Intraday Market Thoughts Archives

MARKETS HAD BEEN QUICK TO JUSTIFIY every twist and turn in the USD in terms of QE. A few pips gains in USD causes traders, analysts and reporters to attribute the move to QE2 being priced in the market and/or the Fed will start on the lower end of expectations (not more than $200 bln in initial purchases and less than $700 bln in overall purchase). On the other hand, USD weakness is explained by the notion that QE2 is here to stay and becomes the new for an extended period of time. Although USD 10 year yields closed the week above their 55-day MA of 2.58% (closed at 2.61%), and GBPUSD closed NY above $1.60 for the 1st time since late January, Im not sure if these figures are significant enough to be defined as a key break. Ive already identified false breaks in EURUSD 2 weeks ago when it closed below $1.40 on Oct 15. Ill cover the meaning of rising bond yields related to the Fed's ability to create inflation in the upcoming note.

GBPUSD 4-HOUR CHART currently showing a shadow of as high as $1.5978, so a NY close below $1.5940 should spell consolidation & potential declines into Asia. Im still sticking with my GBPUSD HotChart http://bit.ly/bahqjD which could well be further validated by tomorrows UK M4 Money supply (m/m and y/y) & mortgage approvals, after which the September data fell to 18-month lows. BoEs Mervyn King directly told us last week there was not enough money in the economy. Tomorrows Q3 GDP from the US will likely spell more volatility in USDJPY than GBPUSD but GBPJPY would also be an option for the shorts in the event of sub-2.0% reading. I am away on business so most of my updates and insights will be on Twitter http://twitter.com/alaidi Here's my LATEST VIDEO FOR REUTERS INSIDER http://bit.ly/abKoZr

US 10-YEAR YIELDS have not only regained their 55-day MA of 2.57% but are less than a full point of reaching their 100-day MA (2.79%) for the first time since late April. Interestingly, yields could surpass both averages on the same week, in which case would be an added positive in the USD rebound. Whether this comes in the form of a market-positive Q3 GDP (Friday) or further scaling down in the expectations of the next weeks QE, the dynamics are here. With USDCHF proving highly correlated with yields, I see 1.0050 as an interim resistance, before 1.0170 stands as subsequent target for the week. FINALLY, RISING YIELDS COULD MEAN A LOWER YEN for now, but be careful about the offsetiing impact from falling equities post-election/FOMC. Short term plays favour USDJPY on any positive surprise/interpretation from Friday's Q3 GDP. A Thursday close above the Sep 21 trendline resistance of 81.80 would be instrumental in extending gains towards 83.20s. Also watch the yen impact of the BoJ's expected downgrade of its economic outlook (growth & price). I am away on business so most of my updates and insights will be on Twitter http://twitter.com/alaidi

USDCHF & GBPCHF FOCUS. GBPCHF surges past its 55-day MA for the 1st time since August, carrying broad CHF weakness and GDP-driven rally in sterling. Readers of my Friday/Sunday IMTs & Tweets were told of the GBPUSD & GBPCHF COMBO trade (Oct 22) calling for 1.57 in GBPCHF. While the daily chart appears overstretched, weekly oscillators suggest further upside towards temporary target of 1.5830, but 1.6 remains a key resistance as it presents the confluence between the 55-WEEK MA and the trendline from the June high. Similarly, USDCHF DAILIES appear capped at parity (55-day MA), but the weekly shows further upside towards 1.005 into next week, followed by 1.02. many are already bidding up USD on the rationale that Wednesdays QE announcement would not be enough to weigh on USD, so watch out for a possible change (of change) on the actual day. Meanwhile the SP/VIX Ratio shown in yesterday's video is well in play as the right shoulder fails to regain 65 and a move towards 50-52 is in the works (lower S&P, higher VIX)

Ashraf's Video Market Analysis for Reuters Thomson on the HEAD-&-SHOULDER FORMATION on the S&P:VIX Ratio as well as the 200-week MA divergence between the S&P500 and DJIA http://bit.ly/cnxolZ

S&P500 1195 Path OF MOST RESISTANCE? There is little reason for the market to drive up the S&P500 above its 200-week MA ahead of Q3 GDP (Friday), mid-term elections (Tuesday) and the FOMC meeting (Wednesday). The S&P500 hasnt closed above its 200-week MA since June 2008. With each of these important events containing downside risks (disappointing GDP, jeopardizing Bush tax cuts for the market & lower QE), expect continued consolidation in the indices despite the fact that the DJIA has already broken above its own 200-week MA for two consecutive weeks. DJIA seen capped at 11,250. US Oct consumer confidence rose to 50.2 (exp 49, prev 48.5) but is failing to prop equities. If market failed to rally on yesterdays 10% jump in rise in Exist Home Sales, how could it rally on this consumer confidence, whose Jobs-hard-to-get index pushed up to 46.1 from 45.8. EURUSD 4-hr chart tests breaks below $1.3890 trendline support from Sep 9, alerting euro longs that $1.3820 & $1.3770 could be the next target in the event that NY closes below 1.3890.

