Intraday Market Thoughts Archives
Displaying results for week of Apr 21, 2013Ashraf on CNBC About ECB & JPY Status
Ashraf reiterating to CNBC his case about the yen and giving his thoughts on next week's ECB meeting
One Week Until ECB, But First the BOJ
The May 2 ECB decision is quickly being circled on every trader's calendar. The euro lagged Thursday on speculation about a rate cut while the pound jumped on better GDP. Today's Bank of Japan decision isn't expected to be dramatic but after the fireworks last month, traders should be on guard. Premium clients holding on to the existing USDJPY trades are positioning on reports that the BoJ will raise its 2014 CPI outlook to1.5% from 0.9% and announce its 2015 CPI outlook to around 2%. These trades are in the latest Premium Insights.
The euro was slammed after a failed attempt at 1.3100 in early US trading. The turnaround sent it below 1.3000 as the dam broke and a flood of analysts began forecasting rate cuts. Bloomberg has now surveyed 42 economists and 26 expect a cut while 16 expect rates to remain at 0.75%, if anything several of the 16 will switch sides in the days ahead.
The euro touched a three-week low on Wednesday and the turnaround Thursday was another damaging sign for the bulls.
The euro has also been unable to rally despite upbeat risk sentiment. US initial jobless claims numbers were solid and that boosted stocks and commodities. Claims improved to 339K compared to 350K expected. US first quarter GDP numbers are Friday.
Yen trading has been quiet in the lead-up to the Bank of Japan decision despite some headlines suggesting more weakness is on the way. Nikkei reported that Japan will propose investing its FX reserves in ASEAN bonds at an upcoming meeting. Strong demand at a US 7-year Treasury auction also pointed to the possibility of Japanese buying.
The expectations for this BOJ meeting are at rock bottom. There is no hint of any concrete moves. The lone point of interest is when the BOJ will forecast 2% inflation but Nikkei reported today it will be for the 2015 fiscal year. That said, Kuroda has already shown that he's pretty good at playing down expectations and then blowing them away, so the market will be on guard.
| Act | Exp | Prev | GMT |
|---|---|---|---|
| National CPI Ex-Fresh Food (MAR) (y/y) | |||
| -0.5% | -0.4% | -0.3% | Apr 25 23:30 |
| Continuing Jobless Claims | |||
| 3,000K | 3,060K | 3,093K | Apr 25 12:30 |
| Initial Jobless Claims | |||
| 339K | 351K | 355K | Apr 25 12:30 |
Ashraf's Letter in Today's Financial Times
Sir, The yen may be bruised by the Bank of Japan's willingness to unleash a monetary shock and awe, but Axel Merk's article “A weak yen is not the solution for Japan” (Insight, April 18), stating the yen is no longer a safe haven, is flawed. Mr Merk bases his argument on the deteriorating correlation between the yen and the Vix index. That is inaccurate on several levels.
First, the yen's reflexive rallies during market sell-offs continue to emerge. On February 25, the yen jumped 2.7 per cent versus the euro and 1.7 per cent against the US dollar (significant moves by FX market standards), while the S&P 500 fell 1.8 per cent on the day, its biggest percentage decline of the year at the time. On April 15, the yen rose 2 per cent and 1.4 per cent versus the euro and the US dollar respectively, as the S&P 500 plummeted 2.3 per cent, its biggest decline of the year.
Judgments may be clouded by the fact that equities have not been subject to any real test by the bears. Thus, year-to-date, the yen is down 12 per cent versus the euro and down 13 per cent against the US dollar, while the S&P 500 is up 10 per cent. But note that the Vix is up 15 per cent year-to-date, at a time when so-called “risk” markets are also higher.
These episodes clearly highlight the Japanese yen retains its safe-haven lustre during intraday and intraweek sell-offs. One reason is that the US dollar cannot solely and continuously assume the role of safe-haven currency at a time when neither the majority of Federal Reserve members, nor US data support the case for reducing asset purchases. Also, investors use currencies as vehicles to get in and out of risk-taking endeavours. Forced liquidations are increasingly frequent during overstretched markets and a rising yen is unavoidable. Most of all, it is premature to claim the end of the yen's safe haven. Let's wait until markets dare to decline by at least 7-10 per cent, before assessing the currency flows.
