Intraday Market Thoughts Archives

The Fed remains strangely open to the idea of hiking rates in September despite turmoil in markets. The US dollar climbed and stocks fell late Friday after the Fed's Fischer left liftoff on the table. On the week, the yen was the top performer while the kiwi lagged.

Risk assets and the US dollar face a conundrum in the coming weeks: If sentiment improves it makes a rate hike more likely, but as a rate hike grows more likely, market risks mount. The Fed's Fischer partially brushed aside the market rout this week in surprisingly hawkish comments Friday.

Fisher's Keeps September Suspense

Fischer said the case for a hike was “pretty strong” before the recent round of volatility and also indicated that markets could settle quickly. He also said China was the trigger for the market moves, which shows a belief that markets aren't concerned about US growth. Overall, he emphasized that no decision was made but his comments perhaps suggest he believes the probability is higher than the 30% implied in markets. That gave the US dollar a boost and weighed on stock markets. The risks are skewed toward more of the same. Another thing that Fisched added was that the Fed doesn't fully understand market volatility anf that it volatility does affect the timing of rate hike.

We will be carefully watching the final hour of trading today. Massive volatility has been the case every day this week and month-end flows are factor now as well.

Another standout factor Friday is oil. WTI crude climbed another $3 to bring the cumulative gain from this week's lows to 21% in a remarkable bounce. What's less remarkable is how the Canadian dollar has failed to respond. USD/CAD is poised to finish the week 50 pips higher despite oil. If CAD can't rebound on oil, can it rally at all?

US dollar bulls couldn't have asked for a better scenario—Just as the USD index (basket of 6 currencies largely weighed vs EUR) was about to test a 3-month trendline support, the currency recovers. And just as EURUSD had broken above its 200-DMA for the first time in 13 months and above its 55-WMA for the first time in 12 months in a matter of 4 days, the single currency crashes back below these key levels later in the same week.  But CAD, AUD, NZD and NOK have all outperformed USD thanks to a broad bounce in energy.

Dollar Sweet Spot?

So is this it? Is this the pause-for-breath that USD bulls have long demanded for their currency before accumulating further gains into the rest of the year? By Monday evening, expectations for a September Fed hike fell to as low as 20% from as high 57% earlier in the month.  Today, odds of a September lift-off bounced back to 30%.

We think that in order for the US dollar to accumulate fresh gains and sustain them, the balance between certainty for a 2015 Fed hike and certainty of no Fed hike must be evenly distributed (such as 45%-55% for Sept). The problem with +60% certainty of September move is that it eliminates the probability for a December hike despite what some FOMC members' forecasts have indicated (2 hikes in 2015).

For obvious reasons, USD bulls do not want Sep Hike odds falling below 20%. Therefore, the sweetest spot as far as Sep Fed hike expectations is for them to range roughly between 35% and 50%.

Conventional & unconventional intervention

Readers of my work may not need reminding that I still see no Fed hike in 2015 and any such action would be a policy error, which will trigger more “artificial” interventions from the Chinese, as well as the US authorities (but deemed more conventional) such as “circuit breakers” and “Rule 48”.

In fact, China is not only intervening by propping its stock market, but more importantly, selling US treasuries in order to slow the pace of CNY depreciation. A rapid CNY decline has devastating effects on the global markets and economy via renewed decline in commodities and gloomy prospects for emerging markets dependent upon exports from China. The other (more national interest) reason China is slowing the pace of CNY depreciation is to avoid rapid capital outflows. Both aims are to the benefit of global markets and the economy.

Premium subscribers who have questioned our recurring USD shorts vs EUR and GBP since June have obtained their answer this week and the last as our $1.15 and $1.17 targets in EURUSD have both been hit.

Now comes the hard part. Trading the retracement.

The US dollar showed its currently less concerned with what the Fed will do in September and more preoccupied with the risk trade as it snapped higher. The loonie kept pace with USD as the top performer while European currencies were beaten up badly. The BOJ's Kuroda speaks later. The chart below highlights the potential similarities between the latest weekly chart in S&P500 and that in mid Oct-2014.  2 new trades have been issued on the Dax for Premium subscribers.

