Intraday Market Thoughts Archives

BERNANKE SPOKE, MARKETS WHIPSAWED before both USD and JPY accelerated their selloff in the last half hour of London trade. Readers of the IMT were alerted of these declines before the start of the US trading session, but once Bernanke spoke, I warned my followers on twitter (twitter.com/alaidi) on the following: Accelerating selloffs in $USDX & #YEN coming up near London Close. $ EURUSD to make transition from holding 12680s to 1.2760s $FXE $$. Once again, EURUSD held up at the important 1.2680s trendline before taking off towards 1.2770s. Fed chairman Bernankes speech highlighted 2 key points; purchases of long term assets are his favourite option for additional easing; and the central bank will not breach its commitment to price stability. The preference of additional asset purchases over communicating a longer period of exceptionally low rates and reducing interest rate on reserves allow for the possibility of renewed expansion of the Feds balance sheet. I warned on twitter there was NO REASON for USD to rise when Bernanke keeps the door open for QE. Equities bottom picking ensued on better than exp GDP especially as the S&P500 neared the key 1040 low, but these gains are unlikely to extend past mid next week.

US Q2 GDP REVISED down to 1.6% (vs. exp 1.4%) from advanced 2.4% reading, triggering a relief rally in equities and BROAD YEN SELLOFF, especially since the Japanese currency has been already hit by: i) fresh political fallout in Japan and ; ii) escalating signals of a looming stimulus package involving the Bank of Japan injecting fresh liquidity. SWISS FRANC COMES OUT ON TOP as the best of the 3 safe haven currencies, hitting 3 1/2 week highs vs. JPY 82.90s, while dragging USDCHF to lowest since Jan at 1.0244 eyeing 1.0130s in medium term. NOTE CHFJPY is testing the July trendline . Bernankes speech will likely focus on the possible policy response rather than on the outlook, which should maintain GOLDs run-up. FX reaction will likely get its queues from equities, but any aggressive risk aversion, will see AUDUSD heading back to 0.8840s and GBPUSD towards 1.5420s. In the unlikely event that Bernanke's speech triggers a reliefe rally in equities, I would opt for EURUSD, NZDJPY and CHFJPY to stand among the big winners of the day, retesting 1.2760s, 60.40s and 83.40s respectively.

GDPs, BERNANKE & CONSUMER SENTIMENT: UK Q2 GDP (4:30 EST, 8:30 am GMT, 9:30 BST) is expected to remain unrevised at 1.1% (the highest rise in 4 years), but any downward revision will likely ease cable into the $1.5570s.========= US Q2 GDP (8:30 EST, 12:30 GMT) seen revised to 1.3% from the advance reading of 2.4%. Some have mentioned a figure of as low as 0.6%. All components of the GDP report will be revised but the important PCE component (personal consumption expenditure) is seen unchanged at 1.6%. A figure below 1.4% or 1.3% would hit USDJPY hardest, along w/ downward pressure on yen crosses temporarily before market likely regains composure ahead of Bernankes speech. A shockingly low figure (below 1.0%) would not only hit all yen pairs, but would likely trigger broad selling in USD. I see another EURUSD & GBPUSD attempt towards $1.2760s and 1.5620s. ====== === 90 mins later, Bernankes speech titled Economic Outlook & the Federal Reserves Policy Response will hit the wires, which I expect to focus on the POLICY ACTION instead of the FORECASTS and OUTLOOK, in which case he will explain the FOMCs August decision to purchase treasuries as a way to maintain the size of the Balance sheet. Also watch Univ of Mich consumer sentiment due 5 mins before Bernanke's speech, exp at 70 from 67.8, so a positive figure could also help underpin cable and euro vs USD.

THOSE GOLD SEASONALS AGAIN; my research indicates that out of the last 8 years, Q4 proved to be the best quarter for gold, gaining in 7 out of the last 8 years. Q3 and Q1 followed behind, rising in 6 out of the last 8 years. From a multi-FX perspective, now that gold has broken above the key resistance of EUR 960/oz (trendline resistance from June record high & 50% retracement), the signal for prolonged and broad gold gains looms large. And with gold vs. USD breaking above its 55, 100 and 200-day MAs for the first time since April, $1,275-80 is seen as the next key target before end of Q4.

JOBLESS CLAIMS GOOD ENOUGH FOR FURTEHR USD WEAKNESS, +473K, which is good enough for risk appetite to improve, but since the overall continue to show clear uptrend, USD to remain on the backfoot. YEN WEAKNESS suggests 80.60s in CADJPY, NZDJPY eyes 60.20. GBPUSD rebound accumulated fresh bids in London trade when GBP strength amassed fresh gains vs. EUR, translating into broader sterling gains. With USD remaining on the defensive, GBPUSD eyes a retest of $1.5570, with the potential of following through 1.5620s in Asia in the event that stocks make one of their typical +1% daily gains before risk aversion sets off agains ahead of Bernankes cautious speech and the potentially ugly revision in US Q2 GDP.

