Intraday Market Thoughts Archives

Stocks break out of their 2-week trendline, Aussie leads risk currencies against USD as rising risk appetite set to have the last word of the week. S&P downgraded Portugal by 2 notches to BBB from A- and warned of a downgraded to JUNK status depending on the current negotiations on the Ezone's bailout fund. EU agreed on the new EUR 500 bln bailout fund called the European Stability Mechanism to start in 2013. Angela Merkel succeeded into stretching Germany's payment into 5 years from 3. Nonetheless, the size of the current EFSF has once again been delayed so the EUR 440 bln has not yet been cemented. EURUSD loses more than a full cent off its 1.42s, while EUR retreating deeper against CAD as Portuguese 10 year yields push thru 10%. EURGBP retreats from 0.88 but the pair has already punished the shorts I suggested earlier. AUDUSD breaks above 1.0220s but past 4 weeks have shown that such a level encountered stiff selling resistance for interim targets aw 1.0170 and 1.0120.

More US data weakness (this time durable goods after further slump in existing/new home sales) making any USD gains short-lived. EURGBP spikes on broad GBP decline following a new slump in UK retail sales, now at the top of the 6-week channel. UK retail sales fell 0.8% in Feb following the 1.9% Jan increase. The recurring problem of falling sales volumes and rising stick prices (resulting from retailers passing on VAT hike to consumers) is taking away from GDP, which further complicates the consequences of any rate hikes from the BoE. MOODY's DOWNGRADED 30 Spanish banks on the basis that Spain is unable to assist all struggling banks. Another $15 bln is estimated to be needed by local banks. EURCAD remains intrack with further declines along this chart http://chart.ly/nrjnhgp and AUDUSD nearing the top of the 1.0180s resistance, getting the attention of Aussie shorts for 40-50 pip targets. EURUSD seen capped at 1.4165 for now.

Portugal, EURCAD and EURGBP Charts. Now that Portugal's Socialist PM Socrates has resigned after failing to get parliamentary backing for austerity, Conservative president Cavaco Silva could form a temporary govt coalition before elections are to be held in June at the earliest. And while questions arise whether the EU/IMF would negotiate a bailout with a temporary govt, we GO STRAIGHT TO THE CHARTS http://chart.ly/nrjnhgp and look at EURCAD (daily) and EURGBP (4hr) for a gradually floundering picture for the single currency. EURCADs double failure at 1.3970 is likely to lead towards 1.3650 and 1.3550s as long as oil prices remain boosted by minimal MidEast/Nth Africa uncertainty, with only a break (close) above 1.40 to call a break out. EURGBP chart is 4hr outlook, backing earlier IMTs and latest HotChart. http://chart.ly/nrjnhgp

Back to Stocks: After posting a 3-day rebound, both S&P500 and the Dow-30 fall back down, struggling to regain those important 55-day moving averages (1,301 and 12,003 respectively). The two indices have also failed to take out the trendline extending from the Feb high. This presents the pattern of LOWER HIGHS, suggesting 1,266 and 11,705 will be the next key levels to watch (100-dma). Meanwhile, BOTH EURUSD AND GBPUSD race to the bottom, awaiting the final vote Portuguese austerity (expected at around 13:00 ET or 17:00 GMT). EURUSD seen set to lose further ground below $1.41 but emerging support expected to build at the Feb 14 trendline at 1.3970. GBPUSD posts a bearish engulfing daily candle, suggesting potential losses towards 1.6140 but trendline stands at 1.6080. EURGBP unable to break out of the top of the Mar 18 wedge, whose falling trenbdine resistance now stands at 0.8710, eysing 0.8660 interim target, a break of which is needed to call up 0.8620.