A volatile market is ever-dangerous and even dovish comments from the Fed's Dudley couldn't undercut a surge in the US dollar as risk assets ripped higher. The S&P 500 posted its biggest one-day rally since 2011.

Dudley said a Sept rate hike seems less compelling to me than it was a few weeks ago but sentiment is much more important than statements at the moment. An ebb in the fear that's gripped markets led to spectacular rally in the US dollar.

EUR/USD and cable both fell more than 200 pips. Late in the day the euro fell below the 200-day moving average while the pound took out the 100-dma.

Nerves were also soothed by economic data. July US core durable goods orders rose 2.2% compared to +0.3% along with upbeat revisions.

We interpret the surge in volatility (rising & falling markets) to be a message to the Fed and PBOC that the global economy is on shaky footing. If stocks can continue to rally and the US dollar stabilizes, that could be the end of this episode for now but if central bankers push a hawkish agenda it will surely reignite.

In the short term, we remain extremely cautious. The Canadian dollar remains overwhelmingly vulnerable as oil prices failed to rally on a large US supply drawdown. A large Canadian bank also called for a BOC rate cut on Sept 9.

The next central bank in focus is the BOJ with Kuroda in NYC to speak about Japan's inflation target at 2300 GMT. The topic hints at potential fireworks but it would be difficult for the BOJ to signal more QE so soon. The previous round of QE was also a surprise and that proved to be effective in weakening the yen so he could remain mum.

أشرف العايدي يدخل في تفاصيل التحليل الفني للمؤشرات و اليورو/دولار

We look at the consequences of the crushing turnaround in stocks and what currencies are most vulnerable. The US dollar was the top performer Tuesday but its gains were slashed late in the day. The focus will be on Asian stocks in the hour ahead but the RBA's Stevens is also on the docket.  in Ashraf's Premium Insights, 4 trades hit their final targets over the last 36 hrs; - EURUSD (opened Friday), USDCAD (opened Jul 15), USDJPY (opened Aug 20) & CADJPY (opened Jul 8) for a total of 720 pips.  1 trade remains in progress, currently +120 pips.

Yesterday we speculated about the Fed staying dovish and the PBOC cutting rates at any moment and the second part of that equation was delivered after a 7.6% drop in the Shanghai Composite. “How markets react to those [central bank] moves will be extremely telling” we wrote.

The tale has now been told. The 80 point intraday reversal in the S&P 500 is the largest since 2008 and the market closed on the lows.

Ultimately, what we do is listen to the market and the message is loud and clear. The stock market has lost confidence in central bankers and the global economy. The data is secondary at this point because it's backwards looking. The Richmond Fed provided more evidence that US manufacturing is taking a hit from the dollar while consumer confidence was upbeat and housing remains solid.

Aside from Wednesday's US durables goods release, the main theme now is continued US dollar vulnerability on expectations that the Fed will take rate hikes off the table. The first hint might come in US trading with Dudley to deliver a speech at 10:00 ET, 15:00 BST. BoJ's Kuroda follows 9 hours later.

Another trade that stood out was USD/CAD rising to an 11-year high despite a bounce in oil prices. The Fed and PBOC are in focus but the chance of a BOC cut in October and QE down the line is rising exponentially. That the pair could rally 200 pips from the lows on Tuesday even with oil prices higher is a clear sign of CAD weakness.

Up next we get to see if the PBOC action can stabilize Chinese stocks. The cut in rates, the stamp tax and the RRR was about the best markets could have hoped for. It will take a monumental effort to turn around Shanghai stocks and we now doubt this will be enough.

The other main item on the agenda is a speech from Stevens at 0005 GMT. He must surely be listening to the signals from China and any hints or fears about global growth will be met with Australian dollar selling.  

