Intraday Market Thoughts Archives

Germany's IFO showed the first increase rise in 4 months, while the ECB announced LTRO repayments of €8.123 bn, well above the average repaid so far. The yen is the day's biggest gainer, followed by the Swiss franc, with the same applies for the week. This supports our indication in April that the yen has not lost its safe haven appeal during falling sessions in equities exceeding 1.0%. The Nikkei managed to close in the black this week, recovering 600 points during the session. Next week's support stands at 13,720. EURUSD posts its 1^st rising week after 2 straight declines attempting to close above its 55-WMA. Having won half of the battle via its pledge to start the OMT, the ECB succeeded in suppressing bond yields and stabilizing the euro. The ECB must now lead a similarly aggressive plan for reviving the economy. The Eurozone posted posted its 6^th consecutive quarterly GDP contraction, Italy and Spain are in their 7^th consecutive negative quarters, France posted another 2.0% decline in Q1, while Germany narrowly escaped a double dip after edging up 0.1% in Q1. Draghi has no choice but to do more. And with 1.2% inflation at 3-year lows, well below the ECB's 2.0% target, Germany has no excuse to veto further easing.  GBPUSD falls for the 3^rd straight week. GBP, CAD and AUD are the only decliners vs USD this week . 2 USDCAD,  2 EURUSD, 1 of 2 USDJPY, 2 of 2 EURJPY and 1 silver trades are in progress, while 2 AUDUSD await fill. All of these trades are in the latest Premium Insights.

After four months of exuberance markets had had a few hours of pure fright on Thursday but the near-panic that gripped Japan never spread beyond its borders. The dollar and yen have drifted lower as fears subside. DRAGHI'S speech hailed the effectiveness of the bond buy program on the market but remained concerned with the macroeconomic weakness in the periphery. There were no refefences to interest rates. BOJ Governor Kuroda speaks in the upcoming session when all eyes will be fixed on Japanese markets. Added 1 USDJPY, 2 New EURJPY, 1 new USDCAD and moved the stops and targets in both of our existing EURUSD trades ahead of tomorrow's release of German Q1 GDP and IFO. All of this and the silver as well as the Aussie trades are in the latest Premium Insights. 

The FOMC minutes summed up Bernanke's testimony; more progress is needed in the economy before QE is slowed. The US dollar was the best performer Wednesday while commodity currencies sank.  Data from China is in the spotlight with the HSBC China PMI. 2 new EURUSD & 2 new EURJPY have been issued after 4 trades hit all targets, including both EURUSD longs, while EURGBP were stopped out. Access to the latest trades is seen in the latest Premium Insights.

The Fed's repetitive references to tapering asset purchases and increasing them are the latest rhetorical tool in guiding market sentiment. As the economy cools off, the doves at the Fed are on a mission to restore a more symmetric rhetoric, following a hawkish narrative prevailing in the first 3 months of the year. Only this time, the yen's occasional gains during rare risk aversion become an opportunity to ... continue here...

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A top Fed official shot down near-term tapering speculation ahead of Bernanke's testimony. The euro was the top performer while the pound lagged after soft UK inflation data. The Bank of Japan decision in is the major event on the calendar. GBP traders await the release of Wednesday's retail sales, followed by Thursday's release of the revised UK Q1 GDP, which may produce a positive combination for the pair and possibly cap EURGBP. Both of last night's EURUSD are in progress as is GBPUSD, both USDCAD, 1 CADJPY, 2 EURGBP and 1 silver, all seen in the latest Premium Insights.

NY Fed President Dudley said risks to the Fed's monthly QE program are double-sided, saying purchases could be increased or decreased. He seemed to brush off the idea of tapering in the next few months, saying it would take a 'material' change in the labor or inflation outlook to change course.

St. Louis Fed President Bullard – who has been hawkish in the past – was more explicit, saying he can't envision a good case for tapering unless inflation turns around.

The US dollar's response to the comments was somewhat surprising. In the past, comments promoting tapering have boosted the dollar but the opposite didn't occur here. The lack of a significant dollar sell off following the comments suggests either 1) more than Fed talk is underpinning the dollar rally 2) the market wants to wait and see what Bernanke says Wednesday.

The market could also be apprehensive about the upcoming Bank of Japan rate decision.

The BOJ will get a final, and perhaps invaluable, piece of information before its announcement. At 2350 GMT, April trade balance numbers will be released. This is the first month of data following the doubling of QE and drop in the yen in early April. Exports are expected to rise 5.4% y/y with imports climbing 6.7% y/y.

For Aussie traders, the Westpac consumer confidence numbers will be released at 0030 GMT and the DEWR report on skilled vacancies at 2100. It's rare for either data point to move the market.

Expectations for the BOJ are fairly low but there could be significant policy signals in the bond market. In the past 10 days, 10-year JGB yields have risen to 0.88% from 0.60% and officials are worried. The BOJ response could be as simple as jawboning but they could go much further. The problem is that, in terms of raising inflation expectations, the higher yields are positive.

If the BOJ signals a strong stance against rising yields the yen is likely to drop. If they signal a willingness to let yields rise, the yen could turn around.

