Intraday Market Thoughts Archives

And so the Spain downgrade is the fundamental catalyst for the high profile failure by US indices to regain their much-scrutinized 200-day moving averages. Such was also the catalyst that prevented EURUSD from regaining the key $1.2440s trend line resistance. On Thursday, the Dow-30 had its worst May performance since the 1960s. A day a later, it was the worst May since 1940s. But stocks have yet to close below the May 6 lows, an occurrence which could trigger the next level of the sell-off in AUD and EUR below 0.80 and 1.21.

DENIAL IS GOOD? Denial by China and Kuwait that they are not unloading EUR-assets is the most popular fundamental explanation for the rebound in stocks + risk currencies, but technically, major US indices needed more fear to post a close below their "flash crash" lows of May 6 lows. We must emphasize the importance of a weekly close in Dow and SP500 above their 200 day MAs (see prev IMT). Players are already talking about next week's release of the US jobs report, which is exp to show a net creation of 415K due to the hiringof 2010 U.S. Census workers. The US Commerce Department said 574,000 temporary census workers were hired for the week ending May 15 vs. 156,000 for the week ending April 17. CADJPY still favoured as the preferred risk currency vs USD and JPY going into next week's policy decision. Last 5 IMTs have continuously favoured CAD due to the anticipated BoC tightening.

AUSSIE REBOUND to face downward pressure at the 0.8575-80 level, which served as a major support in Oct 2009 and Feb 2010. Acting as a key resistance today, 0.8570s also represent the 38% retracement of the decline from the 0.9380 high to the 0.8073 low. Aussie bulls need to see a weekly close above 0.8580 in order to build hopes of seeing a print of 0.8720s. It is time for the Aussie to stage a weekly rally after 6 consecutive weekly losses, but the reality of the RBA remaining on hold next week will likely stand in the way of any real advances. Alaso keep pon eye on whether S&P500 and Dow-30 close the week above the 200-DAY MAs of 1,103 and 10,273 respectively. REGISTER for Ashraf's SEMINARS IN SYDNEY & MELBOURNE next week (open to non-clients)

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YEN WEAKER THAN USD as stocks extend their bounce, but care must be paid as Dow-30 and SP500 approach their 200-day MAs (see previous IMT). As we argued yesterday, CAD is seen as the PREFERRED RISK CURRENCY ahead of next weeks expected rate hike from the Bank of Canada. Techs & Funds suggest more CADJPY gains towards preliminary target of 87.70s after breaking the May 13 trendline resistance. This is backed by improving techs in USDJPY (in process of breaking May 5 trendline) and deteriorating USDCAD which broke May 13 TL support now eyeing 1.0410.

Major US equity indices have not yet closed below the lows from the Flash Crash of May 6. The US data has been unquestionably robust. Although the S&P500 and Dow-30 FTSE-100 each touched below their May 6 lows of, they have yet to close below these levels. Any extended recovery is expected to face resistance at the 200-day moving averages of 1,103 and 10,273 respectively. EURUSD succesfully heldp up above the May 19 trend line support of $1.2180, and has now broken the interim resistance of $1.2340-4. Subsequenet resistance stands at $1.2450.

CAD is the days biggest gainer on a combination of the broadening improvement in risk appetite (oil and equities) but more importantly due to anticipation of a 25-bp rate hike in next weeks interest rate decision from the Bank of Canada. USDCAD holds at interim support of 1.0535-40, a break of which could extend to as low as 1.04, especially in the event of a more robust recovery in risk and oil prices. FOLLOW US ON TWITTER for MORE IDEAS & ANALYSIS http://twitter.com/alaidi

MARKETS LOOKING TO STABILIZE as major indices succeed in holding above the May 6 lows. Dow-30 fell in 9 out of the last 10 days, while S&P500 fell in 8 out of the last 10 days. Todays US preliminary Q1 GDP figures could help FX traders opt for risk-seeking traders (selling USD and JPY), such as lifting CADJPY and NZDJPY, while dragging down USDCHF and USDCAD. GBPJPY awaits the CBI survey (10 am GMT) exp at 14 from 13. This may help the cross revisit 130.30 and onto 131.00 in the event of positive figures. CHF may also drag USDCHF back to 1.1510, followed by 1.1450.

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You know what Ashraf said about the Aussie 4 weeks ago. Now hear him say it IN Australia

THOSE SPANISH BANKS AGAIN. Reports that Banco Bilbao Vizcaya Argentaria (BBVA), Spains 2nd biggest bank remains unable to renew $1bn of short-term funding in the US market so far this month. In other parts, The ongoing increase in LIBOR rates (now at 0.53% from 0.25% 3 months ago) partly reflects US banks reluctance to lend short-term money to Southern European banks. EURCHF breaks below 1.42, testing the 1.4140 support, coinciding woth the 76.4% retracement of the rally from the intervention jump to 1.46. Thus, 1.4080 stands as the subsequent target, especially as EURUSD tests 1.22. We mentioned in the last IMT next target emerges at $1.2130s

LOWER HIGHS in the EURUSD remain the unfolding pattern since mid April, which marks the beginning of the latest downleg in the pair. Many traders who are short the currency start to panic each time the pair rises by 200-300 pts yet are ignore the fact that none of the rebounds has exceeded the prevailing downward trend line. Just as the 250-pip rally in late April-early May failed to take out the high from April 27, last weeks 3-day rally failed to take out the $1.2670 trend line resistance extending from May 2 thru May 10. Corrective rebounds are part of every downtrend; margined traders must be aware of this fact. Latest trend line resistance stands at $1.2450s, a failure of which will likely call up $1.2130s, before $1.19 emerges before quarter-end.

