% q/q rise. Bollard was hawkish earlier, saying rates will need to rise but that didnt stop the 150 pip post-FOMC crash in NZD/USD. A break below 0.7969 in the pair and things will start to get ugly. Soft GDP could be the trigger.

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Otherwise the calendar is quiet but with the market digesting ratings cuts, rumours and the FOMC decision, there should be plenty of movement in Asia.

The FOMC has done what was expected via Operation Twist, buying the same amount of Treasuries ($400 bln) as it will sell, meaning there will be NO expansion in its balance sheet, hence a positive for USD. This explains the overall bounce in USD. And the fact that the Fed stayed away from cutting interest rate on overnight reserves is another positive for USD & negative for equity indices. Our EURUSD & ES (S&P500 e mini Dec contract) calls posted after the FOMC decision already hit all targets, therefore we are issuing 2 new trades in both instruments as well as new trades in EURJPY, EURGBP, ES and US crude. http://ashraflaidi.com/products/sub01/access/?a=499 NON-subscribers click here http://ashraflaidi.com/products/sub01/

We will issue Premium trades after todays FOMC meeting. The decision (due at 14:15 EST, 18:15 GMT) will be a complex one as it expected to contain 1) undetermined size of buying and selling of treasuries; 2) further downgrade of the economic outlook and 3) looming dissent from some FOMC members. Speculation is centered on a roughly 70% chance of an Operation Twist; announced $200-$400 billion in selling short term treasuries, which will be reinvested at maturities around 10 years. There is also a roughly 40% chance of a 0.25% cut in the interest rate on excess reserves. Chances of an outright QE3 announcement are merely 10%. Market is seen selling USD and buy metals and equities in the UNlikely event that outright QE3 is done (without Twist). $1.3750 will be a key level to watch at the NY close. Whipsaws in FX, commodities, equities and bonds will be unavoidable. We will cover the market LIVE on Twitter Live at @alaidi and @alaidiPremiumFX To subscribe to our Premium Intermarket Insight, click here: http://ashraflaidi.com/products/sub01

Ashraf

Bank of England minutes could show more dovish MPC, more delays on Greece as troika teleconference finishes with no agreement, Japanese trade numbers swing to deficit, BoJ make no comment regarding intervention after the sharp bounce in USDJPY, FOMC decision due at at 14:15 ET (18:15 GMT)

Today's focus in the UK will be on the Bank of England minutes (4:30 ET, 8:30 GMT) of the last MPC meeting earlier this month, and the discussions had by the members of the committee will be particularly relevance given yesterdays downgrade of UK growth forecasts by the IMF. Of particular interest will be whether any members join Adam Posen in calling for further measures to stimulate economic growth. If more than two members join Posen in pressing for more QE the likelihood of a rate cut in October will increase significantly.

On the Greece debt drama, the IMF said Athens is facing a EUR 4.6 bln shortfall in its 2012 deficit target, while Greece fin min says he is confident the IMF will disburse the remaining EUR 8 bln tranche.

Last nights teleconference between the troika and the Greek government once again broke up with no agreement, which doesnt inspire too much in the way of confidence that an agreement is imminent. The EU issued a statement that stated that good progress was being made and that the troika would return to Athens next week after the IMFs semia-annual meeting where there is likely to be further discussions. As an exercise in political brinksmanship it is hard to match and it is likely that the discussions could well continue right up to the point when Greece actually needs the money in October. If that is in fact the case it doesnt inspire much in the way of optimism.

Japanese trade numbers for August continue to highlight the impact the strong yen is having on Japanese exports after the numbers came in much worse than expected, due to a sharp drop in export growth. The trade deficit totalled 775.3bn yen, way worse than expected, compared to July's 72.5bn surplus. The biggest drop in exports came as exports to Taiwan and the Philippines, dropped sharply.

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Later on this evening the Fed is set to conclude its two day meeting in the wake of a highly controversial intervention by Republican leaders, who in a letter to Bernanke urged him to refrain from further measures to stimulate the economy. This intervention is slightly controversial because the Federal Reserve is an independent body and should be seen to be outside of political influence.

In any case Bernanke's options appear somewhat limited and markets arent likely to move too much ahead of the announcement.

Ashraf's 9-minute interview with CNBC Arabia's AlHaseela giving his assessment and solution to the European banking and sovereign debt crises

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Markets tingled with anticipation on Tuesday about the FOMC meeting and a resolution to the latest round of Greek aid talks. JPY and GBP were top performers while CHF and CAD lagged. Japanese trade data and Australian inflation expectations are up next. Ashraf's Premium trades ahead of tomrrow's FOMC decision are activated. " new trades on EURUSD, EURGBP, EURJPY, S&P500 E-mini, gold and silver.