Ashraf Laidi, Chief Global Strategist, City Index, London EC2, UKDurable US Disappointment and ECB Confusion
A disappointing durable goods orders reports raised fresh questions about the US recovery but risk trades edged higher anyway while the Swiss franc continued to stumble. The upcoming session in Asia is devoid of economic data and Australia is on holiday. We issued new Premium trades trading note on EURUSD alongside the latest MONTHLY chart. 1 new trade on USDJPY has been added to the existing long, while 1 new trade on GBPUSD and 2 new longs on GBPJPY ahead of Thursday's UK GDP report. 1 new trade on USDCAD along 2 new charts (weekly & monthly)( have also been cadded to highlight our case for USDCAD. All charts & trades are in the latest Premium Insights.
US durable goods orders dropped 5.7% in March compared to a 2.8% decline expected. The decline was compounded by a downward revision to the February data. The closely watched core orders component was less dramatic, rising 0.2% compared to a 0.3% rise expected but the numbers were soft enough to prompt several firms to revise Q1 growth forecasts lower.
It's a growing struggle to find any US indicators that point to an accelerating economy but the market remains uncertain and with the Fed printing, the path of least resistance for risk trades remains higher. USD/JPY touched 99.60 in US trading but it may not have the strength to break 100 with Japanese Golden Week holidays next week.
| Act | Exp | Prev | GMT |
|---|---|---|---|
| Durable Goods Orders (MAR) | |||
| -5.7% | -2.8% | 4.3% | Apr 24 12:30 |
| Durable Goods Orders ex Transportation (MAR) | |||
| -1.4% | 0.5% | -1.7% | Apr 24 12:30 |
EUR Stabilizes Around 1.30 on Rate Cut Speculation
Today's release of April IFO business climate fell to 104.4, worse than the expected rise to 106.2, while the current assessment index fell by more than expected to 107.2 from the prior 109.9. The expectations index also fell by more forecast, at 101.6 from the prior 103.6. The most notable aspect of this week's deterioration in Eurozone PMIs is the decline in German services PMI to 49.2 from 50.9, which is the first sub-50 print since November. Mounting speculation over ECB rate cut on May 2 meeting emerge on the argument that the combined bite of austerity and slowing global growth will necessitate a rate cut as the only avenue to trigger a cheaper and more competitive euro. But it remains clear that euro depreciation is more beneficial to Germany than the rest of the Eurozone nations due to Germany's high proportion of exports to outside the Eurozone. We issued new Premium trades trading note on EURUSD alongside the latest MONTHLY chart. 1 new trade on USDJPY has been added to the existing long, while 1 new trade on GBPUSD and 2 new longs on GBPJPY ahead of Thursday's UK GDP report. 1 new trade on USDCAD along 2 new charts (weekly & monthly)( have also been cadded to highlight our case for USDCAD. All charts & trades are in the latest Premium Insights.
| Act | Exp | Prev | GMT |
|---|---|---|---|
| Business Climate (APR) | |||
| 104.4 | 106.2 | 106.7 | Apr 24 8:00 |
| Current Assessment (APR) | |||
| 107.2 | 109.5 | 109.9 | Apr 24 8:00 |
| Expectations (APR) | |||
| 101.6 | 103.0 | 103.6 | Apr 24 8:00 |
The Tweet That Rocked Markets
A twitter hack gutted some traders and left others flush in a bizarre episode Tuesday. The US dollar was the top performer while the Swiss franc lagged on rumors of a hike in the EUR/CHF floor. The RBNZ held rates, as expected. Ashraf is overseas and is encountering network issues impacting Premium updates. Both AUDUSD shorts and 1 of 2 GBPJPY hit all targets.EURUSD short was 30 pips near final target. USDJPY is in play and 1 silver hit final target. There will be an attempt to bring about a premium update tomorrow.
In US afternoon trading the Associated Press twitter account announced two explosions at the White House and said the President was injured. Traders hit the panic button, dumping stocks and buying yen. In a minute, the S&P 500 fell 15 points and yen crosses dropped 50-100 pips.
It turns out the twitter account was hacked and the report was fake. The gains quickly retraced but not before a few accounts were badly damaged. Events like that can be chalked up to pure luck but they're a reminder to manage risk and keep position sizes from getting too large.
Early in Asia-Pacific trading New Zealand's central bank left rates unchanged at 2.50%, as expected. The New Zealand dollar jumped a half-cent following the announcement. Governor Wheeler continued to jawbone against the NZD but his musings are having less of an effect. Comments noting that growth has improved and house price inflation rising were behind the kiwi rally.
The focus now shifts across the ditch to Australia where first quarter CPI numbers will be released at 0130 GMT. The consensus is for 2.8% y/y inflation and the trimmed mean at 2.4%.
