Intraday Market Thoughts Archives

Here's the latest on the ECB's shrinking Balance Sheet and its role in losing the Currency Wars http://www.cityindex.co.uk/market-analysis/market-news/5731752013/fx-wars-ltro-repayments/

Strong German Ifo data; Repayment of the 1^st LTRO begins; British Q4 GDP Negative. Market turns to Canadian CPI and new home sales. In Thursday's Premium Insights, 5 hit all targets, 5 unfilled and 3 stopped out. Last week's Insights, 10 hit all targets, 5 unfilled, 0 stopped out.  1/2 EURUSD hit all targets, the other missed 1.3280 fill by 6 pips, 2/2 USDJPY unfilled, 2 of 2 GBPUSD hit all targets, 1/2 AUDUSD in progress, the other stopped out, 1/2 EURJPY hit all targets, the other unfilled, 1/2 EURGBP hit all targets, the other missed 0.8380 by 11 pips.  2/2 Gold stopped out after 1 missed 1698 target by 2. 2/2 Silver in progress. 2/2 Oil in progress.

The greenback is mixed in the ongoing session. It is weaker against EUR and CHF, flat against NZD and stronger against the rest of the majors. European equities are gaining around 0.6%. CHF leads and JPY lags.

The common currency pushed higher across the board on the back of improving Ifo data. Business climate rose in January to 104.2 from 102.4 which marked the third increase in a row; current assessment improved to 108.0 from 107.1 and the expectations sub index increased to 100.5 from 98.0. Yesterday's solid PMIs and today's strong Ifo confirm improving conditions in Europe's largest economy.

Another factor behind the euro strength is the ECB announcement that banks will repay EUR 137.159 bln out of EUR 489.19 outstanding in early repayment of the first 3 year LTRO. 278 banks too part in the first repayment, MNI reports. EURUSD rose to 1.3463 and now trades around 1.3435.

GBP came under pressure after British Q4 GDP declined more than economists anticipated. On quarterly basis the economy shrank 0.3% after Q3 0.9% growth and on annual basis GDP was flat while market forecasted 0.2% growth. Triple dip recession now seems more than just a possibility.  GBPUSD fell to 1.5744 before bouncing to 1.5780 and EURGBP trades near session highs around 0.8515.

The US session begins at 8:30 am ET with Canadian CPI that is anticipated to rise 1.2% in December from November's 0.8% y/y while the core figure is seen rising to 1.4% from 1.2%. New home sales that are due at 10:00 am ET are anticipated to slow to 2.1% in December from prior 4.4%.

Ony French PMI dispappointed. Each of those in China, Germany and Eurozone's composite PMI showed an increase as well as beat expectations. Here is a charts look where all the major global PMIs stand. Full Analysis here: 

German and EZ manufacturing PMI improve but French PMI falls; UK mortgage approvals steady and CBI sales declined; Spanish unemployment rate rise. Market turns to jobless claims and Markit manufacturing PMI. 17 new trades are added to the latest set of Premium Insights as we carefully approach the pause in the yen and growing momentum in metals.  These include EURUSD, USDJPY, EURJPY, GBPUSD, AUDUSD, CADJPY, Gold, silver and US crude.

The greenback is mixed in the ongoing session. It is stronger against JPY, AUD and CAD and slightly weaker against the rest of the majors. European equities are little changed.

The common currency continues to trade in relatively narrow range above 1.3300 despite German manufacturing PMI that exceeded expectations as it improved in January to 11 month high at 48.8 from prior 46.0 while services PMI rose to 55.3 from 52.0.Eurozone manufacturing PMI did not stay behind as it increased to 47.5 from 46.1 while services PMI rose to 48.3 from 47.8. Not all was positive though as French manufacturing PMI dropped to 42.9 which is the worst level since mid 2009.