Rumours of a hike in the EUR/CHF peg jumpstarted trading on Tuesday and sent the pair to 1.2240 in a heartbeat. The chatter turned out to be false but the pair was able to stabilize around 1.2150.

Outside of CHF, market moves were relatively small as the traders anticipate the FOMC decision on Wednesday and the release of the next 8 billion aid tranche for Greece.

Speculation the aid could be approved imminently drove EUR higher in early trade despite the Italian downgrade. Near the end of the session stocks and risk appetite slipped on a Greek news agency report that the decision would be delayed until early October. This report later proved false and the result of Tuesdays Troika teleconference was a dud leaders said there was progress and that they will continue to meet on the weekend.

FOMC speculation is centered on a roughly 70% chance that an Operation Twist will be announced that includes $200-$400 billion in short-dated sales that will be reinvested at maturities around 10 years. There is also a roughly 40% chance of cut to the 0.25% rate of interest on excess reserves. We estimate the chance of a QE3 announcement at around 10% but the market may sell USD and buy gold ahead of the decision on the outside chance that this occurs.

Overall, we expect choppy trading through the FOMC decision as this will be new territory for the Fed and the market.

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Economic news was light but US housing starts fell to 571K in August from 601K in July and missed the 590K consensus. The IMF downgraded its global growth forecast to 4.0% from 4.3%.

Asia-Pacific Preview

Japanese trade balance data will be released at 2350 GMT with a 300B deficit expected following the 72B surplus reported in July.

At 0100 GMT, the focus turns to Australia and the Melbourne Institutes consumer inflation expectations report. Last month, the survey stood at 2.8% for the coming year but that may decline due to revisions lower in the CPI.

The Feds much anticipated twist operation will be USD-positive as long as it constitutes no increase in the Fed's balance sheet. Some say a potential surprise could be the Fed will do outright QE3 and no Twist (ie no selling of treasuries) in which case would be a clearly USD-negative. This is unlikely as the Fed usually signals its moves weeks ahead. Meanwhile, todays ZEW survey from Germany points to a looming contraction in the Eurozones largest economy. Here today's PREMIUM TRADES on EURUSD (2 trades), EURJPY, EURGBP, Gold, Silver, S&P 500 futures & more. http://ashraflaidi.com/products/sub01/access/?a=498 Non subscribers can click here: http://ashraflaidi.com/products/sub01/

Ashraf

Italy downgraded by S&P, Greek troika meeting set to resume, German ZEW survey due at 9 GMT may show further weakness, Swiss trade balance surplus shrinks further, RBA minutes show hawkish tone softening, Greece denies referendum on Eurozone exit.

Europe remains in focus this morning after ratings agency Standard and Poors beat Moodys to the punch last night and downgraded Italys sovereign credit rating one notch with a negative outlook, citing weak growth prospects and an uncertain political environment.

Greece officials say a new conference call with the EU/IMF will be held at 17:00 GMT. The latest meeting of the troika and Greek ministers ended last night on a slightly more optimistic note with talk of a deal being close, with talks set to resume later today on the basis that some work still needs to be done to arrive at an agreement.

The latest German ZEW economic sentiment survey for September is expected to continue to weaken from Augusts disappointing number of -37.6, sinking further to -45, as the fallout from the sovereign debt situation in Europe continues to weigh on sentiment. The European equivalent is also expected to weaken further from -40, to -42.3. German Producer prices for August are also expected to weaken with expectations that they will remain flat, down from Julys 0.7% rise, and underscoring the fact that the next move in interest rates is likely to be to the downside.

In Switzerland the August trade surplus shrank to CHF 0.81 bln from CHF, with exports -7% from previous -3% owing to the soaring price of the Swiss franc.

The latest minutes from the RBA showed policymaker have increasing concerns about the fall-out from the European sovereign debt crisis in Europe, after they kept rates unchanged at 4.75% at the last meeting. With so much uncertainty in global markets members felt it prudent to continue the wait and see approach. This accounts for the recent weaker tone in the Australian dollar, as well as some recent weakness in the economy as well as concerns about a slowdown in one of Australias key exports markets in China, with copper hitting 9 month lows yesterday.

In the US the latest housing starts data for August is expected to show further weakness, as is the building permits data ahead of the start of the latest FOMC meeting which concludes tomorrow.

