Intraday Market Thoughts Archives

USDJPY may extend gains to as high as 98.30 as risk appetite improves on the fact that payrolls fell by less than the feared 300K. But stay alert of flows reversals at the London close and towards the NY close, at which point equities retreat and yen pairs follow lower. 97.40 and 96.80 infocus.

US October payrolls dropped 240K from a decline of 284K (revised from -159K), with the unemployment rate soaring to 6.5% from 6.1%, the highest since March 1994. The upward revisions in the August and September payroll declines amounted to 419K, not seen in at least the last 25 years. Dollar drops across the board with the exception of the yen as equity futures edge higher on the relief that payrolls' decrease did not show a 300K print. Nonetheless, the pace of downward revisions and rapid rise in the unemployment rate raises chances of 8.% print by end of 2009.

GBPUSD extends its tumble after earlier whispaw, breaching below $1.57 to $1.5660, in line with my early morning analysis. As I mentioned in today's article, GBPUSD has more downside to as low as $1.53, facing a lose-lose situation into tomorrow's US jobs report. An ugly report (payrolls decline of more than 300K) will further punish risk appetite including high yileding currencies such as GBP, while a better than expected report could also weigh on the currency. Today's 150-bp rate cut is a historic move by all absolute measures, and the currency repercussions are similarly tremendous. Cable's low for the year could bottom at $1.50, but the $1.45 target may not emerge until the next round of equity market turbulence, foreseen in mid Q1 2009.

The European Central Bank did not surprise as it reduced its refinancing rate by 50-bps to 3.25%. ECBs president JC Trichet will deliver the post-announcement press conference at 8.30 am EST, at the same time of the release of US weekly jobless claims (exp at 480K). GBPUSD drops back to $1.5905 from a post rate cut high of $1.6040 and EURUSD drops by a full cent to $1.2750. GBPUSD seen gradually dropping back below $1.5820 and into $1.5770. NOTE. BoE rates are now at their lowest since 1950s.

Bank of England shocks with a 150-bp rate cut to 3.00% (lowest level since 1950s) against expectations of 50-75-bp cut, making the biggest rate cut since the central bank acquired operation independence 11 years ago. The Swiss National Bank also surprised with a 50-bp rate cut to 1.75%. Sterling collapsed by a full 2 cents in less than 3 minutes to $1.5710 before jumping back by more than 3 cents towards $1.6020, as risk appetite gets a short in the arm. The rate cut is now lifting expectations that the 7.45 am EST decision by the European Central Bank could exceed expectations of a 50-bps cut and deliver a 75-bp cut to 2.250%.

Ashraf Discusses the CANADIAN DOLLAR http://watch.bnn.ca/trading-day/november-2008/trading-day-november-5-2008/#clip109518

Sterling Alert: Theres now talk of a 100-bps interest rate cut from the Bank of England (decision at 7.00 am EST) as the shadow Monetary Policy Committee (Committee of well known British economists assuming the role of a fictitious MPC created by the Times of London) votes for the aggressive option. Consensus is split between a 50 bps and a 75-bp rate cut from the current level of 4.50%. Wednesdays 5% plunge in the Dow and S&P500 added to the sharp selling in high yielding currencies and expectations of at least 50-bps by the BoE maintains GBP under pressure. With BoE rate cuts having typically taken the more conservative approach, we see a 60% chance of a 50-bp cut, versus 40% chance for a 75-bp cut. Sterling to remain on the downside, facing resistance at $1.62, with initial support at towards $1.5600 and $1.5300. Any recovery above 1.66 remains untenable before Fridays US labor report.

EURUSD awaits Thursdays ECB rate decision and press conference, with a 50-bp rate cut to 3.25% fully priced in the market. While ECBs Trichet may trigger prolonged losses by expressing optimism on the inflation front, the ECB and BoE rate cuts could trigger short-term boost for risk appetite and the euro towards $1.3050. Downside stands at trend line support of $1.2830, followed by $1.2750.

