Intraday Market Thoughts Archives

GBP RECOVERS ON DAVID CAMERONs offer to the LDP to form a coalition and build a majority government. If a deal goes through between these two diametrically opposed parties (Conservatives with Liberals), we expect the pound to garner further gains towards $1.53s even though passing policies would be complicated by the demands and conditions required by the Liberal Democrats. In anticipating further volatility ahead for today and next week, we see AUD bounces to be shortlived, with particular focus for more upside in GBPAUD and GBPNZD towards 1.69 and 2.0850. GERMANY PASSED the bill on Greek aid, helping to break euro high above 1.27. Rumours of ECB liquidity injections have not been confirmed but these are likely to materialize in the form of system-wide liquidity as opposed to country-specific aid (Greece) from the central bank.

MARKET VOLATILITY RETURNS as US equities drop 1.4%, FTSE-100 and Dax-30 drop 2.5%. JPY rallies across the board, while Aussie sustains broad damage, especially after the RBA reiterated overnight that interest rates were most appropriate. AUDUSD vulnerable to retesting 0.8750, AUDJPY eyes 78.80. OIL SLUMPS by more than $2.00 to 74.50. We said last night it was IMPOSSIBLE FOR A 8-9% INTRADAY DECLINE in major US indices to take place without any victims and forced selling. EVER since the VIX had its 6th largest increase ever on Apr 27, the index never fell below that 18 level,

CONFLICTIVE US JOBS FIGURES leading to sharp FX whipsaws and little direction. April payrolls soared +290K while March was revised to +230K from +162K, but the unemployment rate rose to 9.9% from 9,7% against expectations of a decline to 9.6%. Dow futures are holding onto gains but any deterioration will see GBP FALLING CROSS THE BOARD after the confirmed HUNG PARLIAMENT, which initially sent GBPUSD to a 13-month low of $1.4478. Cable seen capped at 1.4725-30 eyeing $1.4640. CAD was boosted by stellar job figures (+108.8K, unemp rate down to 8.1% from 8.2%). CADJPY seen as a the preferred risk trade, eyeing 90.40. USDCAD capped at 1.0440, eyeing 1.0320. Yesterday's interview w/ Maria Bartiromo after Thursday's market plunge http://bit.ly/duLdu0

Watch Ashraf's interview on CNBC earlier today with Maria Bartiromo after Thursday's US market close, discussing FX reaction to the market meltdown, the VIX and the equity/forex impact of the UK elections http://bit.ly/duLdu0

Ashraf will be on CNBC-US at 20:15 GMT (21:15 London time) discussing the market meltdown and the UK elections

Dow Jones Industrials Index FELL 1000 POINTS or down 9.4%

and S&P500 Down 8.4% during the post NY Lunch as volatilty surges on what is believed to be AlgoTrading and talk of "fat finger" trades-related errors. CAREFULLY WATCH YOUR ACCOUNTS..ITS TAKING A WHILE FOR BROKERS TO MAKE FILLS.. WATCH YOUR MARGINS. YEN SOARS across the board followed by USD rally but fresh wave of buying in US equities isu helping to stabilize the situation. WE EXPECT SUCH SELLING TO RETURN IN ASIA BECAUSE 9% INTRADAY MOVES NEVER OCCUR WITHOUT CASUALTIES (hedge fund liquidations). Therefore rallies in YEN and USD are EXPECTED TO EMERGE.

YEN STRENGTH TAKES OVER FROM SOARING USD as USDJPY breaks thru key 92.80 support to 92.20, but needs to close at or below to confirm the break of the 92.40 support38% retracement of the rally from the 88.2 low to the 94.96 high. USDCAD breaks above 100-day MA, now eyeing its ALL IMPORTANT 200-day MA of 1.05. But 1.0455-60 stands as the 61.8% retracement of the 1.078-.9923 decline. As risk aversion eases into NY Lunch, we may see a temporary retreat in USD and JPY after which fresh rallies to emerge at around 18:00 GMT (14:00 EST). CAD shorts must be cautioned ahead of a potentially favourable jobs report from Canada, which is due (11:00 GMT Friday) 90 mins before the US report.