Lower than expected UK inflation weighed on GBP across the board and boosted EURGBP towards its 200-WMA, but GBPUSD remained above 1.51 amid traders' unwillingness to extend USD longs ahead of Bernanke's speech tomorrow. The Fed Chairman's annual testimony to Congress' Joint Economic Committee will likely sound off a balanced approach aimed at keeping the door to the possibility of tapering asset purchases when the data warrants it, but knee-jerk selling in USD is likely to emerge on the existing likelihood that the Fed will also be able to increase QE, a notion that the central bank will not want to be displaced from market expectations. GBP traders will also see the release of tomorrow's retail sales, followed by Thursday's release of the revised UK Q1 GDP, which may produce a positive combination for the pair and possibly cap EURGBP. Both of last night's EURUSD are in progress as is GBPUSD, both USDCAD, 1 CADJPY, 2 EURGBP and 1 silver, all seen in the latest Premium Insights.

The US dollar slid lower on Monday as moves were a mirror image of the dollar strength on Friday but the bigger story was volatility in precious metals. The Fed's Evans was upbeat on the economy which is a step toward QE tapering. The calendar in Asia is light as the BOJ starts its two-day meeting. Also stay tune for the RBA minutes of this month's RBA rate cut. Some Premium subscribers wondered why Ashraf issued 2 new shorts on Silver on Friday afternoon in a day when gold's decline stole the headlines. 1 of the 2 XAGUSD shorts hit its final targets, while the other remains in progress. Both USDCAD longs are working as well as 1 CADJPY long. Full details on these remaining trades are seen in the latest Premium Insights. A new edition is to be issued on Tuesday.

Ashraf recommending selling silver on Friday and it crashed 7% in spectacular fashion shortly after the open on Monday. The explanation on why gold was avoided is included in silver's Premium note. That was only the beginning, however, as the precious metal stormed back and closed nearly 3% higher on the day. A similar pattern played out in gold, albeit on a smaller scale as it traded down to $1338 and the jumped to $1400.

It's difficult to draw conclusions from the wild price action in metals. The rebound may only be a temporary blip or it could be due to a squeeze on an otherwise quiet day. Generally, the kind of volatility we see in metals frightens longer-term investors and they head to the sidelines.

At the moment, the broader FX market is caught in a chop. The dollar strength on Friday was nearly perfectly wiped out today, showing no near-term trend in the market.

The US dollar remains in focus ahead of comments from Dudley on Tuesday and Bernanke on Wednesday. Hints about tapering could lead to extended USD gains. Clues might have come from Chicago Fed President Evans, who is normally one of the most-dovish Fed members. Evans noted a quickly improving economy and said he would agree to taper QE if he was confident the labor market would continue to improve. Similar comments from Bernanke would lead to USD strength.

The calendar for Asia-Pacific trading in the upcoming session lacks any kind of strong catalyst. The BOJ begins its two-day meeting but there won't be any announcement until Wednesday.

Two events on the calendar might attract some interest. The first is the Q2 report on inflation expectations from New Zealand's central bank at 0300 GMT. The market is leaning toward a rate hike late in the year or in early 2014 but there are some worries about house price inflation which could move that forward. Signs of high inflation expectations in this report could help NZD rebound.

The RBA minutes of this month's rate cut will be released at 1:30 GMT as traders look for signs of further easing. Rather than the beginning of a new easing campaign, this month's rate cut action is ikely to have been an isolated move, which may be followed by subsequent measures.

At 0430 GMT, Japan publishes the all-industry activity index for March. It's a laggy data point and misses in more-important data points have done almost nothing to JPY but it bears watching. The consensus estimate is -0.4%.

Fresh 14-year highs for the FTSE-100 at 6755.63, a slow but growing share participation above the 200-DMA, continued sector strength and an 11-month period of no change in BoE asset purchases suggest the following charts and concluded target for the index.

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We look at recent measures in Japan and the risk of a stronger recovery. The US dollar was the best performer last week while the Australian dollar lagged. The calendar is light to start the week. Both of Friday's 2 new USDCAD longs and the shorts in silver are now in progress as well as is USDJPY.

With Abenomics and aggressive BOJ money printing, Japan is performing two of the riskiest economic experiments in a generation. First quarter GDP was exceedingly strong, machine orders have rebounded, stocks are soaring and with the yen weakening the risks are of a strong recovery.

Separately, Japanese Economy minister Akira Amari told the media “If the yen keeps on weakening a lot more, it will have a negative impact on peoples' lives", responding to questions over how far the yen should weaken. Such remarks may be the latest catalyst to temper yen weakness before the next phase.

The bond market jitters last week could shift to FX on signs that Japan could be leading western growth. More upbeat growth could reverse yen weakness but mixed signs on confidence in the bond market could spark wild volatility.

Abe made a round of stimulus announcements on Friday and one in particular could have long-term implications for business creation. Under the current system, bank often ask entrepreneurs to personally guarantee the debts of the business. Abe said his government is drawing up guidelines to separate founders' personal and business debts. He is also loosening up visa and foreign study regulations, showing that Japan may open its economy.

Chinese released April house price data on the weekend and it showed a 1% rise in April compared to 1.2% a month earlier, showing that government measures introduced in March might be slowing the pace of appreciation. There are certainly reasons to be concerned about a bubble with prices up 4.9% y/y and more than 10% in Beijing.

Bernanke delivered a speech to graduating students on Saturday but it didn't touch on monetary policy or the economic outlook. The Chairman testifies to Congress on Wednesday.

Commitments of Traders

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

EUR -47K vs -34K prior JPY -88K vs -79K prior GBP -65K vs -63K prior AUD -13K vs +6K prior CAD -44K vs -52K prior NZD +23K vs +29K prior CHF -15K vs -4K prior US Dollar Index longs at 35K vs 32K prior

The AUD positions has shifted to net short for the first time since June 2012 after a 6% two-week decline. What's interesting is that NZD speculators continue to hang on, that could lead to some relative kiwi weakness in the days ahead.