Equity revert to negative territory following a flurry of negative surveys on Eurozone PMI surveys and worse than expected declines in UK industrial production. Thursdays widely expected 50-bp rate cut from the European Central Bank will emerge along the Bank of England announcement, which could cut rates by as much as 75-bps. GBPUSD comes off its $1.6105 highs, failing to extend yesterdays gains after a fresh bout of negative diffusion indices and industrial production report. Whether the BoE opts for the base case scenario of 50-bp cut or the bigger 75-bps option remains the major question going into tomorrows rate decision. The CBI as well as some private economists are calling for a 100-bp cut to 3.50%. Sterling to remain on the downside, facing resistance at $1.62, with initial support at towards $1.5650 and $1.5300.

Barack Obama becomes the 44th US president, giving the Democratic Party its first sweep of Congress and the White House since 1993-94, which prevailed during the first Clinton presidency. This week, financial markets will focus on Fridays US employment report, which could send the unemployment rate to its highest since 1994. In the midst of anticipated data deterioration, poor corporate earnings and gloomy guidance by CEOs, markets may be shored up by what is likely to be a high profile appointment to the Obama Treasury. Candidates include former Fed Chairman Paul Volcker, NY Fed president Tim Geithner or a figure with over-reaching connections to Wall Street. With the escalating fiscal challenges will remain a backdrop to any short term bounce in Wall Street, the demands for a supply-side stimulus are likely to dissipate, especially with the gains element having eroded. More post-election analysis ahead.

Stocks rally and risk appetite accumulates as the element of uncertainty is greatly reduced by heightened probabilities of a Democratic presidential win, the political component of the risk aversion may also be diminished. The latest economic data on employment and spending increasingly indicate the worst recession since the 1980s, with the budget deficit potentially reaching 4% of GDP in 2009, leading to a record twin deficit of more than 9% of GDP. By mid end of Q2 2009, the dollar's main preoccupation is likely to revert towards the structural imbalances of the US currency. REMAIN ALERT OF the possibility of a deadlocked election outcome (such as McCain winning the electoral vote and Obama leading the popular vote) that could send high yielding FX tumbling primarily against the USD.

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RBA surprises with a bigger than expected 75-bps cut to 5.25%, dragging the Aussie lower across the board as well as damaging other higher yielding currencies such as GBP, NZD, EUR and CAD against USD and JPY. Aussie damage is accelerated by the RBA language which opened the way for further rate cuts. 200-bps cut have been delivered since the beginning of the rate cuts. USDJPY is also falling, manifesting signs of rising risk aversion as markets conclude RBA "knows something the markets dont" with the bigger than expected cut. AUDUSD eyes 0.66 while GBPUSD taking deepened beating eyeing $1.56 as 75-bps cut seen this Thursday.

Stocks and risk appetite sink back to negative territory after the manufacturing ISM dropped to 38.9 in October, posting its fastest decline since. The subindices on new orders, employment and prices paid also dropped to their lowest level since the 1980 recession, affirming this will be a long standing recessio. But the dollar continues to be dictated by risk appetite, pushing higher vs European and antipodean currencies along with the yen.

European Eurozone Purchasing Managers Index surveys took more battering in October showing the lowest figures, reaching 41.1 in the Eurozone, 42.9 in Germany and 41.5 in the UK. Italian and Spanish PMIs hit record lows at 39.7 and 34.6 respectively. The US version of the PMIs--Institute of Supply Management--due at 10 am expected to drop to 41.5 from 43.5, after shedding 6.4 points in September, which was the biggest drop in 24 years. Were also likely to see the first print below 50 in the prices paid for the first time in over a year, which will confirm the sharp drop in inflation. Fridays release of the Chicago Oct PMI showing a 10-point to a 7-year low of 37.8, may tell us that the ISM could drop below 40, which will likely boost the yen across the board and reaffirm USDJPY resistance at 99.80.

Watch Ashraf on CNBC's Squawk Box at 7.30 am EST (12.30 pm GMT) Monday.