ECBs PRESS CONFERENCE DOES ANOTHER Business-As-usual, announcing no new policy measures in the midst of Sundays decision to suspend the minimum credit rating requirement. US & European equities may run the risk of extending fresh losses as the worlds second most important central bank avoids adding any sort of policy stimulus. Todays policy inaction highlights the ECBs stance that sovereign challenges are to be solved by their respective nations (Weber, Stark). It is easier for a central bank to talk down a soaring currency than to stabilize a plummeting currency. As we have seen in 2004 and 2006, JC was able to talk down the euro by warning against brutal moves in the currency. But any attempt to boost a falling currency would trigger a short-term boost before renewed losses. Todays $1.2692 breraks below the 5-year trend line support, leading to next target at $1.2610, followed by $1.2450. Given the increasing pace of the euro selling and the fact that the 1999 high-to-trough decline amounted to a 16% decline, a similar magnitude from the years $1.4582 high would imply a low of $1.2250. + USD INDEX +3.5% this week, its biggest weekly gain since October 2008.

WHAT CAN THE ECB DO TODAY? Euro hit the 5-year trend line support of $1.2730-50 as dealers pressure the ECB into action ahead of todays interest rate announcement (11:45 GMT) and important press conference (12:30 GMT). Following Mondays decision to abolish the minimum credit rating requirements for Greek govt debt, the bank could be expected to do something. The choices it faces could be (1) create a new long term financing facility (2) purchase government bonds to contain yields or (3) cut interest rates. In normal times, any of these options would have a negative impact on the euro, but in this case, such measured would be seen as somewhat of a solution and help stabilize the euro. Either way, the single currency remains in a lose-lose vicious circle. Yesterdays IMT calling for a lower USDNOK did not materialize, but bear in mind that resistance remains at 6.12, which is the 100-week MA a level not broken since September. We continue to deem USDNOK shorts as viable hedge for the USD long trade against high yielders. GBP & UK ELECTION ANALYSIS to follow later in the day. Also, join our 5,100 followers on TWITTER for breaking news & insights http://twitter.com/alaidi

USDNOK GRAVESTONE DOJI CHART http://chart.ly/b689y2 & NORGES BANK DECISION: NORGES RAISED rates by 25-bps to 2.00% today in a decision that was not a surprise. While EURNOK is the more popular currency pair, especially now that Norwegian rates are a full percentage point higher than in the Eurozone, playing the USDNOK pair can be considered as a possible hedge against the escalating USD longs. Todays Norges rate hike briefly boosted NOK across the board before erasing all of its gains when US stocks opened sharply lower amid the escalating violence threatening the Greek Parliament and the ensuing plunge in oil prices below $79.00 per barrel. But as US stocks erased losses and oil regained $80.50, NOK was among the first currencies to rebound against USD. The gravestone doji shown in todays candle suggests a possible decline in the ensuing days, which could be a result of improved risk appetite stabilizing market appetite ahead (and after) ECB, UK elections and US non-farm payrolls.

REGISTER FOR LIVE TRADING THIS FRIDAY with CMC Markets Non Farm Payroll Figures. CLICK HERE TO REGISTER: http://bit.ly/bbHXAP

Oil breaks through the 55 and 100 day MAs in single day, but 78.28 remains protected for now. New resistance stands at 82.89.

ATHENS VIOLENCE OVERSHADOWS TRADING despite April ADP payrolls growing by 32K, the highest since Jan 2008 and the March figure was revised to +19K from prev -32K. Intensifying violence in Athens, attempts to storm Greek Parliament and 3 people reported dead at the riots. These news give rise to fears about the political future of the current govt, thereby, driving down EURUSD BELOW $1.29 and weighing on overall risk appetite. USD and JPY extend their bounce, while Dow futures are down 55 pts. OIL tests $81, and nears the key $80.34 support, which is the 38% retracement from the Feb low. BOTH DOW & S&P500 Futures are now trading below their 55-day MA. Next key targets stand at 1152 and 10713 in S&P500 and Dow.

