Intraday Market Thoughts Archives

Forex markets are seeing more stablization than equities as yen crosses push higher and the pound rallies 6 cents from its lows to $1.5850. Remain alert with renewed risk aversion and deepening ewquity losses later into the US equity session, which has been the Modus Operandi especially on Fridays. Cable is already tunring faster from $1.5830 to $1.5767. $1.5600 may be retested today and further losses may be seen in early Monday Pacific trade.

FREEFALL IN FX AND EQUITY MARKETS. Sterling collapses by over 800 points (8 cents) to $1.5260, posting its biggest intraday decline since exchange rates became freely floated in 1971, reinforced by a bigger than expected 0.5% q/q decline in UK Q3 GDP, and a 0.3% y/y rise, versus expectations of a 0.2% q/q decline and below expectations. EURs decline vs USD is not as pronounced as GBP, hence the prolonged spike in EURGBP to a 2-month high of 81.00 pence from Wednesdays 77.5 pence. World equity markets are in virtual free fall, with trading on S&P500 mini contracts suspended for reaching limit down. A key reminder that the JPY is the best performer in USDJPY plunges by 7 yen to a 13-year low of 91.10 yen against the USD. US Treasuries are also rallying at their strongest in 13 years. Europn mkts drop by over 9%. Major interventions from authorities must be expected at start of trading on US Friday trading. Central bank rate cuts are not ruled out today.

ASIAN-DRIVEN risks are the culprits of the selloff in Asian equities and sharp reduction in appetite despite the late session rally in US equities, which boosted high yielding currencies against USD and JPY after the closing US bell. USD DROPS vs JPY TO FRESH 13-year LOW at 95.45. I warned of broad yen losses into Asian trade but these were short-lived as the downturn in risk was caused by ASIAN-CENTRIC dynamics such as 12% price slump in SONY, recession fears in Korea. I did, however warn against going long sterling ahead of Friday's release of UK Q3 GDP figures. Although JPY and USD are on the rebound, I warn of any excessive build up of risk-aversion trades into the US session as we may see the usual change of tone from the US trading session. Gold's tumble to a fresh 1-year low of $714 is also boosting the dollar's recovery.

Alerting traders of the ongoing change in risk appetite brought about by the late session rally in US stocks (Dow and S&P500), which is reversing the USD and JPY gains in favor of the AUD, NZD, GBP and CAD. And with Microsoft beating earnings by 1 cent, though not a considerable event, JPY and USD longs are warned that this reversal could accelerate in the Asian Friday session and into European trade. USDJPY seen testing 98.60, AUDJPY seen attaining 97, NZDJPY at 60, USDCAD could drop to as low as 1.22 and GBPUSD seen at $1.6420. But GBP bulls are also warned ahead of Friday's Q2 GDP release at 4.30 AM EST seen -0.5% q/q and 0.5% y/y.

Moderate stabilization in market sentiment led to a retreat in JPY and USD as stocks were in neutral territory, but both low yielders are regaining some strength. Market attention is shifting towards former Fed Chairman Greenspan's testimony to Congress who admits a flaw in the market ideology which he backed. Gold and oil are off their lows and dollar is off its highs. GBP did tumble to fresh lows below $1.6050 after a bounce to as high as $1.6350, but is now faring as the broad underperformer, thus likely to eye back $1.600s. USDJPY's recovery was limited to 97.70s, before being dragged down anew. Recall, yesterday's lows in USDJPY were the lowest since the 13-year lows of 95.70 seen in March.

3-month USD LIBOR fixing at 3.54%, unchanged from yesterday, while overnight USD-LIBOR rises to1.20% from 1.12%. TED spread (Eurodollar interest rate futures minus US T-bill) drops to 253 bps from yesterdays 260 bps and lat Fridays 399 bps. Yen crosses and high yielding are modestly higher, reflecting prolonged signs of risk aversion.

Ashraf explaining the strengthening dollar, rising yen, risk appetite and the falling Canadian dollar on CNBC and BNN

*** CNBC*** http://www.cnbc.com/id/15840232?video=900039051&play=1

*** BNN ***

http://watch.bnn.ca/trading-day/october-2008/trading-day-october-22-2008/#clip105141

ASHRAF's LIVE TV APPEARANCES: Today 2.35 pm on BNN. 3.40 pm on CNBC's Closing Bell. 440 pm on Bloomberg. All times are Standard Eastern Time.

EURUSD extends declines to a 24-month low of $1.2734, while bouncing by as much as 5 pence against GBP to a one-week high of 79.10 pence. Euros selloff against the dollar is a largely a result of collective outflows into USD-based funds, whether comprising forced selling due to client redemptions or mobilization of capital to USD-based cash such as T-bills. Oils decline below $70 and golds drop to a 7-week low of $747, is $10 above the 1-year low reached on September 11. Having breached below our $1.2870 target, EURUSD faces $1.2480, which is the low from Oct 2006, lying just above the 50% retracement of the rise from the Feb 2002 low (0.8605) to this years record high ($1.6038).