STERLING BOOSTED BY HIGHER THAN EXPECTED Q3 GDP, which rose 0.8% q/q and 2.8% y/y, twice more than expectations. The figures were propped by the highest construction spending since Q1 1988, raising questions over the sustainability of this sector. While the WEEKLY cable chart continues to show negative oscillators, the daily chart allows for shorter-term gains towards $1.5880s. Im sticking with my bearish GBPUSD call, targeting $1.5770 & $1.5720 for later this week. The 55-day MA stands at $1.5650, which is the base of the last 5 days. SEK DROPPED across the board after the RIKSBANK issued a DOVISH RATE HIKE, raising the repo rate by 25-bps to 1.0%. 2 members argued against the rate hike, while the overall committee stated that weak developments overseas and low inflationary pressures mean slower pace of tightening ahead. The bank lowered its 2011 and 2010 repo rate outlook to 2.0% from 2.4%, and to 2.9% from 3.3% respectively. EURSEK regained 9.2, now facing the previous trend line support at 9.27. WATCH OUT FROM THE GRAVESTONE DOJI IN THE DAILY S&P500, which could portend a lower rest of the week, thereby likely lending near-term stability to the USD. Watch US consumer confidence today for a possible catalyst to these developments.

RIKSBANK DECISION TOMORROW: Heres a daily & weekly EURSEK chart http://chart.ly/lp84ev3 showing the much anticipated break of the 6-week trendline support to add on further losses following an expected rate hike from the Riksbank tomorrow. Riksbank seen raising to 1.00% from 0.75% on Tuesday. Unlike in Norway, where annual CPI is at 1.70% (below 2.00% repo rate), Swedens annual CPI is at 1.40% (well above 0.75% repo rate). Riksbank made two 25-bp hikes since the crisis and is widely expected to extend rates towards an average of 2.1% in Q3 of next year. In H2 so far, SEK is the 2nd highest performer against the dollar out of the top 10 traded currencies behind the Aussie. Forward-looking FX markets have largely bid up the SEK mainly due to the widely telegraphed tightening signalled by the Riskbank. EURSEK chart shows the 6-week trendline support has been broken, leading to possible follow-through towards 9.12. Negative weekly stochastics (right chart) suggest medium term selling momentum behind added losses. The Riksbanks outlook for GDP and CPI will also be closely watched to gauge the extent of further hawkish positioning into Q1.

S&P500 2 PTS AWAY away from regaining its 200-week MA (1195), a break above which (the average not 1195) would be the first since June 2008. We have already seen DJIA closing above its own 200-week MA for two consecutive weeks. The last time this happened, the S&P500successfully followed higher. In order for such a breakout not to be merely a false move, S&P500 is required to close the week above1200. The unexpectedly strong 10% rise in US Sep existing home sales should help S&P500 print >1195 but a weekly close above 1200 is key. Despite stocks bullishness, EURUSD remains hesitant, but rather than go against EURUSD, I prefer GBPUSD shorts, further highlighted by the quick pullback after from $1.5770s, now leading to $1.5660 ahead of Tuesday's highly anticipated UK Q3 data (see prev IMT & tweets) . OIL REMAINS WELL ABOVE the much touted support of 78, with is the overlap of BOTH the 200 & 100-WEEK MAs. 83.50 trendline resistance from Oct 7 high is required to fuel upside.

THE 1st PART OF THE G20 came and went as Finance ministers agreed on the notion of setting maximum targets on current account surpluses/deficits, but neither sign of what is too excessive nor how it will go about it. We already know IMF economists view 6% as the ceiling for current account imbalances, beyond which it deems as unsustainable for economies and currencies. G20 leaders will emerge on Nov 12 and announce whatever agreements their Fin Mins have ironed out. TIME TO LEAVE THE G2 NOISE behind us for now and focus on the role of US EARNINGS in driving S&P500 towards the 1200 target, especially that the Dow-30 has broken well above its 200-week MA. This could further reward AUDUSD towards parity, but I continue to see EURUSD resistance at 1.4050-80s. Yet my bearishness on GBPUSD and GBPJPY remains as we approach Tuesdays release of UK Q3 GDP, expected at +0.4% q/q from 1.2%. Just like I warned you last Sunday about an austere week for GBP, I am doing the same this week based on these GDP figures. Charts and analysis of GBPUSD is in the HotChart titled GBP Inflection Point? http://www.ashraflaidi.com/hot-chart/?a=1954