Bank of England minutes of March meeting continued to show the same 6-3 vote on interest rates, with Sentence, Dale and Weale asking for rate hike at +50 bps, +25bps and +25 bps respectively. Sterling is on the backfoot after disappointing the hawks that there was not a fourth hawkish dissent. The cenbank raised its inflation forecast to as high as 5%. Chancellor Osborne will announce the UK Budget for Growth today focusing on tax breaks on corporations and fuel duty as well as a plan for first time home buyers. Sterling on the backfoot, falling to $1.6280s while EURGBP bounced off the 0.8650s trendline support (Feb 18) now eyeing a possible breakout of 0.87 for 0.8730. EURO TRADERS await the vote from Portugal's Congress on austerity due at about 17:00 GMT (12:00 ET). Discussions to start at 15:00 GMT. In the event that austerity is rejected, PM Socrates could end up without govt, which raises the possibility for Portugal to ask for a bailout at tomorrows EU summit. EURUSD has shied away from the $1.4280 trendline resistance and is not expected to break out of it. USDJPY remains stuck at 81. **** ASHRAFLAIDI.com will have a BOOTH AT THE LONDON TRADERS EXPO ****** on April 8-9, 2011. Ashraf will conduct On-Booth Presentations, present a 1-hour seminar (Apr 9 14:30-15:30) and moderate a currency panel among 3 FX analysts. Register Free here: http://bit.ly/faq2Js First 20 visitors to the booth will obtain 2 free weeks to Ashraf's upcoming Premium FX Service.

Portugal vs BoE? Euro vs BoE? Either way you look at it, these fundamental dynamics are increasingly expressed in the recent decline of EURGBP. Tuesday's release of unexpectedly high UK CPI kept GBP bulls happy and Wednesday's BoE minutes should once again likely show the same number of hawkish dissenters, paving the way for an April rate hike. ON THE EURO SIDE of the coin, the vote on Portugal's austerity package is also due on Wednesday. The main opposition party (centre right) will not back the measures, which could lead to the resignation of prime minister Jose Scrates. This could be a problem for the EU leaders meeting on Thursday to finalize the terms of the EFSF and the ESM. Could the euro ignore the downfall of the Portuguese govt and remain boosted by interest rate hopes? And if playing EURUSD shorts is unwise, then my bearish EURGBP call remains intact (after failing the all important 0.8770 and the 100-week MA) and now is at 100 pips lower). The Feb 18 trendline is under assault and will need a daily close below 0.8635-40 to pave the way for 0.8590s.

Ashraf Laidi places CMC Markets at the top of FX Week's 12-month currency forecast http://bit.ly/eZm1T1

28-month highs in UK CPI at 4.4% reinforces expectations of a 0.25% rate hike by the BoE next month, lifting cable to $1.64 to break past the 2007 trendline resistance. Wednesdays minutes of this months BoE meeting could further fuel the currency towards 1.6450s if they continue to show the 3 hawkish dissenters voting in favour of a rate hike in base rates (Sentence, Weale and Dale). EURGBP shied away from its 0.8770 trendline resistance (see HotChart http://bit.ly/gikAn3 ), making the barrier valid. Dallas Fed president Fisher reiterated his stance against prolonging QE2 beyond June, but the next FOMC meeting wont be until April 27. In order for USD to obtain a boost from such hawkishness into the April meeting, more FOMC members (such as Plosser) have to come forward and give markets a reason to expect actual dissenting votes, rather than voicing opinions regarding beyond June. USDCAD tests 0.78 after disappointing retail sales (-0.3% from -0.2%). Any deterioration in stocks could further support the pair towards 0.9850. More analysis on equity indices to follow next .

As more ink is spilled on Japan, its rising domestic debt, high external assets and stubbornly strong currency, it is important to reiterate what I said last Friday. Despite the recent pullback in yen crosses (yen strength), I expect last weeks coordinated G7 yen intervention to work considering rate hike expectations priced in for the Bank of England and the European Central Bank. Short of a double-dip global recession, the same may apply for the Bank of Canada, whose currency is propped by supply and demand dynamics in the oil sector. This leaves us with the Federal Reserve, which may be the weakest (and most important) link considering expectations for further QE beyond June. ====== DESPITE THE prospects for intervention success from a monetary policy stance, concerted action may fail (and yen rises anew) in the event that financial markets react negatively to the aforementioned tightening aspirations of the BoE, ECB and BoC. The prospect for further oil strength, rising inflation and slowing growth remains a real possibility, whose most likely outcome could lead to immature rate hikes (as in summer 2008 by the ECB) followed by a UK and Eurozone contraction in Q4. ======== GOING BACK TO JAPAN: here is an interview I conducted last summer discussing i) Japans choice to keep interest rates low ii) its strong currency and iii) its external vs. domestic debt http://youtu.be/fvXqTViK7Yk MORE FREQUENT INSIGHTS ON TWITTER http://twitter.com/ alaidi