CHF atempts to join JPY as a safe haven low yielder, dragging USD over the last 4 hours from 1.1690 (USDCHF) to 1.16. One reason CHF has not fulfilled its role of rallying during recent bouts of rising risk aversion is fears about Switzerland's overall exposure to Continental Europe's banking crisis/recession. Note how EURCHF slumped to 5-year lows of 1.4830, reflecting Franc strength before rebounding in last 6 hours to 1.5040. USDCHF seen attempting 1.1950-1.20 over next 2 weeks.

Once again, sterling collapses well below my projected downside target, shedding 3 cents in the last 2 hours to accumulate more than 5 cents on the day and hit a fresh 5-year low of $1.6650. My $1.67 target was projected for later in the week but the combination of the worst CBI survey in 28 years and remarks from Bank of England Governor Mervyn King using the word recession and indicating that a sharp decline in UK inflation has opened the door for a 50-bp cut next month to 4.00%. Inflation has long been the main obstacle to these overdue BoE rate cuts, and such remarks comprise a major negative for the currency against USD (1.657), JPY (1.65) and CHF (1.87). Fed intervening in money market funds, Kerkorian disposing 6% of Fords stock and corp. earnings on the disappointing side underline the realities of the day for equities, risk appetite and high yielding FX. More downside for high yielders seen in Wednesday Asian session.

From my morning EURUSD analysis to CMC clients: "Theres no sign of improvement in sight for the euros short-term fundamental outlook as the currency falls into the category of shorts during rising risk aversion. The sympathy selloff spilling over from GBP as a result of plunging CBI trend survey served as a driver to the selling. With further UK data on hand this week, prospects for cross selling in European currencies against the dollar remain considerable. Interim target stands at 1.3160 and 1.3130. Major support stands at 1.3100, which is the low from March 2007." Now that we saw $1.31, euro bulls must be warned from a 70% chance of seeing $1.2870 before month end.

My negative bias GBPUSD remains intact especially as the focus turns to the deteriorating fundamentals of the UK. October CBI Quarterly Industrial Trends fell to a 5-year low at -39 from prior -26, while the Business Optimism index plunged to a 28-year low of -60 from -40. Such conditions pave the way for a 50-bp rate cut by the BoE next month. UK September retail sales and Q3 GDP on Wednesday and Thursday will provide further direction to GBP. Interim support stands at $1.6920, followed by $1.6880. Intensification of equity market selling makes $1.6730 possible as early as this week.

The Bank of Canada cuts rates by 25 bps to 2.25%, less than the anticipated 50-bps, two weeks after reducing them by 50 bps as part of the global coordinated easing. Canadian overnight rates are now at a 4-year low. Prior to todays 25-bp cut, each of the BoCs last three rate cuts were in the magnitude of 50-bps. Despite the smaller than expected rate cut, the BoC allows ground for further easing to achieve the 2 per cent inflation target over the medium term. USDCAD bullishness seen maintained into the rest of the year, targetting 1.25 in the ling term. Reduced risk appetite will also help empower the pair as has been the case during rising risk aversion.

My Interview with Bloomberg TV earlier on yen crosses, risk appetite and the dollar. Go to link, search under Ashraf Laidi and play the video.

http://www.bloomberg.com/

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aLaxwDKZUSQ0

Sterling has already reached the $1.71 target projected earlier for end of week. Interestingly, sterling's selloff is taking place despite accumulating gains in US stocks and a resulting bounce in yen crosses. Note how both GBP and EUR have lost ground against USD, while AUD and NZD have gained. Improved risk appetite is partly a consequence of Fed Chairman Bernanke's tacit support for additional fiscals stimulus. Nonetheless, GBP and EUR will struggle in waging any decent rebound as long as gold remaining below $800 per oz, and the UK data focus remains on the negative. UK retail sales and GDP are likely to redirect the burden on $1.6880 in cable.

GBP's negatiive bias remains intact on a combination of limited gains in risk appetite and widespread expectations of at least 50-bps in rate by the Bank of England this week. The positive correlation between equities and GBPUSD as well as yen crosses remains solid on an intraday basis , with the swap spread and LIBOR having secondary influence. UK Sept retail sales and Q3 GDP on Wednesday and Thursday will provide a key element to sterlings fundamental direction. $1.71 is seen as medium term target weeks end.

Risk appetite extends higher as credit markets are propped by a decline in the 3-month USD LIBOR fixing to 4.06% from Fridays 4.42% and a decline in the overnight LIBOR fixing to 1.51% from 1.67%. The TED spread (Eurodollar futures minus T-bill) to 327 bps from 399 bps. Dow futures are up 172 pts, compared to 270 pts up earlier. Market conditions are clearly superior to Fridays as far as risk appetite and volatility, but credit spreads and equity futures are off their best levels of the day. Yen currency crosses continue to closely mimic the aforementioned gauges of credit and equity market confidence, with rising currency rates (falling yen) reflecting improved risk appetite and falling rate (rising yen) indicating reduced appetite or more fear.This mornings 10 am testimony by Fed Chairman Bernanke is expected to preserve the downcast tone of his recent regarding speecches about the medium term outlook of the economy.