GOLD HITS NEW RECORD vs. JPY at 112,670 yen, breaking the old December high as the yellow metal SHRUGS FALLING COMMODITIES due to ongoing sovereign uncertainty. The last time GOLD touched a new record in YEN TERMS was in 1st week of December when it was followed by pullback later that week on stronger than expected US Nov jobs. But this time GOLD vs USD may be supported due to ongoing uncertainty with Eurozone sovereign paper but do keep a close watch. GOLD vs. AUD hits AUD 1,300, which is AUD15 away from the Nov high. A break above it, would call up the highs from March 2009. GOLD/SILVER ratio eyes 64. EURUSD eyes 1.3015 but more downside seen in AUDJPY, NZDJPY as per the tweets http://twitter.com/alaidi

**** Latest HOTCHART on AUDUSD is now up ***

http://bit.ly/bsVQuY

JPY and USD BATTLE FOR DAYs SUPREMACY as falling risk appetite boosts both currencies across the board, with USDJPY off 50 pts from its 94.98 highs, while EUR drops to fresh 12-month lows at 1.3088. GBPUSD eyes 1.5120 support in order for any realistic chances to break into the $1.50 figure. Any election-driven upside surprise could see gains limited at $1.5380, but $1.55 remains a stubborn obstacle, drawing fresh offers back into $1.51. CAD is the days best performing currency behind USD and JPY, which could suggest more downside for the loonie, with USDCAD eyeing 1.0230 and CADJPY BEARISH INSIDE DAY eyeing 92.30, 91.80.

RBA SET TO RAISE rates by 25-bps to 4.50% tonight (4:30 GMT), which could give a short-term boost to the Aussie, but once again, it is the tone of the statement that could help shape the Aussies direction. Last week's release of the 2.9% rise in Q1 CPI was the highest in 5 quarters. Nothing in the last RBA statement indicated a hint at a pause as the tone sounded robust regarding domestic and region-wide fundamentals. Despite mentioning the concerns regarding some sovereigns, we expect RBA to opt for another rate hike, but possibly with sounding off a more concerned tone regarding Eurozone sovereign debt. Any change in language regarding the sovereign problems would limit Aussie's upside to a rate hike. A rate hike could lift AUDUSD towards 0.93 trend line resistance, at which point the prevailing dynamics of risk appetite will take over (US financial stocks, Goldman Sachs, Greece and global market response to Wall Streets Monday rally). AUDJPY seen propelled towards 88.00 partly due to YEN WEAKNESS. An unlikely decision to NOT raise rates would drag AUDJPY towards 86.20 trend line.

ECB SPURNS CREDIT RATING AGENCIES BY ACCEPTING JUNK status bonds from Greece after suspending the minimum credit rating required for Greek government-backed assets used in ECB liquidity-providing operations. Until today, the ECB had required that Greek (and other) Eurozone govt debt to have an investment grade rating by at least one of the 3 major credit agencies. With S&P having downgraded Greek debt to junk status last week, the ECB will not run the risk of seeing Moodys and Fitch doing the same and rendering Greek debt ineligible for ECB collateral. The decision constitutes an ECB EASING and a vocal rebuff to the agencies, especially after several bank officials criticized the timing of S&Ps junk downgrade. The final EU/IMF aid package is EUR 110 bln (not EUR 135 bln). EURUSD briefly broke above the Apr 15 trend line but quickly reverts to $1.3230. Pair is vulnerable to $1.3170, followed by $1.3120. Rebounds will be increasingly short-lived, especially as markets expect renewed ECB dovishness in Thursday's press conference. $1.3390 and $1.3530 remain the major resistance levels.

CHINA RAISED RESERVE REQUIREMENT on May Day Weekend by 50-bps to 17%, making its third tightening of the year. The last tightening was announced on February 19, on the eve of the Lunar Year Holiday. Although most Asian markets are closed for May Day holiday, JPY did spike higher across the board before later stabilizing. With Europe set to close on Monday, US markets will show their own reaction to the EU and China moves. 135 bln is the latest figure of the emergency aid in loans to Greece over 3 years, 80 bln of which will be given by Eurozone nations and the remaining 55 bln from the IMF. But markets are focusing on whether Greece can survive the severe austerity policies imposed on it (8% cut in public sector salaries, 2% rise in VAT to 23%. EURUSD extended bounce to $1.3360, but $1.3380 remains the interim ceiling. USDJPY may add to gains towards 94.50 but AUDJPY recovery seen capped at 87.30 before gradual retreat towards 85.50s.