EURGBP breaks above its 100-week MA of 0.8660, and is now nearing the 0.8770 barrier alerted in the latest HotChart (see here http://bit.ly/gikAn3). Daily stochastics and RSI point to BEARISH DIVERGENCE. Tomorrows UK Feb CPI could strengthen expectations of a BoE rate hike and drag down EURGBP in the event that the 4.2% print does materialize. With UK inflation twice as much as that of the Eurozone, the case for a BoE tightening remains stronger. But all of these are details impacting the short term dynamics of EURGBP. See the HotChart here for the weekly perspective and multiple lines of support and resistance http://bit.ly/gikAn3 More negative US data (-9.6% decline in existing home sales) will not help the case for removing QE2. Silver and Gold attempting to regain their Mar 7 highs. Long term picture

remains favourable for silver relative to gold and the 38.50-70 stands as the next short term target. The metal is expected to regain its $49 high before end of this summer.

Rising AUDUSD and falling USDCAD reflect the typical nature of rallying commodity currencies (AUD and CAD) during improving risk appetite (Dow-30 +113, SPX +12). Since AUDCAD remains unable to break 0.99, the bias remains in favour of CAD, thereby siding w/ USDCAD shorts instead of AUDUSD longs during improved risk appetite. I mentioned last week that EURUSD was another preferred pair during any stabilization in risk appetite (see longer article and prior IMTs). With USDX having broken below the key 76 foundation, USDCAD now stands to break below the 0.9770s trendline to retest 0.9720 and possibly 0.9680. Further gains in oil prices would be one (but NOT the only) driver for falling USDCAD. US existing home sales today and UK CPI tomorrow will be key drivers to FX in the next 24 hours. Stocks also boosted by AT&Ts announcement of a $39 billion deal to acquire T-Mobile USA. These Intraday Market Thoughts will no longer be available free of charge starting next month (not next week) when AshrafLaidi.com introduces a new Premium FX Service.

Back to Basics. In the midst of all the historic events of last week (+14% selloff in Nikkei, first coordinated FX intervention since 2000, Arab State-approved resolution on Libya) some things MUST NOT BE LOST in the noise. Fridays conference by ECBs JC Trichet stating there was "no new message" from the central bank was a reference to the all-important massage he announced on March 4th when he said "an increase in interest rates in the next meeting is possible". I stated in last weeks article (see here) http://bit.ly/hzMCKX that "as long as major equity indices do not lose more than 6-7% from their year highs and the ECB doesn't depart from its recent hawkish turn, the EURUSD is unlikely to close below $1.36". I take this further and add that any periodic improvement in risk appetite will reward EURUSD back towards 1.4200 onto the major trendline resistance of 1.4250s. Please read the rest of the article for the subtleties surrounding the ECB tightening and whether it would entail the beginning of a hike cycle. Any pullback is seen stabilzing at 1.3930-40s before fresh bids into the April ECB decision. As for the Japan factor, Trichet did say on Friday Japan will cause him to "think deeply" ahead of the Apri meeting. A rate hike would be IN LINE w rising EURJPY. ASHRAFLAIDI.com will exhibit at the LONDON TRADERS EXPO in APRIL 8-9. Ashraf will conduct On-Booth Presentations, 1-hour seminar (Apr 9 14:30-15:30) and moderate a currency panel among 3 FX analysts. REGISTER FREE HERE: http://bit.ly/faq2Js First 20 visitors to the booth will obtain 2 free weeks to Ashrafs upcoming Premium FX Service.