Intraday Market Thoughts Archives

As the US YIELD CURVE STEEPENS to a new record high (as measured by the 10-2 yield spread), market participants ask about the impact on equities and FX. Section 13 of the Forex & Intermarket Dynamics Workbook http://bit.ly/4pJ41d dissects the 20-year relationship involving the yield curve, the fed funds rate and the price of metals, focusing on the leaders and laggards in this relationship. Chapters 6 and 9 of Currency Trading & Intermarket Analysis also focus on the FX implications of a inverted yield curve (Ch 6) and of a steepening yield curve (Ch 9)

Another reason why IMT subscribers must follow our short updates on twitter twitter.com/alaidi . We mentioned that the knee-jerk USD decline following the unexpected 11.3% decline in US new home sales would later be followed by a USD rebound as US stocks retreat lower. Stating that GBPUSD remained a decent short at $1.5980s is now giving way to $1.5930s. Long USD positions may be hedged with a USD shorts against CHF (targetting 1.0350) as CHF remains propped by outflows from Eurozone. CAD also boosted by oil rally and latest remarks from Fin Min Flaherty speculating about Chinese FX purchases of CAD. GBPCAD looking to retest 1.65.

US Nov personal spending +0.5% (exp +0.7%), helping to maintain upside in equities, but despite new yearly highs for many individual shares, the S&P500 has yet to break above 1120, which is the 50% retracement from the Oct 2007 highs to the March 2009 lows. We have been pointing out the 1120 level as an important level for equities since this October 22nd article http://bit.ly/4pILCK and it remains a staunch barrier ever since. CAD is the best performing currency of the day as US crude regains the $75 mark, but USDCAD support seen standing at 1.0440. We mentioned yesterday the latest resistance level in GBPUSD has fallen towards $1.6090. Although the session high remains blow $1.60, remain alert with any breakout above $1.6030, which is still considered a fresh opportunity to short cable back into $1.5920. The fact that cable cannot regain the $1.60 remains a major negative for the pair.

US Q3 GDP revised down to 2.2% from 2.8% (initial estimate was at 3.5%) partly due to slower inventory accumulation, while the UK remains in recession after Q3 GDP was revised to -0.2% (vs. the expected -0.1%). Overnight, GBPUSD broke below its 200-day MA of $1.6 as the resistance continues to decline, formerly at $1.6270, now at $1.6090. More recent data will be Wednesdays release of US November personal spending (exp 1.6% from 0.2%), which has the potential of intensifying the dollar rally especially as liquidity thins out further. Cable lowers downside target to 1.5930. USDJPY target of 92.25 and 92.60 still intact.

Dollar strength intensifies amid lethargic trading FX volumes as USDJPY hits 91.25 target from Fridays IMT, paving the way for a gradual ascent towards 93. GBPUSD drops below $1.0650, further nearing the 200-day MA at $1.60. Gold meanwhile, breaks below 1,100, nearing the 1,070 target raised 2 weeks ago throughout the IMTs, twitter.com/alaidi and forum discussions. Silver vulnerable to 16.00.

Equities looking for a last minute rally before the start of the Holidays amid improved macro data in and outside the US but the implications for the USD are no longer straightforward. The $1.4270 low in EURUSD is unlikely to serve as a lasting support in the midst of the credit challenges in the Eurozone as well as thinning liquidity and the improved USD tone. Resistance is seen standing at $1.4455, at which point fresh offers expected to re-emerge. EURJPY may claw fresh gains on the back of JPY weakness but euro weakness will stand in the way of the pair at 131.40. Canada's Oct retail sales were expectedly weaker than the Sep figures but improved risk appetite and stabilizing oil prices will likely support USDCAD at 1.0520. Ashraf on vacation so updates will be less frequent than usual.