Intraday Market Thoughts Archives

Before we shed light on the sequestered payments it's worth noting Gold vs EUR, which appears to show signs of stabilization. The key level to watch is € 1239-40/oz, a break above which would signify further challenges for EURUSD but not necessarily a positive for Gold vs USD.  As no deal appears to be reached in Washington, the $85 billion sequester in is expected to kick in: A combination of sharp reductions in defense and non-defense spending, accompanied by 750K to 1 mln in lost jobs for this year. And even if the deadine were to be missed, there remains a possibility for Obama & Congress to hammer out an agreement later this month. In the meantime, markets are busy aplauding the positive US data as of late. CORRECTING the early IMT, both of yesterday's EURUSD shorts hit their targets after they were adjusted at 14:15 GMT. The 2 longs are now in progress. This makes for 9 Premium trades hitting all targets. 1 EURJPY short was stopped out. In our next Premium edition, we will shed more light on the latest selloff in the euro and to what extent it is expected to continue or consolidate. Interestingly, we are seeing JPY resuming its losses as stocks applaud the US data and the possibility for further gains in indices alongside a neutral to strong USD.

Stronger than expected Manuf ISM and consumer sentiment figures from the US are further empowering the notion that the US growth exceeds that in Europe and Japan, boosting the US dollar across the board. This is also used to explain why both USD and equities are pushing higher. Markets expect the sequester deadline will be avoided and another temporary solution will be introduced. Meanwhile, the Italian election impasse is expected to persist until Mid March when a temporary govt is appointed until a possible 2^nd round of elections in June. 9 Premium trades hit their final targets over the last 24 hours: Both shorts in GBPUSD hit their targets of 1.5010 & 1.5100 (entries at 1.5170 and 1.5220). Gold hit 1580 & 1567 (entries at 1620 & 1597). Silver hit 28.00 from 29.10 entry. The EURGBP long at 0.8590 missed the final 0.8690 by 3 pips and remains in progress. Oil short at 93.20 hit final target of 92.00, while the 93.40 missed the fill by 3 pips.  CORRECTION Both of yesterday's 2 shorts in EURUSD from 1.3110 to 1.3040 and from 1.3120 to 1.3020 hit their targets. Trades were time stamped at 14:15. missed the fill by 7 pips, while both longs remain in progress. For a full status of these trades, please see the Latest Premium Insights.

Twenty four hours away from the trigger of $85 bn in sequestered US spending and prolonged uncertainty in  Italy's elections are enough to cease markets from exhaling. Or, are they? The pound closed out February trading with a small bounce but it was the worst performer of the month. The US dollar was the top performer in the month as the economy continues to rebound after growth flatlined in Q4. March shall begin with a major round of Japanese data including employment, CPI and capital spending. In the  latest from the Premium Insights: 2 of 2 USDJPY hit all targets (92.30 & 92.70), 1 of 2 EURJPY hit all targets (119.40), 1 of 2 gold shorts hit all targets (1580).  12 trades are in progress and 2 trades await their fill in the latest Premium Insights.  

The final day of February trading included the second reading on Q4 US GDP. It confirmed that the economy paused at year end as the annualized pace of growth fell to 0.1%. That was better than the 0.1% contraction in the first reading but slower than the 0.5% expected.

The market shrugged off the indicator with Q4 now far in the rear-view mirror. Instead, better indications on jobs and manufacturing boosted the US dollar. Initial jobless claims improved to 344K compared to 360K and the Chicago PMI climbed to 56.8 compared to 54.0 expected.

As March begins, the start of the US sequester looms. The IMF warned it will downgrade US growth forecasts if the full-scope of the automatic spending cuts take place. Obama will hold a last-minute meeting on Friday but it's overwhelmingly likely that at least some curbs will implemented.

The initial effects on FX will be minimal but markets can be temperamental when it comes to politics and there is no telling when the mood will turn sour.

In the Asia-Pacific region, the calendar is busy once again on Friday. The main data points will be released at 2330 GMT, including Japanese CPI, employment and household spending. That's followed twenty minutes later by business capex.

The CPI numbers are the most likely to move the market but they are all important data points. February Tokyo inflation is expected to be down 0.6% y/y; accelerating from 0.5% deflation. More signs of falling prices give incoming BOJ Goveror Kuroda plenty of ammunition to launch more aggressive easing.

Gold bullion is trading at 4x the level of Gold miners, the highest in 12 yrs. The Gold Bugs index is down 31% from its September high, while the yellow metal fell 13% from its October high.  We have seen a similar disparity in declines during the 2008 crisis, when bullion fell 33% from its 2008 peak to its 2008 trough, while Gold Bugs fell 71% during the same period. Full Charts & Analysis here

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US Q4 GDP was revised to +0.1% from -0.1% but lower than the expected +0.5%.  Feb Chicago PMI rose 1.2 to 56.8, hitting its since March 2012. EURUSD fails recovery near 1.3160 before falling back to 1.380s. Our 92.70 target in USDJPY was missed by 3 pips after Kuroda was appointed as the new BoJ governor. 2 USDCAD, 2 GBPUSD,1 CADJPY, 1 AUDJPY, 2 Gold, 1 Silver and 1 oil are among the 14 trades we have in progress. 8 trades are awaiting to filled. 2 new trades on EURUSD were added today, which makes the total EURUSD trades at 4. See full complete Premium trades in Latest Premium Insights.

The Australian dollar has struggled since mid-January on talk that investment is cooling. As a result, today's quarterly capex numbers will be closely inspected. 12 Premium trades are currently in progress. 1 EURJPY and 1 USDJPY have hit all targets. See latest Premium Insights on here: http://ashraflaidi.com/premium/latest

The top performer on Wednesday was euro as it retraced a portion of Monday's decline. The yen was the laggard.

Economic news continues to point to a better turn in the US economy. On Wednesday, it was core capital goods orders, which rose 6.3% -- much better than the flat reading expected. In addition, the data showed a 13% jump in machinery orders, which suggests companies are investing.

Central bankers continued with a dovish tone. Bernanke re-iterated his comments in his second day of testimony while Draghi said the ECB is 'far' from exiting extraordinary policies.

The focus now shifts to Australia with the Q4 report on capital expenditures at 0030 GMT. Capex is expected up 1.0%. Other than a slight dip in Q4 2011, capex has risen every quarter since Q2-2010, including a 15% rise in Q3 2011.The RBA has warned about the end of the investment boom but there is residual strength in LNG projects. However, if this number falls below zero it could be the nail in the coffin of the AUD bull market.

Other events on the calendar include Japanese industrial production, Australian HIA home sales and the expected nomination announcements for the BOJ. Overall it will be a busy day in the region that could be further skewed by month-end.

Here some important facts you need to know about the major equity indices. During the 5 months leading to its Oct 2007 record high, the Dow Jones Industrials Average posted 4 sessions with losses of 2% or more. But the last time the Dow had a daily drop of 2% of more was as far back as November 7, 2012. Find out the similar stats for the Dax & FTSE-100 and their implications for the latest up-cycle in indices. Full analysis here:

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An upbeat round of US economic data overshadowed the Fed Chairman on Tuesday. The US dollar was the best performer while the commodity bloc lagged. Early Asia-Pacific trading featured New Zealand trade balance and Japanese retail sales are up next.   We issued new trades on EURJPY, AUDJPY, CADJPY, EURGBP, gold, silver and US crude in addition to 2 new charts in EURJPY as well as the existing trades from Monday night and last week. See latest Premium Insights

The US economy flashed more signs that it will lead developed market growth in the year ahead. New home sales soared to a post-crisis high at 437K compared to 380K expected and prices rose around 7% according to separate government and private surveys. In addition, consumer confidence jumped to 69.6 compared to 62.0 expected and the Richmond Fed rose to +6 compared to the -4 consensus.

After the strong round of economic data, a comment about tapering QE from Bernanke could have led to a broad US dollar rally but the Chairman remained dovish. The lone slight hit about less easing was that the benefits of easing outweigh the costs 'at this point'.

It's was a fleeting suggestion that less easing will come at a future point but, combined with the data, was enough to spark a brief USD rally – particularly against the commodity currencies. AUD and CAD both hit multi-month lows immediately afterwards.

The New Zealand dollar was particularly hard hit on the unwinding carry trade. Soft NZ trade figures confirmed the negative tone as the January deficit was $305m compared to a $125m surplus expected. Finance Minister English speaks at 2300 GMT.

Shortly afterward, at 2350 GMT, Japan will release retail sales numbers for January. The consensus estimate is for a 0.9% rise as the economy shows continued signs of life early in Q1.

Bernanke stayed on message in his testimony as he reiterated the benefits of prolonging QE (combating unemployment) exceeded the costs. Euro and other risk assets remain on the downside while gold struggles to regain 1600 despite Bernanke's dovish testimony. The continued uncertainty in Italy's elections cannot be ignored especially as there is not yet any date for the 2nd round of elections.  We are issuing new trades on EURJPY, AUDJPY, CADJPY, EURGBP, gold, silver and US crude in addition to 2 new charts in EURJPY as well as the existing trades from Monday night and last week. See latest Premium Insights.