Austrailan inflation has been trending higher since mid-2012 but real-time pricing indicators suggest pressures have eased. A knee jerk AUD reaction higher may be a selling opportunity because mining companies are cutting back and wage pressures are diminishing.
| Act | Exp | Prev | GMT |
|---|---|---|---|
| HPI (m/m) | |||
| 0.7% | 0.7% | 0.6% | Apr 23 13:00 |
| Consumer Price Index (Q1) (q/q) | |||
| 0.7% | 0.2% | Apr 24 1:30 | |
| RBA trimmed mean CPI (Q1) (q/q) | |||
| 0.5% | 0.6% | Apr 24 1:30 | |
| Consumer Price Index (Q1) (y/y) | |||
| 2.8% | 2.2% | Apr 24 1:30 | |
| RBA trimmed mean CPI (Q1) (y/y) | |||
| 2.4% | 2.3% | Apr 24 1:30 | |
First Look at April Chinese Manufacturing
Traders got their first taste of slow summer markets in a ho-hum session on Monday but Chinese manufacturing data will liven up the day ahead. Sterling led the way in the past day while the Swiss franc lagged. US existing homes sales caused a blip in risk sentiment. In addition to the existing shorts in AUDUSD and longs in USDCAD, we added new trades in GBPJPY, EURUSD, USDJPY, gold and silver as well as a monthly Gold/Silver ratio with multi-speed momentum. All trades and charts in the latest Premium Insights.
Economic data was light to start the week but the low-tier existing home sales number caused an outsized move in markets. The data disappointed with sales at a 4.92m pace compared to 5.00m expected.
USD/JPY was teetering at the lows of the day ahead of the numbers and used them as an excuse for a slump below 99.00. Similar 30-40 pip declines hit the euro and commodity currencies but they didn't last long. Sentiment rebounded as quickly as it fell.
The pound was an outperformer for no particular reason. An interesting trend to monitor is the austerity debate. Today's editorial in The Guardian lambasted the UK agenda and PIMCO's Bill Gross criticized the UK for not doing enough for growth. A shift away from austerity could help the pound.
In the near-term the focus is on the April Chinese flash manufacturing PMI from HSBC. The consensus is for a slight decline to 51.5 from 51.4.
AUD/USD has been stubbornly bid in the area from 1.0200 to 1.0230 but a weak reading could spark renewed downside pressure.
| Act | Exp | Prev | GMT |
|---|---|---|---|
| Existing Home Sales (MAR) (m/m) | |||
| 4.92M | 5.01M | 4.95M | Apr 22 14:00 |
| Existing Home Sales Change (MAR) (m/m) | |||
| -0.6% | 0.6% | 0.2% | Apr 22 14:00 |
| New Home Sales (MAR) (m/m) | |||
| 0.420M | 0.411M | Apr 23 14:00 | |
| New Home Sales Change (MAR) (m/m) | |||
| -4.6% | Apr 23 14:00 | ||
USD/JPY Back on the Brink of 100
Japan avoided a slap on the wrist at the G20 and that has boosted USD/JPY to the brink of 100. Last week, the US dollar was the top performer while its Australian counterpart lagged. Weekly futures positioning data showed a 40% drop in euro shorts. In addition to the existing shorts in AUDUSD and longs in USDCAD, we added new trades in GBPJPY, EURUSD, USDJPY, gold and silver as well as a monthly Gold/Silver ratio with multi-speed momentum. All trades and charts in the latest Premium Insights.
Yen crosses are higher to start the week, led by CAD/JPY. Moves higher in the yen crosses began late on Friday and have continued into the new week. The G20 is almost always a letdown and this version was no different. There were musings about monitoring Japan but officials spoke in platitudes and the Russian finance minister conceded that FX wasn't high on the agenda.
The euro is relatively stable in early trading despite the political drama in Italy. The failure to elect a new President cost Bersani the leadership of his centre-left coalition. After six rounds of voting, politicians re-elected 87-year-old Napolitano to the position.
The Asia-Pacific calendar has no important events scheduled to begin the week.
Commitments of Traders Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
EUR -30K vs -50K prior JPY -93K vs -78K prior GBP -62K vs -70K prior AUD +53K vs +78K prior CAD -76K vs -71K prior NZD +31K vs +25K prior CHF -3K vs -10K prior US Dollar Index longs at 38K vs 50K prior
The euro wasn't particularly busy in the week of the sample but Tuesday was the day it closed above the 55-day moving average and that may have spooked speculators. The increase in JPY shorts suggests speculators were loading up on the drop below 96.00 last week.