GOLD THE NEW ANTI EURO: Gold price action is increasingly tied to the euros broad performance and less so to the USD. Since March, the yellow metal has proven to be among the few safehavens away from the Eurozone sovereign woes to the extent that the correlation between GOLD/USD and EURUSD has become notably negative. Not only are European investors seeking refuge into the safety of gold at each and every release of bad news, but this also spilled on to the price of gold vs. other currencies. This was clearly manifested last week during the bounce in the euro (resulting from SNB intervention and rumours of the same from ECB), which coincided with falling gold from 1200 to 1160s. Staying away from the euro, traders assaulted the Aussie, loonie and Kiwi. But things did change on Monday and Tuesday when renewed EUR selling (Bank of Spain seizing savinsg bank and ECB buying fresh govt bonds) lifted gold against all currencies, WATCH ASHRAF's TAKE ON GOLD AND THE EURO in yesterday''s CNBC intrerview http://bit.ly/cn6M4y

Ashraf's interview on CNBC discussing 1) Eurozone & Intervention http://bit.ly/ap9rGV 2) USD & Equities http://bit.ly/c0Sqzt and 3) Gold/ EUR, Aussie & EM FX http://bit.ly/cn6M4y

BLAMING THE DEEPENING SELLOFF solely on the tensions in Korea is akin to attributing the 9% intraday market selloff of May 6 to fat finger errors. And for last Fridays market rebound to have been the attributed to reports/rumours of Goldman Sachs settling with the SEC only highlights the shaky role of sentiment in exacerbating the selloff in equities and risk currencies. We spent sufficient time focusing on the downside risks for the euro and the Aussie, calling for $1.21 and 0.80 as immediate objectives. But the loonie is accelerating losses, catching (down) with the Aussie. USDCAD breaks to new 2010 highs penetrates through 1.0780 to eyeing a retest of 1.0860 top, followed by 200-week MA of 1.0920. But interim USDCAD downside could eyes as low as 1.0680 trendline. CADJPY eyes short term bounce towards 83.80s. Weekly stochastics suggest 81 remains viable for the week.

GLOBAL MARKETS SELLOFF extends into US futures, which are down 2.5% following another 3% decline in the Nikkei-225. S&P500 futures -2.4%, testing the Feb 4 low of 1044, a break of which calls up the 100-week MA at1023. Escalating tensions between the North Korea are providing the latest excuse for the sell-off, but if Korea were truly the main reason, then JPY would be weaker and not stronger. JPY has taken over from USD as warned in earlier IMT. USDCAD eyes 1.0820, which is a clear break of the 1.0780s congestion resistance from last November. UK Q1 +0.3% as expected from prev 0.2%, but that's likely to retest 1.4230s, with resistance limited at 1.4330s. A break of 1.4230s stands to call up 1.3960 as med term target. Watch Ashraf's CNBC appearance breaking down GOLD vs EUR http://bit.ly/cn6M4y

The USD and JPY cylinders are burning thru the markets again, with USD holding an edge of JPY due to the tensions between the 2 Koreas. But this may be a shortlived calm before the next JPY storm, paving way for 108 in EURJPY, 127.80 in GBPJPY and 83.60 in CADJPY. USDJPY still trades w/in the 90.50-89.80 range w/ risks for 89.10, while EURUSD counts the days before breaching below 1.2130s after the prominent failure to regain 1.2630. USDCAD's break of 1.0660s eyes 1.0730-50. And as we reiterated on CNBC an hour ago, AUDUSD sub 0.80 is quasi inevitable before 0.78 ultimate target emerges.

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STRONGER THAN EXPECTED 7.6% increase in April US existing home sales was no surprise considering the solid rise in pending homes sales for Mar and Apr. The figures highlight the divergence between stabilising US macro fundamentals and deteriorating market sentiment. But nothing has changed from the Eurozone-aid perspective or a US regulatory stance towards US banks/derivatives. The 200-day moving average support for the Dow-30 (10267) and S&P500 (1102) has now become an immediate resistance for the indices after having served as a support.EURCHF retraces more than 38% of the 600-pip post-intervention bounce from 1.4000 to 1.4583) as EUR comes under broad pressure and CHF rallies from stabilizing risk positioning. 1.4290 & 1.4230 emerge as the next support level in the absence of the SNB.

AUSSIEs WOES REMAIN as long as equities present NO better reason for a rebound other than Goldman Sachs settling with the SEC. Interim resistance stands at 0.8330s, but more immediate target stands at 0.8250, followed by 0.8190 and 0.80 as warned in last weeks article http://bit.ly/b899jl 0.78 remains the ultimate target in the event of protracted equity losses. Drying liquidity remains a challenge for major international banks as USD-3 month LIBOR doubles to 0.50% in just 8 weeks, coupled with the 9-month highs in the TED spread (proxy for 3-month LIBOR spread over 3-month Treasury yields). ASHRAF's SINGAPORE SEMINAR TOMORROW (for NON-CMC Markets Cients) http://bit.ly/aXqL1h 731 Registered so far.

EURUSD UNABLE TO RECOVER the $1.2620 trendline resistance from May 2 thru May 10 after Spains central bank seized savings bank CajaSur, which lost EUR 426 mln in revenues last year. The bank has 486 branches but represents 0.6% of the nations banking assets. EUR is vulnerable to $1.2460, while any renewed deterioration in risk assets risks calling up $1.2420. Upside capped at $1.2590. Register for ASHRAF's SINGAPORE EVENT ON TUESDAY http://bit.ly/aXqL1h