Intraday Market Thoughts Archives

As UK Q3 GDP growth rose 0.8% q/q, its highest level in 13 quarters, UK 10-year yields continue to outperform their counterparts in US, Canada, Germany, China and Switzerland since late August. Yield superiority in UK 10-year gilts relative to the rest of the world is nothing new as this had been the case during most of 2011, 2010, 2009, 2008 and 2007. Full charts & analysis here.

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Fledgling signs of life in the US dollar were snuffed out Thursday. Is it another sign that the next big theme is to sell the buck? The top performer was the pound while the kiwi lagged. Japanese CPI in the hours ahead may help kick USD/JPY out of its range.

The US dollar bulls launched assaults on two fronts Thursday: USD/JPY and AUD/JPY. The dollar climbed to 97.62 against the yen in early European trading but couldn't hang onto the gains and fell back to unchanged. The range in US trading was only 21 pips as the market waits for clues on direction.

A later move was an attempt to sell the AUD/USD and the pair looked to be headed lower after a break of 0.9600 in early US trading but solid risk appetite in the stock market prompted a rebound to unchanged levels on the day at 0.9618.

What's the takeaway? The US dollar certainly isn't strong. It's been more than a week since the post-fiscal impasse selloff and there have been no signs of a strong rebound. The consolidation could simply be the step toward the next phase of dollar selling.

Ultimately, US economic data will decide. On Thursday the Markit PMI fell to 51.1 compared to 52.5 expected with output at a two year low. It could be a sign of pain in the economy due to the shutdown so it's difficult to draw conclusions.

Other data was mixed. Initial jobless claims rose to 350K compared to 340K expected but reporting problems in California render the data set virtually useless for now. The August JOLTS report was upbeat but it's so far in the rearview mirror that it vaguely factors into market decisions.

We will be watching USD/JPY closely in the day ahead. The BOJ would love to see signs of inflation in the 2330 GMT CPI report. National CPI is expected to be flat year-over-year ex food and energy. Signs of stubborn deflation could encourage the BOJ to explore fresh action and would boost USD/JPY.

Both UK GDP and German IFO are due on Friday, both reports containing input of hard data and sentiment indicators of two economies on the rise. UK Q3 data (exp+0.8% q/q from +0.7% q/q) could show the strongest report in over 3 years. BoE's Carney's speech at the FT today made no mention of the economic data's confrontation of the central banks' yield-dragging endeavours . Yet, there's already chatter the BoE may adjust its forward guidance as a result of the rate of growth, which outpaced all BoE forecasts.  Can GBPUSD take on the $1.63 figure, or is it risking a double top before a violent decline? And if Friday's UK data did disappoint, would it make sense to reverse the long standing bullishness in cable 4 days ahead of the FOMC meeting? GBPUSD currently stands above its 200-WMA by the highest margin in over 5 years. Some say the fundamentals and technical are overstretched, But that's what many have said 2 weeks ago and 2 months ago.

A credit squeeze in China helped set off a rare round of risk aversion Wednesday. It was a classic risk-off day with the yen leading and kiwi lagging. The focus stays on China in the hours ahead with the HSBC flash manufacturing PMI.

A jump in Chinese money market rates gave markets an excuse to reel in the recent one-way moves in markets. A disappointing outlook on global growth from heavy-equipment maker Caterpillar added to the negative sentiment.

The Australian dollar was particularly hard hit despite high CPI numbers released early in the day. The jump to 0.9756 followed by a plunge to 0.9618 traced a large outside reversal on the AUD/USD chart that could be the start of a larger retracement. It bears close watching in the day ahead but one good sign for the bulls was the stability of the pair in US trading – it couldn't break 0.9605 despite repeated attempts.

The USD/JPY chart posted a similar breakdown and touched below the 200-day moving average at 97.37. There was no follow through on the break and the pair managed to close just above the 200dma, avoiding the first close below the key technical level in 11 months.

The Bank of Canada rate decision had a predictable result, as Ashraf wrote about earlier, the growth downgrades were sizeable and with the BOC not forecasting 2% inflation until 2015, it's time for the market to seriously consider rate cuts.

A big factor for CAD and the rest of the market will be the performance of China's economy. The market was spooked by a full percentage point rise in 7-day repo contracts on talk of tightening liquidity to fight inflation and credit bubbles. A similar,(albeit extended) episode in July sparked a wave of selling in Chinese stocks and broader risk aversion but proved to be a blip. The market will be cautious this time.

One thing that could get a sustained reaction from markets is a deterioration in Chinese economic data. At 0145 GMT, HSBC releases its October Chinese manufacturing PMI. The consensus estimate is for a rise to 50.4 from 50.2. Otherwise, the calendar is quiet.