JOBLESS CLAIMS GOOD ENOUGH FOR FURTEHR USD WEAKNESS, +473K, which is good enough for risk appetite to improve, but since the overall continue to show clear uptrend, USD to remain on the backfoot. YEN WEAKNESS suggests 80.60s in CADJPY, NZDJPY eyes 60.20. GBPUSD rebound accumulated fresh bids in London trade when GBP strength amassed fresh gains vs. EUR, translating into broader sterling gains. With USD remaining on the defensive, GBPUSD eyes a retest of $1.5570, with the potential of following through 1.5620s in Asia in the event that stocks make one of their typical +1% daily gains before risk aversion sets off agains ahead of Bernankes cautious speech and the potentially ugly revision in US Q2 GDP.

WHEN MARKETS TAKE A BREAK from the recent selloff, FX traders pick among USD, JPY and CHF as the safe haven currencies to sell. JPY is hit hardest on a combination of a bounce in Asia and European futures after the Jpns govt urged the Bank of Japan to ease the yen as part of an upcoming stimulus that has yet to be confirmed. Politically, PM Kan is being challenged by senior DPJ officials for the leadership. We have been here beforeJapanese political uncertainty combines with temporary bounce in equitiesFX traders capitalize with short-term longs in yen crosses; thus, EURJPY, AUDJPY and CADJPY facing intermediate targets at 108.30, 75.50s and 80.60s. Such yen shorts ought to be short-term in nature, as traders remain cautious from ahead of todays US jobless claims will they decline from prior weeks giant 500K reading) and Thursdays Bernank/GDP combo. EURUSD still seen retesting 1.2760s.

More disappointing US housing figures are unlikely to further boost USD on risk aversion because (i) prolonged US data deterioration bolsters the case for a fresh asset pruchases from the Fed; and (ii) of the latest upside surprise in German August IFO survey. While the latest 3-year high in German IFO does not rid the euro of fresh downside pressure, it reduces the case for aggressive euro selling on the heels of poor US figures. As result, CHF and JPY continue to claw gains on the perceived ineffectiveness of any intervention from the Swiss National Bank and Bank of Japan in stemming strength in their currencies. GOLD eyeing 1240s resistance, which would pace the way for key upside target of 1270. US stocks attempt to shrug the unexpected 12% decline in Jul new home sales, weighing on JPYacross the board. CADJPY seen capped at 79.90, AUDJPy downtrend intact, with rebounds capped at 74.85-90 before renewed losses. Ashraf is currently on travel & updateds will be less frequent than usual.

JAPAN & GERMANY in the spot light, with the Japanese making more ineffective talk regarding the yen and German Aug IFO due at 8 am GMT. More on IFO below. Talk that the the BoJ may hold an extraordinary meeting to consider additional monetary easing is not helping to weaken the yen, while Japan Fin Min Noda said MoF may respond unilaterally if yen moved by several yen against the USD. IFO sentiment index seen at 105.7 from 106.2, IFO expectations index seen at 104.4 from 105.5 and current conditions index at 107.4 from 106.8. EURCHF hits fresh all time low of 1.2985 before rebounding to 1.3050s, while EURUSD drifts around 1.2650s. It took a new event risk (S&P's downgrade of Ireland) to drag EUR to bew multi-week lows. We're seeing waves of sudden (but short-lived) selling in USD, stemming from growing talk of a double dip recession in the US, which would increase chances of a full-fledged QE2 by the Fed, thereby BOOSTING GOLD. This is the reason I warn against excessive gold selling during bouts of risk aversion and USD advances. EURUSD underpinned at 1.26,with remianing possibility of seeing a 1.27 print today. Watch whether IFO disappoiints across the board, in which case we;d retest $1.2580s.

The JPY Trade-Weighted Index shatters its 2009 high of 135 (as measured by the Deutsche Bank Index), hitting a high of 139.14. Here is the chart I posted 2 weeks ago http://bit.ly/aivsPK warning of a breakout against what many have called a doubletop.

ITS ONLY TUESDAY as JPY makes the transition from rising to soaring amid inaction from Japanese officials. Readers of this website have been warned of 81-80 in USDJPY since January before it was fashionable to do so. Cracks inside the FOMC about renewing QE, forecasts of a possible UK recession by the newest member of the Bank of Englands MPC and warnings from Moodys about further downrgrades in Europeincluding fears of a Eurozone double dip in the event of slowing Asiahave fabricated the perfect storm for deepening equity losses and risk aversion. US July existing home sales seen -14% to 4.630 mln & August Richmond Fed seen at 12 from 16. EURCHF on the retreat again as risk aversion highlights CHF strength but watch out from any SNB action at 1.3070s. AUDJPY deepens losses, calling up 73 and 72.50 as the next key support. Ashraf's CNBC interview on the yen http://bit.ly/cqUi7b

Ashraf on CNBC-Squawk (US) discussing yen strength, its reasons and why currency intervention remains unlikely. http://bit.ly/cqUi7b

AUSTRALIAN ELECTION DEADLOCK is having no particular AUD impact after a brief pullback in early Asian trade. We know markets don't like uncertainty, but such a close race was widely anticipated. Despite Gillard's plan to reduce Rudd's proposed resources tax to 30% from 40%, the tax remains a drag for the large miners, and there's already talk of deflecting business overseas. The most likely outcome remains a coalition govt formed between Labour and the independents since to obtain the required 76 votes. M&A news from Europe helping to boost risk appetite, with AUDUSD seen capped at the 0.90 Aug 6 trendline resistance and AUDJPY facing resistance at 76.80.