UK BBA mortgage approvals were steady at 11 month high in December at 33.6K and CBI realized sales fell in January to 17 from 19. GBPUSD trades within narrow ranges right at a key short term support at 1.5800. Focus is on tomorrow's GDP release that is likely to determine GBP direction for the following week.

In other news, Spanish Q4 unemployment rate jumped to a new record high at 26.02% and JPY pairs moved higher after Japan's deputy economy minister Nishimura said that USDJPY at 100.00 would not be a problem but rate between 110 and 120 would raise import costs.

US reports are limited to jobless claims at 8:30 am ET that are seen higher at 359K after dropping to 335K followed by Markit manufacturing PMI at 9:00 am that is expected to slow to 53.2 from 54.2.

17 new trades are added to the latest set of Premium Insights as we carefully approach the pause in the yen and growing momentum in metals.  These include EURUSD, USDJPY, EURJPY, GBPUSD, AUDUSD, CADJPY, Gold, silver, US crude. Member access to latest Premium trades is found here: http://ashraflaidi.com/premium/trading-the-pause-in-jpy-euro

The Canadian dollar broke parity for the first time since mid-November after officials scaled back hawkish rhetoric. The pound and kiwi were the best performers on the day. The highlight in Asia is the China PMI. Ashraf is working on the Premium Insights.

The BOC said the case for higher rates was 'less imminent than previously anticipated' while leaving the benchmark rate at 1.00%, as expected. Officials also warned that fourth quarter growth was much weaker than anticipated and cut the forecast for 2013.

USD/CAD quickly rose to 1.0004 from 0.9930 and closed the day slightly below parity.

Adding to commodity currency weakness were the quarterly forecasts from the IMF. They predicted a 0.2% contraction in Europe over the course of 2013 and downgraded their global forecast to 3.5% from 3.6%.

IMF leader Lagarde added that growth could exceed estimates if risks from Europe and fiscal consolidation do not materialize.

Shortly after the IMF headlines, the euro tumbled nearly a cent to a one-week low of 1.3264. Market watchers were scrambling to make sense of the move but no solid explanations emerged. Instead, EUR/USD slowly climbed back to end the day near 1.3315.

One near-term risk was removed on Wednesday as the US House voted to extend the debt ceiling until May 19. The Senate and White House indicated they will support the measure.

The focus now shifts to China with the flash HSBC manufacturing PMI to be released at 0145 GMT. The consensus estimate is for a rise to 51.7 from 51.5. This release often jars the Australian dollar, which remains confined to a 1.05-1.06 range.

CAD is the day's worst performing currency as BoC lowers its 2013 growth forecasts & toned down previous hawkishness. We already mentioned in October we did not buy into the BoC's hawkish remarks. But what does it mean for CAD? See here for full charts & analysis.

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Ashraf on AlArabiya discussing his view for sterling and gold. English synopsis is provided below the clip. View here

AUD CPI rose y/y but slowed q/q; positive labor market data from Britain; no surprises from MPC; Cameron to hold referendum on EU membership. Focus turns to the BOC and Eurozone consumer confidence. A new set of Premium Insights will be released later today. For Ashraf's latest on gold & Apple's technicals, please click here.

AUDUSD pushed higher throughout Asia and the London session as Q4 CPI rose 2.2% from previous 2.0% y/y. However, the q/q reading slowed dramatically to 0.2% from 1.4%. A rate cut at the February 5^th RBA meeting still seems unlikely but markets pricing suggests 39% chance of a 25 bps cut, up from 34% yesterday. AUDUSD pushed to 1.0566 and now trades around 1.0555.

GBPUSD pushed higher on the back of solid labor market data. The claimant count declined 12.1K in December after falling 8.9K in November, the claimant count rate was steady at 4.8% and the ILO Unemployment rate ticked lower in November to 7.7% from prior 7.8%.