Declines in gold, oil and stocks knocked down commodity currencies on Monday amidst fresh concern and rumours about Greece. The yen was the best performer, followed by USD while the Australian and Canadian dollars lagged badly. The RBA minutes will be the highlight of Asia-Pacific trading.

Talk of a Greek default proliferated after weekend Troika and EcoFin meetings failed to take action to stabilize the European periphery. Greece is expecting (and needs) a quarterly aid tranche before the end of the month. EUR/USD fell below 1.36 in early North American trading but bounced back to 1.3675 after Greeces Fim Min said a call with the Troika was productive and reports circulated that the 8B tranche is close to approval.

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Rumours were driving a large portion of trading. There was talk that Greece may hold a referendum on remaining in the Eurozone. The FT also reported that German industrial giant Siemens withdrew more than 500m from a large French bank two weeks ago and transferred it to an account at the ECB.

After the euro recovered, the big story became the sharp falls in AUD and CAD. The mix of risk aversion and commodity price declines pushed AUD/USD to the lowest since Aug 10. Gold fell 2% to $1778, oil 2.6% to $85.70 and copper 3.8% to $3.78. The S&P 500 fell 1% to 1204; shrugging off declines three times larger at European bourses.

Technically it was bullish day for the US dollar and yen as they gapped higher against all their major trading counterparts. The AUD and CAD charts look particularly bearish.

Economic data was minimal but negative as the NAHB housing index fell to +14 from +15 the worst since June. Obama laid a plan to raise $3.6 trillion over the coming decade including a new income tax on those earning more than $1 million per year.

RBA Minutes

The lone event on the calendar for the upcoming Asia-Pacific schedule is the release of the Sept. 6 RBA minutes. The Australian dollar has been trending lower since the decision to hold rates at 4.75%. The market would like more clarity about the RBAs view on inflation after the statement said it was concerned about the medium-term outlook because measures of underlying inflation have been increasing this year. Note, however, that last week the Australian Bureau of Statistics revised Q2 CPI substantially lower, helping to mitigate those concerns.

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Ashraf

We revert to trading the "impulsive move" after last week's corrective move saw a temporary bounce in risk appetite. Euro extends losses on increased doubts that Athens will receive its next loan tranche for EUR 8.0bln, which must be obtained by October before it runs of funds. Click here for the day's Premium Trades & Charts http://ashraflaidi.com/products/sub01/access/?a=497 Non-members can can get a FIRST-TIME 1-week trial here: http://ashraflaidi.com/products/sub01/access/

Ashraf

Euro extends selloff, EURUSD below 1.37, metals add on to gains, ECB's Liikanen talks of rapidly deterioration in global situation, NAHB Housing market index is next; later teleconference between EU/IMF and Greece. Dow futures -128 pts, S&P500 futures -17 pts.

The common currency continues to weaken amid mounting concerns over Greece. After gapping sharply lower on Asian open, EURUSD recovered a portion of its losses. However, the recovery was short lived and London traders pushed EURUSD below previous lows all the way to 1.3635 wiping all the gains Euro made as a consequence of last Thursday's liquidity measures.

The Greek situation continues to weigh in on the markets as EUR 8 bln was withheld by ECB/EU/IMF troika and Greece finances will last only a few more weeks. Additional austerity measures that are likely to be demanded will be difficult to pass given the opposition. Calls for new elections by the leader of the opposition were dismissed but show how divided Greek political scene is during this turbulent time.

Overall sentiment is worsening, sending most European equity markets deep in red, after ECB governing council member Erkki Liikanen said that the outlook for the world economy has rapidly deteriorated and that the Eurozone faces substantial downside risks. He also added that if Europe fails to constrain the crisis, it could undermine global growth.

There is only one data release during the NY session at 10:00 am ET. The National Association of Home Builders releases its Housing Market index that is expected to remain steady at 15. Throughout the year, readings have been within a narrow 13 and 17 range.

Greek finance ministry announced that a conference call between EU/IMF and Greece will take place at 12 pm ET which could prove to be a market mover. The CAD could also experience a degree of volatility at 2:00 pm when BOC governor Timothy Lane speaks in Toronto.

The key event this week will be undoubtedly be FOMC meeting scheduled for Tuesday and Wednesday. Should the FED announce "Operation Twist" the net effect could be USD positive. More on Operation Twist In Ashraf's premium piece here: http://ashraflaidi.com/products/sub01/access/?a=496

Europe uncertainty set to continue as troika returns to Athens, Greek PM cancels US trip, Ecofin meeting ends without progress, Merkel suffers another election setback, Bank of England quarterly bulletin set to increase calls for more QE.

