Intraday Market Thoughts Archives

A JAPANESE HOMELAND INVESTMENT ACT? An article in the Nikkei this week noted that Japanese companies are looking to take advantage of an impending tax exemption on dividends from overseas units in order to repatriate foreign profits. Chatter suggests that up to Y4 trillion may be repatriated over the coming year could especially weigh on USDJPY as well as on other Yen crosses. Whether the repats will start ahead in the second half of the fiscal year (after Sep 30) or until the new fiscal year (April 1st, 2010) remains to be seen. The Japanese tax holiday bears resemblance to the US Homeland Investment Act of 2004, which allowed US companies to repatriate their foreign-based earnings during 2005 at the reduced 5.25% tax rate instead of the normal 35% tax rate. HIA was instrumental in boosting the USD in 2005 until its expiration in Dec 2005. More on the historical FX implications on HIA in Chapters 1 and 3 of my book http://www.ashraflaidi.com/book/

SUNDAY's JAPANESE ELECTION is widely expected to usher in a new party in power--Democratic Party (DPJ), ending the 54-yr domination of the incumbent & scandal-ridden Liberal Democratic Party. DPJ is known to respect the central bank's independence more than the ruling Liberal Democratic Party. In the past, LDP lawmakers have publicly forced the BoJ into quantitative easing (2004-2005) and even into weakening the yen. January 2007 was the most visible and recent example of LDP interference when the BoJ was forced to hold rates unchanged instead of raising them as was widely expected. Yet it is perceived that the Democrats would try to exert more BoJ control by nominating candidates more supportive of Party economic policies. Theres only 1 vacancy at the (9-member policy board and the next vacancy comes up in December. In the past, polticial changes have rareely had an impact on the yen. We reiterate that JPY has outperformed USD in 8 out of the last years in August, especially between late August into 1st week pof Sep.

Since I am on vacation, I thought I'd share this GBPUSD chart from August 7th, which shed a bright light on things to come http://twitpic.com/d1r81 Frequent readers of the articles were often told of the importance of the 50-day MA in GBPUSD. Looking ahead, I am also reminding you of this vital post from Aug 25 on the Shanghai Composite Index http://twitpic.com/feeb7 , which would have major repercussions on global equities and other markets.

Today's EIA inventory data expected to a show decline of 600K brls in crude oil following the prior week's giant decline of 8.8 mln brls. Although consensus is for a draw, whisper numbers are for a surprise build. Tuesday's API data showed an unexpected rise of 4.3 mln crude stocks vs. expectations 1.1 mln decline following a 8.4 mln decline. Any increase in the oil inventory data would likely magnify the losses in crude towards the 69.30 support. GBPUSD draws near the $1.6040 target especially if it closes below $1.6300. Our bearishness in oil and sterling is being largely played out as detailed in the latest article. USDCAD still eyes 1.0960 and CADJPY at 85.10.

Asian markets rebounded and German Aug IFO indices were stronger than expected across the board; sentiment rose to 90.5 from prev 87.3, current conditions at 86.1 from 84.3, expectations to 95 from 90.4. But markets remain sceptical of the IFOs usual pattern of showing sharp gains in the expectations front rather than in the current conditions front. Strong German data have recently proven positive for oil prices from a potential demand argument, thus we could see an extended rebound in crude after the more than $3.00 decline to $71.34. GBP and CAD remain pressured across the board, w/ cable nearing the $1.6275-80 trend line, a break of which likely to reach $1.6040. USDCAD breaks above 1.09 and previous trend line, eyeing 1.0960. US July durable goods & new home sales due today. FX markets suffering from a case of exhaustion as far as reacting to good economic news, which partly reflects scepticism w/ the data. Last weeks release of the jump in US July existing home sales was largely propped by homes of less than $250K. Ashraf is on holiday so updates frequency is less than usual.

Broadening advances in the USD resulting from better than expected US consumer confidence are now accompanied by gradual gains in JPY. While many pundits are now heralding the change Forex dynamics regarding USD strength during good news, we maintain that data strength is mainly USD-positive when the US consumer is involved due to its significant role in stabilizing the US economy. As USD strength strengthens the resistance in oil prices (200-week MA 74.65), commodities tend to follow suit and equities show more signs of a struggle. Expect broadening CAD strength, with USDCAD eyeing 1.0875-80, CADJPY at 86.80 and AUDJPY at an interim support of 77.80. Ashraf is on holiday so frequency of updates is less than normal.

KEEP A CLOSE WATCH ON SHANGHAI 2,947. If the Shanghai Composite Index closes the month below 2,947, it would form a monthly bearish outside month (bearish engulfing candle) which is a vocal bearish signal for the next month. prolonged declines from there could have significan price repercussions on other global equity indices. Today, the SSECI fell 2.6% to 2,915.80. While it is not unusual for the dollar to be rising only against the yen and falling against most of other currencies during improved risk appetite, recent days have shown the dollar to be rising against BOTH the yen and sterling, which underlines our bearish stance on GBPas detailed under the latest article sterlings sell-appeal. Expect oil to further pullback off yesterday's highs74.78 highs and USDCAD to regain 1.0940.

The much scrutinized EURCHF pair came under unusual pressure on Friday without much noise from the Swiss National Bank, which intervened at 4 different occasions over tha last 5 months in order to prevent rapid CHF strength. EURCHF fell to 5 week low at 1.5133 before rebounding on positive comments from ECB officials. What was initially a line in the sand at the 1.5 level has become a preferred support near 1.5150. This coincides with the 200-day MA. Any EUR-negative dynamics should be carefully watched for potential action from the SNB. Ashraf is on VACATION so IMTs and Tweets will be less frequent than usual.