Intraday Market Thoughts Archives

Stocks are gradually catching up with falling oil (see previous IMT), driving GBP, CAD and even EUR lower vs. USD and JPY. CAREFUL FROM GERMAN ELECTIONS on Sunday and a possible sell-off in EURO in case the SPD joins a GRAND COALITION. 2005 was the last time there was a Grand Coalition, during which EURUSD was dragged lower. Ashraf's video report on oil, S&P, sterling and yen strength http://bit.ly/tVo2d

MIND THE STOCKS-OIL GAP. Considering the increasingly strong positive correlation between oil and stocks (0.77) over the last 3 weeks, S&P500 is expected to follow oil prices lower (SEE CHART http://bit.ly/6CcWT ), which could potentially call up 980 w/in 2 weeks. With S&P500 stands at 1,050 and US crude at 66.20, the S&P500/Oil ratio is currently at 15.9-- the highest level since April. Alternatively, the price gap between equities and oil could be filled by a rebound in oil prices instead of a decline in stocks. The reasons this is unlikely owe to escalating risks of a correction in the liquidity-driven stock market, prolonged upside ground (5-6%) for a USD rebound and the supply fundamentals for oil.

OIL EXTENDS PLUNGE TESTING 65. Unexpected decline in US durables reaccelerates the risk aversion trade at the expense of all currencies vs. USD, followed by JPY as the next gainer. Markets await the 14:00 GMT release of US new home sales (exp 1.0%, prev +1.1%) and whether they would show a decline as did the existing home sales. GBPUSD seen retesting 1.5870, USDCAD eyes 1.1020, EURUSD targets 1.4570.

OIL BREAKS BELOW DOUBLE MOVING AVERAGE confluence (55 and 100 day), for the first time since 2007. Key neckline also broken.

http://chart.ly/v7v5gw

A replay of Ashraf's CNBC interview previewing the Fed

http://bit.ly/3Vtx4Q

364 DAYS LATER, 140 YRS LATER. We warned our twitter followers yesterday (about 2 hours before the FOMC decision) that Euro's top at $1.4844 had emerged 364 days after the $1.4864 high reached on Sep 22, 2008, with the implications that fresh EUR loses (USD bounce could emerge). Today, EURUSD lost full cent and GBPUSD lost 350 pips. TODAY MARKS THE 140 YEAR ANNIVERSARY of Black Friday 1869, when a crash in the price of Gold Crash was accompanied by falling stocks during the American Civil War. 1.4590 remains next major target. SNB intervened after EURCHF broke below its 200-day MA.

GBP SELLING REMAINS PATH OF LEAST RESISTANCE, regardless of risk appetite. Our $1.6150 target (see twitter updates) has now been hit for a 150-pip move, especially as OIL INTENSIFIES decline (see last night's IMT). As of today, GBP 3-month LIBOR -20% from Sep 1st vs. -9%, -7% and -13% for EUR, JPY and USD respectively. A break below $1.6120, should retest 1.6040, while GBPJPYnow eyes 144.70 as the next key support.

Slower than expected rise in German September IFO survey was in line with the weaker than expected advance in the ZEW survey for the same month. The 6th consecutive increase in the IFO climate index reflects the expectations element of the survey, but apparent signs of a peak in the optimism could be capitalized upon by FX markets seeking to play the USD-bounce against European FX. EURGBP surges to fresh 5-month highs at 0.9134, eyeing the next target at 0.9170. Subsequent technical resistance stands at 0.926061.8% retracement of the decline from the 0.98 high to the 0.84 low.

TODAY's OIL SPILL of nearly $4.00 was temporarily put aside by the pre and post FOMC volatility, but swift profit-taking of dollar sales in the aftermath of the FOMC statement risks accelerating oil's spill below $67. FOMC issued another wait-and-see statement without ommitting to reducing liquidity. Regardless of equities and FX, oil technicals are increasingly suggesting the wedge formation of the past 2 weeks could break on the downside. CAD technicals vs. USD and JPY also suggest 1.0850 and 84.00 remain within reach of the nest 24 hrs.