Despite last weeks measures by central banks to bolster confidence in the banking system, it seems likely that events at the weekend in Europe could well keep the outlook uncertain.

The failure of EU leaders to come to any form of agreement in Poland merely serves to highlight the political paralysis at the heart of Europe as markets continue to dictate policy responses rather than the other way round.

The IMF troika return to Athens today to assess whether Greek politicians have done enough to reassure them that Greece will be able to meet its obligations for 2011 and 2012, with fresh measures to help balance the books. This is likely to keep investors nervous, given that Greek PM Papandreou has delayed a trip to the US at the request of his finance minister.

The delay until October of the next bailout tranche by EU leaders has prompted speculation that Greece could be on the verge of defaulting, and uncertainty about the political situation in Europe hasnt been helped by weekend events in Germany.

Angela Merkel suffered her sixth election defeat in seven this year after her party was beaten into second place in the Berlin state elections. More damaging than that was the wiping out of her coalition partners the FDP, who dropped to only 2% of the vote, and throws into doubt the ability of her to muster support going forward for the changes agreed at the 21st July meeting for changes to the bailout fund, which are due to be voted upon in the German parliament on September 29th.

In the UK, the latest Bank of England quarterly bulletin makes for sobering reading and paints a bleak picture as well as giving some indication of the likelihood of further QE. Although the report provides evidence that quantitative easing measures were effective in boosting growth, it points out that the effects of QE may be different if implemented a second time around.

The report warns that the economic circumstances for further asset purchases are "very different from those that prevailed in 2009, so it cannot be assumed that the effects will be the same."

The risk rally continued on Friday but the euro declined on Greek worries and after Geithners trip to Europe fell flat. We expect this week's FOMC meeting to produce an inadequate policy response. See Ashraf's Premium Trades below. NZD and CAD led while CHF and EUR lagged. Fridays CFTC report showed the USD gaining favour. CFTC & weekly levels below.

Geithner traveled to Poland and spoke for 30 minutes to EU finance ministers in what appears to have been a one-way exchange. European leaders reacted petulantly to the speech. Austrias fin min said it was peculiar that Americans have significantly worse fundamental data than the euro zone that they tell us what we should do and that he expected Geithner would listen to what they had to say.

The exchange appeared to have little effect on markets but underscored the difficulty of US-European political cooperation.

Greece was in focus but Eurogroup meetings appeared to fall flat with decisions about Greece postponed until early October. A report said Greece will hold a conference call with the troika on Monday to ask that bailout funds be accelerated due to cash shortfalls. EUR/USD fell slightly below 1.38 early in London trading and stayed in that range for the remainder of the day.

The UMich consumer sentiment survey for September rebounded to 57.8 from the August reading of 55.7. This was slightly above the 57.3 consensus.

Gold gained $31 to $1810, Silver gained $1.22 to $40.73 and oil fell 1.51 to 87.89. The S&P 500 rose 7 points, or 0.6%, to 1216 and climbed 5.4% on the week.

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Weekly Charts

USD/JPY closed the past six weeks at virtually the same level (76.76). The bias remains strongly to the downside here but we need to see a close below 76.00.

Cable had its lowest close since Jan. 2. If it didnt bounce with the risk rally this week, it should continue to fall.

USDCAD firmly rejected parity but the bias isnt outright bearish until a close below 0.9723. Oil also needs to get above $92.

Without knowing that stocks rose all five days this week, we might be tempted by the AUD chart. Knowing the risk profile, there isnt a case for AUD longs here.

EUR/USD looks like a standard retracement after a breakdown. If you were selling bounces, there may be another bounce to sell.

Gold and silver both respected the weekly, upward trendlines.

CAD and EUR were the top performers on the week; AUD and GBP lagged.

CFTC Commitment of Traders

The overall USD position is now nearly flat as the dollar made gains against every currency except JPY. AUD, NZD CHF and JPY are in net long position while EUR, GBP and now CAD are held short. The net yen long increased 2K to 35K. EUR shorts increased 18K to 54K. GBP shorts climbed 18K to 26K. Despite CAD gains, traders pushed it into a net short position at -8K from +2K a week ago. Its the most bearish CAD position since mid-2009. AUD longs fell 11K to +37K and NZD positioning was unchanged at +18K.