Who said there is no "Free Lunch in the markets? Today's Bank of Canada announcement in downgrading its GDP outlook for 2013, 2014 and 2015 as well as dropping hints for higher rates, led to broad losses in the loonie, lifting USDCAD near 1.0400 from 1.0320.  The Bank of Canada's downgrade must not have come as a surprise to those who heeded this month's comments from BoC governor Stephen Poloz  and BoC Senior Deputy Tiff Macklem, both of whom had some negative comments regarding Canada's GDP growth and the prospects for weaker inflation. Those comments were made well before the US shutdown /debt ceiling had erupted later in the month, causing red flags for Canadian exports. Today's BoC decision was merely an official materializsation of an already known fact, but not yet reflected in the market. Technicals also called the rally in USDCAD as was alerted 40 mins before today's decision in our Premium service, shedding light on the 13-month trendline support “aiming to retest 1.0360s—the confluence of the 55 and 100-DMAs”.

This wasn't how 2013 was supposed to go for the US dollar. It lagged Tuesday on a soft jobs report; and a year where the USA was supposed to turn the corner has morphed into unending sluggish growth and quantitative easing. Later, the high flying Aussie faces the CPI report.

Non-farm payrolls rose 148K compared to 180K expected and that headline number was all that mattered to the market. The unemployment rate fell to 7.2% from 7.3% and August jobs were revised higher but as soon as the numbers hit it was a one-way trip lower for USD.

EUR/USD broke the 2012 high of 1.3711 and nearly hit 1.38. Cable climbed as high as 1.6245 from 1.6130. Both pairs finished very close to the highs of the day.

USD/JPY bounced from the initial losses and entirely retraced losses but couldn't hang on to the upward momentum and slid back to 98.00.

Really, there was nothing frightening or particularly unexpected in the jobs report but the market has turned bitterly against the US dollar and it's not hard to see why. The Fed passed on its opportunity to taper, another dove is set to take over at the Fed, the government is incapable of leadership and growth drivers are sagging.

At this time last year, the market could look to housing as a growth engine but a +10% rise in prices did little for broader growth and flat wages will temper further gains. Manufacturing is solid but steady. Hopes about large-scale corporate investment have turned to fantasy.

A taper that was a 'close call' is now off the table and the market thinks it will stay that way for six months. The reason to buy dollars is that sentiment is overdone but until the data turns around decisively buying-and-holding the dollar won't be a strategy.

The dollar-down-under is another story. There are signs of a renewed pickup in investment and China continues to hum along. AUD/USD is certainly overbought at this point but there is still plenty to like. A surprise inflation climb would be a fresh reason to buy when the report is released at 0030 GMT.

Traders ignore the US unemployment rate's decline to 7.2% and focus on the double whammy of weaker than expected NFP and slowing private payrolls. The 3-month average of NFP fell to 148K, the lowest since August 2012. Next week's FOMC meeting should likely provide additional USD selling as the policy statement will acknowledge the short-term nature of the solution to the budget/debt ceiling impasse as well as the renewed softness in non-farm payrolls. More chart & analysis

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The market is in lock-down ahead of Tuesday's non-farm payrolls report. The US dollar staged a rebound, especially against the yen, gains were small. With the Asia-Pacific schedule empty, the market might continue to struggle for a theme.

After the dollar damage last week, a bounce on Monday wouldn't have been a surprise but it never materialized. In early US trading, USD/JPY staged a small rally but it fizzled just ahead of the 55-day moving average at 98.27. The euro also fell against the dollar but couldn't break below 1.3650 and rebounded to unchanged.

The market could be sending signals about the weakness of the dollar or traders could be apprehensive ahead of non-farm payrolls. The consensus for the unusual Tuesday report is 180K.

Aside from the regular bounces, the only clear path to a dollar rebound is a turnaround in economic data. It will have to be something that brings forward tapering expectations to January or December. A single NFP reading, even +220K wouldn't be enough along but it would change the conversation. Otherwise, the market is conditioned to sell the dollar.

Another area to watch is oil. WTI crude broke $100 for the first time since July and the recent round of weakness has come despite a falling dollar. If the dollar begins to climb, crude could be susceptible to a quick fall especially if the nearby 200-day moving average breaks.

Ashraf's webinar is today at 16:00 Eeastern Time (21:00 London/BST)on “Currency, Debt & Equity Markets Timing” with George Cavaligos (bonds & Elliott Wave) & Fari Hamzei (stocks, indices and market timing) REGISTRATION LINK After registering you will receive a confirmation email containing information about joining the Webinar.