Samples of Ashrafs interview earlier on CNBC discussing the Fed, FX and cost-cutting http://tinyurl.com/naodru GBPUSD recovers above $1.64 but 1.6580 emerges as the trend line resistance from the Aug 5 high. Subsequent obstacle stands at the right shoulder of $1.6720-30. OIL FAILS to breach above the 71.80 resistance (mentioned yesterday) before losing more than a full cent. A HIGHER THAN EXPECTED BUILD in US crude inventories (+2.8 mln brls vs expected +1.5 mln) could call up 68.70, which would make a bearish outside day.

FX markets require a jittery equity market in order to scale back dollar shorts. As long as the FOMC statement expresses continued and gradual improvement in the economy (as it did over the last 2 statements) but without announcing the intention to withdraw liquidity, then there would be little reason to support the dollar. Such a scenario would tend to be yen-negative but not to the same extent of dollar weakness. Thus, USDJPY risks falling below 90 in the event of renewed risk appetite and especially in the unlikely event the Fed extends some type of liquidity (MBS, treasuries or reverse repos). The lose-lose situation for USDJPY remains and the only exception would be for a retreat in equities (as was seen earlier this week).

The FED's ASSET PURCHASE PROGRAM consists of buying $300 billion in treasuries (nearly $20 bln of which has yet to be bought by October) and of $1.25 trillion in mortgage-backed securities (nearly $165 bln remains unbought). The Fed's MBS purchases have helped stabilize the market by stabilizing spreads. Market chatter that the Fed may telegraph a potential tightening in conditions using reverse repos, could detract market optimism as the Fed attempts to place in action what it has been revealing in words. ASHRAF WILL BE GUEST HOSTING CNBC's WorldWide Exchange for 45 mins starting at 9 am GMT (10 am BST) previewing the Fed, G20 and FX plays. Risk appetite improving but still not enough for GBPUSD to regain $1.64 and oil to regain $71.85, both falling TLines.

The lower highs prevailing in daily USDCAD suggest the downtrend remains firmly in place, a break of which is only viable by means of a notable equity correction and an effective breakdown in oil out of its 2-week long wedge. Todays oil price action would call for further upside in the event of a close above the 71.85 TL resistance. Nonetheless, USDCAD 3-hr chart shows more assurance for the bulls, but a break of 1.0745-50 is needed before re-considering +1.0920 again. GBPUSD remains capped at $1.64 TL resistance from Sep 11 high.

The dollar is increasingly being treated similarly across the board (falling or rising against all currencies including the yen), which is slightly different from previous cases when its behaviour against JPY was generally contrary to that against other currencies. This suggests that dollar moves are a reflection of a USD-specific dynamic, rather than yen-specific. Thus, in the next wave of risk aversion, we would expect to see a stronger USD vs. the major currencies as well as USDJPY. CORRECTION. Ashraf guest host appearance on CNBC's World Wide Exchange will be WEDNESDAY and NOT Today at 9:00-9:45 am GMT (10-10.40 EST)

US 10 year yields continue to face resistance at 3.49-50%, with a downward bias towards 3.42%. Wednesdays FOMC decision is expected to give no new info on the Treasury purchase program, which is due to conclude in October. US stocks are stuck at -0.4%, oil may test the $69 figure while gold struggles around $1,000. limited its rebound at $1.6230s, while remaining vulnerable to a retest of $1.610. EURGBP looks for a retest of Friday's 0.9090s, while USDJPY remained capped at 92.50s, with subsequn resistacne at 93.50-60.

Ashraf's interview on Bloomberg TV earlier today discussing the USD Carry Trade. http://bit.ly/nXlbf Yen strength joins USD stability as stocks are enar session lows. USDX has yet to regain 77.50s.

Theres no change in our negative outlook on GBP and CAD as both currencies extend their sell-off particularly against the dollar. Aside from increased selling in equities, uncertainty with the future viability of UK banks (Lloyds and RBS), combined with the possibility for negative interest rates on UK bank reserves has broadened GBP selling. $1.6040 and 1.57 remain our intermediate term targets. USDCAD 4-hr faces interim pressure at 1.0810, a break of which will be necessary to see a 1.09 print, followed by the 1.10 resistance.