MPC meeting minutes did not surprise as they showed unanimous voting to keep the bank rate unchanged and voted 8:1 to leave the asset purchase facility at GBP 375 bln. David Miles wanted to add another GBP 25 bln again. GBPUSD jumped from 1.5801 to 1.5883 and now trades around 1.5855. In other news, British PM Cameron announced that if he wins the 2015 election, he would hold a referendum between 2015 and 2017 on whether to stay in the EU.

JPY continued to gain across the board. Japan's economic minister Amari is attending the World Economic Forum annual meeting in Davos so his comments will be in focus. Nikkei 225 lost more than 2% and USDJPY fell to 88.05.

The US session brings the BOC rate decision and statement at 10:00 am ET. The overnight rate will most likely remain at 1.0% and given the improvement in the labor market data and the PMI index, the statement will probably keep its hawkish bias. Eurozone consumer confidence is due at the same time and it is expected to remain depressed in January at –25 from previous –27. There are no reports from the US.

Volatility scaled back in US trading but comments from the BOE Governor caused a quick fall in cable. The yen didn't extend post-BOJ gains in US trading but it remained the top performer on the day; the US dollar lagged. Australian CPI is the major event risk in Asia-Pacific trading.

The market continued to digest the BOJ easing but the most-common reaction was disappointment. US traders forced USD/JPY to 89.00 but the rebound was quickly wiped out and the pair wrapped out the day near the lows.

The highlight of the day was a speech from King, who said more stimulus is ready if needed and talked about rewriting the BOE mandate. Cable quickly fell a half-cent to 1.5820.

The reaction may be overdone. A closer look at his comments showed that he hedged the dovishness. More importantly, it will be incoming governor Carney who determines what happens next.

US economic data was soft. The Richmond Fed fell to -12, the lowest since July and much worse than the +5 consensus. Existing home sales were also weak at 4.94m compared to 5.10m expected.

The Canadian dollar was more active than usual ahead of the Bank of Canada decision on Wednesday. Retail sales numbers were slightly soft but USD/CAD was unable to rise above 0.9950 and has slipped back down to 0.9918. Look for the BOC to downgrade its growth forecast for 2013.

The focus now shifts to the Australian dollar with fourth quarter CPI numbers on deck. At, 0030 GMT, headline inflation and the all-important trimmed mean are both expected to accelerate to 2.4% y/y. A higher reading could cut into expectations of a rate cut at the Feb 6 RBA meeting. Current market pricing suggests a 34% chance of a cut. If that evaporates, AUD will likely rise above 1.06.

What to make of Apple's 31% decline over the last five months against equity indices resilience near five-year highs? And will gold remain supported by the mercy of central bankers? More on Charting Gold & Apple here:

New easing from BOJ to start next year, higher CPI target; Rumors of Weidman resigning false; German and EZ ZEW indicies soar; British public sector net borrowing lower and CBI orders expectations fall. Canadian retail sales, US existing home sales and Draghi are next. Status on last Wednesday's Premium Insights: 8 trades hit all targets, 5 were unfilled, 5 remain in progress. 1 of 2 EURUSD longs hit all targets, the other in progress; 2 of 2 GBPUSD shorts hit all targets 2 of 2 USDJPY longs hit all targets 2 of 2 AUDUSD longs in progress 1 of 2 CADJPY hit all targets, the other missed the fill (89.10) by 18 pips 2 of 2 EURJPY longs unfilled 2 of 2 EURGBP longs unfilled (1st missed fill (0.8290) by 9 pips 1 of 2 Gold longs hit all targets, the other in progress (missed final target by 3 pips) 1 of 2 Silver longs hit all targets, the other in progress (missed final by 0.29) 1 of 1 Crude longs unfilled (missed entry by 0.30)

USDJPY initially rose to 90.12 but then fell sharply lower after the BOJ announced a new open ended easing program. Markets were a bit disappointed as asset purchases in the amount of JPY 13 trillion per month will begin only after the completion of the current easing program, in January 2014. In line with expectations, the BOJ increased the CPI target from 1% to 2% and kept the overnight rate below 0.1%. USDJPY fell to 88.35 and now trades around 88.65 while EURJPY trades around 118.35.