مقابلتي مع سكاي نيوز عربية بعد تخفيض اسعار الفائدة في الصين

المقابلة الكاملة

 

Monday's market rout makes it highly likely that the PBOC will stimulate and the Fed will back away from rate hikes. But when the signals come, how will markets react? 4 of the remaining Premium trades hit their final targets over the last 24 hrs; - Friday's long EURUSD @ 1.1370 hits its final 1.1550 target today; - Aug 10th long USDCAD @ 1.2930 hit the final 1.3250 target today; - Aug 20th short USDJPY @ 123.40 hit the final 121.30 target on Sunday night; - Jul 8th short CADJPY @ 94.60 hit the final 91.20 target today.

At this point, we probably don't need to recap the carnage in stocks, it has reached historical levels. Ashraf predicted an 1,830 target for the S&P 500 in  last night's IMT, which was effectively hit at the futures right before the open of the cash.  What stood out was how much more orderly the late-day selloff in US stocks was compared to the opening move. In particular, the FX and bond markets weren't rattled and that suggests that the iron grip of fear is loosening.

The Fed also gave a signal that it will remain looser for longer. Three weeks ago Fed voter Lockhart said he would vote for a rate hike unless there was a significant deterioration in data. He seemed to take a step back, noting that the yuan devaluation, US dollar and oil prices complicate the outlook.

Predicting what happens next in a panicky market is extremely tough. As we saw today, markets can overshoot reasonable targets in moments -- at one point the move in USD/JPY was the largest since 1998. What we do know is that central banks are no-doubt feeling pressure.

The Fed will almost-certainly wait while the PBOC could cut rates at any moment. Assuming the Fed offers a more definitive hint and the PBOC cuts within the next week, what next?

How markets react to those moves will be extremely telling. It should draw a line under stock markets and spark a slow recovery but if it doesn't, it says far more about sentiment and the global recovery than the past 4 days of trading.

Looking towards the next few hours, we will be carefully watching Chinese stocks for a sign of a bounce or stabilization. If so, expect that to extend around the globe. Along with that, we will be watching very closely for leaks and confirmation that the PBOC is preparing to act this weekend, or sooner. 

Otherwise, the Asia-Pacific calendar is bare except for the Australian Conference Board leading index at 0000 GMT. The prior was +0.2%.     

مقابلاتي مع الجزيرة و العربية عن تقلبات السوق التاريخية

العربية

 

الجزيرة

 

The rout in global markets hit a crescendo into Friday's close and traders around the world are on edge wondering about what happens next. Early returns are generally benign but a touch of risk-averse CHF strength and NZD weakness is the first market move. Continued murmurs about market-supporting action are circling in China. Thursday's Premium short in USDJPY entry at 123.40 just hit its final 121.30 target 2 hrs ago. USDCAD long is nearing its 1.3250 target from 1.2930 entry in mid July and the latet Friday. The Jul 31 entry in EURUSD long at 1.1020 hit its final 1.1320 target on Friday. A new EURUSD trade has been issued on Friday.

Friday was the worst day in the S&P 500 since 2011 and the market closed on the lows in a sign of a washout with little support. But almost nothing falls in a straight line forever and the four-day decline in the S&P 500 has it 6.3%.

The key will be the first minutes of trading in China, Europe and the United States. There are bound to be margin calls and liquidation.

China QE starts UNofficially

One hope was that China would provide some type of stimulus but officials there are contentious of  appearing panicky by cutting rates. Instead, a story was floating the WSJ saying the PBOC is preparing to flood the banking system with liquidity before the end of the month or early next month. Xinhua also reported that China will soon allow state pension funds to invest in the stock market for the first time.

Combined, that's a powerful signal that help is on the way. Ultimately, there are no signs the US or global economy is crumbling. We anticipated a round of risk aversion but there is no reason for continued panic selling. Expect it to ebb at some point Monday but the best trade in an emotional market is to go with moves in sentiment rather picking tops or bottoms.

Keep a close eye on bonds, the Swiss franc and yen but at the moment it's the stock market that's leading the way.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -93K vs -115K prior JPY -90K vs -105K prior GBP -4K vs -10K prior AUD -50K vs -51K prior CAD -67K vs -67K prior CHF -10K vs -7K  prior