Surprising Italian elections results led to a wild day of trading. EUR/JPY dropped by as much as 650 pips in US trading as the voting left no clear winner. The calendar in Asia-Pacific is light so traders may have a moment to sort through the carnage. 2 new Premium trades were added onto EURUSD, USDJPY and GBPUSD, with 1 new trade on AUDUSD, for a total of 7 new trades. We add new trades on yen crosses, EURGBP and commodities on Tuesday.  The STATUS on all trades has been updated. See all in latest Premium Insights.

Italian elections have a polling blackout for two weeks before the vote and that left a considerable amount of uncertainty. Still, the market was fairly confident that Bersani's Centre Left coalition would win and continue to support most of Monti's reforms.

Instead, Berlusconi stormed back to take the most seats in the Senate and Bersani looks to have won a tight lower house vote. Even more surprising was the nearly 25% of votes won by Grilli, who leads the Five Star protest party.

With no party or natural alliance in a position to form a majority coalition, a period of uncertainty followed by another election is likely. But nothing is yet certain and markets despise uncertainty. After touching above 1.33 at the start of US trading, the euro plummeted as low as 1.3047.

The Italian results derailed overall sentiment and yen crosses collapsed. From above 125 at the start of US trading, EUR/JPY fell as low as 118.73. The 55-day moving average at 118.55 finally stopped the massive squeeze.

Japanese policymakers will have woken up to a shock. The initial yen selling on Kuroda's nomination has quickly reversed on risk aversion. The government has yet to face a bout of yen strength and it may want to address it quickly.

As the UK loses its AAA credit rating and most of the Eurozone nations have had their credit rating or outlook downgraded since two years, the ascent in EUR/GBP remains intact. Here, we approach EURGBP via prices, sentiment & fundamentals   an update to the Premium trades will follow before the US close.

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The latest from Italy's elections is that there is a chance that a HUNG PARLIAMENT would lead to 2^nd round of voting. Center-left coalition formed by Pier Luigi Bersani leads in both the lower and upper houses of parliament in Italy's elections. Bersani's Democratic Party and its junior coalition have over 34.5% for the Chamber of Deputies, which implies leadership for a coalition or absolute majority in LOWER house. Silvio Berlusconi's rightist coalition of the People of Liberty party and the Northern League placed 2^nd in the House with about 29%. The Five-Star Movement of comedian Beppe Grillo placed 3^rd with around 19%. Outgoing PM Monti's Monti centrist coalition stood around 10%.  More on Italy elections below. Do not forget Fed Chairman Bernanke's testimony to Congress tomorrow at 10:00 ET, 15:00 GMT. To see which of the Premium trades have hit all targets, stopped out or remains in progress, please click on the Latest Premium Insights.

The outcome for the Senate is less clear, as Bersani's coalition took some 37%, followed by Berlusconi's alliance with around 31%. Grillo remained 3^rd with some 16.5%, while Monti was in the bottom with some 9%. No absolute majority is automatically assured in the upper house.

Euro markets are in favour of a Bersani victory, as veteran politician vowed to pursue the reform path required by the EU and will have to form a alliance with Monti's coalition in the Senate.

There are mixed reports as to when the final tally will be announced but there is a possibility that the full Senate votes will be announced late Monday night or early Tuesday.  IN ORDER FOR A VIABLE GOVT TO COMMAND POWER, the ruling party must have majorities in both houses because the SENATE carries almost as much weight as the LOWER HOUSE. Both houses are able to propose legislation, except for the budget law, which must come from the Chamber of Deputies.  

The UK downgrade and talk that Kuroda will be the BOJ nominee caused sharp opening falls in the yen and pound. The Chinese PMI from HSBC is the main item on the calendar to start the week. Both of Thursday's Premium cable shorts hit all targets on Friday at 1.5190 & 1.5150 from entries at 1.5350-1.5300. Both USDCAD trades which hit all targets were replaced by 2 new longs on Friday. The short in EURUSD awaits final target at 1.3140. See latest Premium Insights for the charts & latest trades.

The reverberation from the Moody's downgrade continued as cable gapped to as low as 1.5089 at the open. It's the lowest in two-and-a-half years and confirms the break below the triple bottom near 1.5250.

It's surprising to see the overwhelming weakness in the pound from a downgrade that was largely expected. Thin trading and an stop losses make us wonder if there are signs of a short-term capitulation.

The trade that looks like it has been re-energized is to be short the yen. USD/JPY jumped to the highest since mid-2010 at the open. The pair has been consolidating for the past three weeks and that may provide the base to break through resistance at 95.00.

With the big moves to start the week, it's likely to be a volatile day.

At 0145 GMT, the volatility may increase when HSBC releases its flash reading on Chinese manufacturing sentiment. The index is expected to edge lower to 52.2 from 52.3 but the recent declines in industrial metals show some skepticism about the global economy. The Golden Week holiday could also play havoc with the survey and lead to a large miss.

Given the recent declines in AUD and CAD, a soft reading could be especially damaging.