EURUSD saw a nasty whipsaw as it initially rose to 1.3365, then fell sharply lower to 1.3266 on rumors of a Bundesbank president Weidman resigning. Within and hour the rumor proved to be false and the pair moved back to 1.3360 also underpinned by German ZEW economic sentiment index that surprised to the upside as it soared in January to 31.5 from previous 6.9. This is the best result since mid 2010. The Eurozone equivalent also improved significantly to 31.2 from 7.6. Ashraf previewed the ZEW in detail in yesterday's IMT.

British public sector net borrowing declined to GBP 13.2 bln in December after November's GBP 14.3 bln and industrial orders expectations worsened in January to –20 from prior –12. GBPUSD trades higher around 1.5865 and EURGBP is a bit weaker around 0.8410.

The US session begins at 8:30 am ET with Canadian retail sales that are expected to be flat in November after a prior growth 0.7%. Core sales are seen at 0.1% from 0.5%. US reports will be limited to existing home sales at 10:00 am that are anticipated to rise in December to 5.09M from previous 5.04M.

Traders are also awaiting the ECB president Draghi's speech in Frankfurt, which begins at 1:00 pm.

Pres Obama started his second term and the Eurogroup named a new leader in a holiday-thinned start to the week. The pound was the weakest performer on the day and GBP/USD fell to the lowest since September. The yen rebounded as traders square up to avoid an uncertain Bank of Japan decision in the hours ahead. Status on last Wednesday's Premium Insights: 8 trades hit all targets, 5 were unfilled, 5 remain in progress. 1 of 2 EURUSD longs hit all targets, the other in progress; 2 of 2 GBPUSD shorts hit all targets 2 of 2 USDJPY longs hit all targets 2 of 2 AUDUSD longs in progress 1 of 2 CADJPY hit all targets, the other missed the fill (89.10) by 18 pips 2 of 2 EURJPY longs unfilled 2 of 2 EURGBP longs unfilled (1st missed fill (0.8290) by 9 pips 1 of 2 Gold longs hit all targets, the other in progress (missed final target by 3 pips) 1 of 2 Silver longs hit all targets, the other in progress (missed fibal by 0.29) 1 of 1 Crude longs unfilled (missed entry by 0.30)

Trading was light with the US on holiday and the BOJ decision looming. The euro traded in a 20 pip range throughout the session.

Cable was more lively as it pushed below the November low of 1.5829 to a four-month low of 1.5807 before rebounded to 1.5832.

The inauguration of Obama's second term was a welcome distraction but his comments didn't move markets. Republicans also announced plans to vote on Wednesday on a bill to extend the debt ceiling until mid-May.

All eyes are on the Bank of Japan as officials wrap up a two-day meeting today. They will launch an extensive new program and attempt to finally tame 20 years of near-zero inflation. At least 10Trn yen of bond buying is expected but an open-ended program that will continue to buy until 2% inflation is imminent is a possibility.

Another idea that has been leaked is the potential to lower the floor on excess reserves below 0.1%. That could force banks out of cash and could result in more lending, Japanese govt bond buys or foreign bond buying.

Other ideas like foreign bond buying are also on the table but less likely.

One issue is that all these ideas have been leaked in the press so their ability to shock has been deflated. In the past, the yen has rallied on BOJ decisions that were more dovish than expected, so beware.

The meeting today began earlier than usual but there is no set time for the decision. In general, it comes out around 0400 GMT but it can be slightly earlier or 2-3 hours later.

Both of Germany's key business surveys are due this week. ZEW (tomorrow at 9 am GMT) and IFO survey (Friday at 10 am GMT). Which components to look out for and how it looks for Eurozone's largest economy? Full charts & analysis here: