Intraday Market Thoughts Archives

Stock indices daily technicals could suggest heavier selling to ensue in the latter 2-3 hours of NY trade from current -1.4% to as much as -3.0%. which could see Aussie breach below 67 yen and cable drop back below $1.4270. CAD shows its usual vulnerability during falling stocks/oil, as USDCAD breaks above 1.2420s, eyeing 1.2470s. USD strength to emerge in early Monday Asian trade as stocks make theri share of profit-taking.

Sterling lost another cent from the last IMT update as dollar strength prevailed in Asian and early European trade. The 0.2% increase in US Feb consumer spending was in line with expectations but the sharp upward revision to the Jan report helps bolster USD optimism (against doubts of greenbacks reserve currency status). Euro to be highly scrutinized for holding above the $1.33 foundation, a break of which to trigger $1.3255. Im currently in Singapore until mid next week so updates in the site will be less frequent than usual.

I warned yesterday that cable's inability to close above the $1.4570 was ominous for the currency from a candlestick perspective. Todays bigger than expected decline in UK Feb retail sales added to yesterdays damage, which was triggered by the failed guilt auction and dismal CBI numbers. Slow stochastics suggest selling ahead tomorrow could break below $1.4340s and extend to as low as $1.4200s. Today's combination of improved risk appetite and USD strength is unusual. Prolonged equity Buying in Asia could lift USDJPY past the 99.00. Heads up for this evenings Q4 GDP from NZ and tomorrows Feb personal spending from the US.

China's worries with escalating US debt are not just limited to the dollar but also with the falling value of the US treasuries, as seen in the 30-40% rise in the yield of 3, 5 and 10-year Treasuries year to date. USD outlook remains especially shaky by the fact that despite the Feds purchasing $300 billion in LT Treasuries, a 1/3 of that was sold this week alone. Thus, downward impact on yield may not be prolonged. In fact, Last weeks over 2/3rds of last weeks 40-50-bp plunge in bond yields has been reversed. The bond-dollar impact remains a double whammy for the fate of +$700 billion of Chinas US Treasuries. Chinas concerns may not consist a threat to sell, but are sufficient for maintain dollar-aversion in global currency markets.

As oil nears our $55.20 target from last week, check out todays Hot-Chart on the time lag between EURUSD and oil. Improved risk appetite carries through US markets, bringing the S&P500 closer about 40-points away from the 860-65 territory, deemed necessary to add more conviction to the current rally, beyond just a bear market bounce. Meanwhile. NOK, AUD, NOK and NZD are back at the top of the outperformers, specifically AUDJPY to probe the 70 resistance, while EURAUD to retest the 1.9230 low.

US crude oil gains nearly $1.00 to $53.60, chasing the 2-month high of $53.80. As long as EURUSD continues to hold $1.33, oil is likely to hold above the 100-day MA of $51.25, thereby likely garnering fresh momentum towards the medium target of $55.20. Caution with the oils lag behind general turnarounds in the USD. NOK partially regains footing after yesterdays rate cut-damage, while only the unfolding US data is set to interrupt the current weakness in the yen.

SOUNDBITE GALORE in todays FX market activity as remarks from Geithner voicing support for reweighting SDRs were misinterpreted for his support of moving away from USD as a reserve currency, which dragged USD across the board, until his clarifications that strong USD was in US interest briefly boosted USD, which was later reversed after stocks recovery. At end of day, NOK was worst performing currency (after Norges Bank rate downgrades), followed by USD (stocks declines) and GBP (dismal CBI figures & first failed guilt auction in 7 yrs). If this week was confusing then lets wait until next week when G20, ECB and NonFarm Payrolls are all due out. Stepping back and getting longer perspective, USD risks still downgraded by the fact that despite the Feds announcement of purchasing $300 billion in LT Treasuries, a third of that was SOLD this week alone. Thus, downward impact on yield may not be prolonged, and combining that with shaky USD is a double whammy for +$700 billion of Chinas US Treasuries. Gold has first up day in 4 and stay tuned for any gold-capping efforts from a few cenbanks.

Both China and the US agree on expanding the components of the IMFs Special Drawing Right currency and including the yuan in the current weights beyond current weightings of USD, EUR and GBP. IMF Chief Strauss-Khan supports the legitimacy of discussing the idea of a new reserve currency based on SDR, while former Fed chief and current Obama Advisor Paul Volcker says moving towards a new reserve currency system of SDR is impractical. Most likely outcome is that SDR will be reweighted at next months IMF/World Bank meeting in Washington, which should appease current Chinese misgivings about the dollar. SEPARATELY, NOK droppe beyond my targetsstated earlier vs EUR and USD after Norge's downgrades of rates and inflation.

Dollar pushes higher DESPITE stocks rally as Geithner for the first time in his tenure says a strong dollar is in the interest of the US--a mantra long espoused by previous Treasury secretaries since Rubin) or the dollar I would. Geithner added the dollar is extraordinarily strong right now because investors consider the US United States the strongest economy in the world with the most stable political system in the world. Currencies most vulnerable to USD at this point are GBP (after today's dismal CBI) and NOK for now.

NOK loses across the board after the Norwegian central bank cuts by 50 bps to 2.00% as was widely expected but the decision is especially NOK bearish as the central banks outlook for interest rates is further downgraded to 1.00% in autumn, as well as downgrading its 2009 core CPI outlook to 2.5% (banks target) from previous forecast of 3.00%. EURNOK seen testing the 8.7730 top of the channel, while USDNOK could garner prolonged gains towards 6.60 from 6.46.

All the higher yielding currencies are out of favour, allowing for gains in USD and JPY. Aussie dropped to across the board after RBA head Stevens said further rate cuts would still help (if any) but would not comment about their likelihood. Aussie rebounds half a cent from its session lows, but traders are aware of the fact the currencys 2-week run must pause for breath as have global equities. More collapse in Japanese exports is not stopping the yen from outperforming most currencies. Chek out today's Hot-Chart on S&P500 Seasonals. Must be registered for access.

We warned readers in an earlier IMT that USDCAD was preparing to push higher from its 1.2230-40s towards the 1.2290s and higher in the event of deteriorating selling in US equities. Also warned of the pick up in selling momentum near the end of session which amplifies the moves in currencies. Those who are holding short USD positions could partially hedge into the Asian session by buying USD vs CAD and CHF.. targetting 1.2360s and 1.1390s respectively.

Watch out for tomorrow's speech by RBA governor Glenn Stevens (7.30am GMT) for any clues on monetary policy and the latest gauge on interest rate expectations. Currently, markets price above a 50% chance of a 25-bp rate cut to 3.00% next month after rates were held unchanged this month. Although RBA kept door open for further easing, the fact that market conditions are now superior than those prevailing during the decision to hold could suggest the RBA may stand pat again if current stabilization persist into April 7. While tomorrows speech will likely reiterate the RBAs forecasts for more slowdown, FX traders may keep Aussie supported based on near-term bottoming in rates.

Further selling in equities could prolong fresh losses in CAD, hence, the consolidating support in USDCAD at 1.2205 is expected to lead to added gains into 1.2230 and 1.2260s. USDCAD's moves are characteristically accelerated at the turn of the US/EUR sessions, thus we could see a break above 1.2250s and onto the session's high of the 1.2280. Watch the losses in US indices as they magnify CAD selling. EUR falls out of favor, especially against GBP after supportive CPI figures. 0.9170 low could well be probed again onto 0.9100.

Faster than expected increase in UK inflation is providing GBP with deeper gains across the board, weghing on EUR and USD, while lifting it off the lows against JPY. Todays breach of $1.47, suggests $1.4880 to be the next real test for the current advance. Watch the latest on Barclays' I-Share division and a possible sale to Goldmans, which could prop up the bank's shares and the currency.

From today's Financial Times: " There was no stopping US equity markets on Monday. The S&P 500 closed 7.1 per cent higher, marking a 20 per cent retracement from the 12-year low of 666 points reached this month. Ashraf Laidi, chief market strategist at CMC Markets, noted that the S&P had broken above its 50-day moving average for the first time since January 28.

He added: Well have to see gains of another 7-10 per cent to 840-865 before we can think about removing bear from market rally. " Equity market rallies of the current bear market as well as that of 2000-02 have extended between 20-25 per cent, with 27-29 per cent rallies deemed rare.

Those who don't yet have my book and would like to learn more about the relationship between copper prices and currencies such as the Aussie and the Chilean peso could go to my book page on Amazon.com and use the "SEARCH INSIDE THIS BOOK" by typing "copper". There will be at least 29 entries dissecting situations when the Copper-Aussie relationship held up and when it broke down, analyzing year-by-year cases from 1999 to 2007 in Chapters 3-4.

WHAT IS MARCH 5th? The peak in the dollar index at 89.62 on March 5th (Euro bottomed at $1.2455) coincided with the Bank of Englands official move into quantitative easing via its announcement of 150 bln of bond purchases. Also n March 5th, the ECB announced further downgrade of its GDP forecasts, but most of all hinted that rates would drop further towards 1.00%, paving the way for a possible ECB quantitative easing. This may sound counterintuitive, but recall that the euro PEAKED on July 15 of last year, one week AFTER the ECBs decision to RAISE interest by 25-bps to combat rapid inflationdespite slowing growth. Oil prices also peaked at that same day, at $147 per barrel. Few things to think about....

The follow-through in oil prices to a fresh 3-month high of $54 per barrel approaches the $55.20 target raised in last weeks Hot-Chart as traders find little resistance in the way of the data or news announcements. NOK remains the preferred play on rising oil and general improved risk appetite rather than CAD, which remains unable to drag USD below 1.2300. 840-850 in the S&P500 and 8,200-8,300 in the Dow remain the key target levels to watch before any sharp conclusions can be made about the veracity of the ensuing rally.

US Govt. offers more details as far quantity of toxic debt to be purchased by Treasury, Fed and private investors. A point often repeated here is that the combination of relative data vacuum in the US along with neutral-positive risk appetite is conducive to prolonged USD weakness. JPY remains weakest performing currency, offering prolonged upside for AUDJPY and NZDJPY. GBP retreats after negative comments from BoEs Blanchflower saying recession forecasts may be too optimistic. Cab;e#s upside still capped at $1.47, followed by 1.4860s. Todays Hot-Chart dissects the AUD-Copper relationship, a topic discussed in detail in my book (Chapters 3, 4 and 8).

Currency traders are handed their cake and could also eat it as the clear catalysts to improved risk appetite (Geithner's expanded stimulus plan and 9% injection in Daimler) are providing a text-book case of USD and JPY selling vs AUD, NZD, NOK and EUR. Aussie hits 70 cents and EURUSD regains $1.37 (but fails to breach the key $1.3740 resistance). Expect renewed run-up towardsd $1.3740, followed by 1.3810.