Intraday Market Thoughts Archives

LATEST HOTCHART on GOLD vs JPY reveals the potential for further gains in the precious metal against other currencies. Enter your password to view Hotchart & comments. For more detail on secular FX values ( in terms of Gold) see chapters 1 and 8 of my book. Next week gets to an early start with US ISM on Monday, ECB decision (no change) on BoE (-50 bps) and US non-farm payrolls. Have a good weekend. AL

Risk appetite trades in FX break away from stocks as the latter drop across the board and FX drag down JPY and USD. US GDP showed smaller than expected -3.8%. EURUSD key founaation remains at $1.2630.

Gold achieved the technically relevant feat of closing above $920/oz, which is the trend line resistance extending from the March record of $1,031 through the $987 high in July. Any tensions escalating on the US-China currency front would be a welcome development for the already rallying precious metal, as currency devaluation (or attempts at doing so by the US) would be significantly capitalized upon by currency traders. LAST FRIDAY I WARNED on how gold could be further driven by retail investors learning about these developments and further pushing up the precious metal via exchange traded funds as well as by Japanese investors realizing that gold remains relatively understated in JPY terms.

NEW FEATURE *** HOTCHARTS *** shows the latest market developments relevant to the day's trading in FX, commodities, equities or credit markets. HotCharts are updated 2-3 times per week and can only be accessed with a username/password. VIEW TODAY'S EXAMPLE: http://www.ashraflaidi.com/hot-chart/?a=325

More grim US data confirms the direct correlation between equities and GBP, EUR, AUD and NZD as these currencies erode previous gains vs USD and JPY. In line with the mornings charts, GBPUSD failed to breach above the TL resistance of $1.4410-15 and could be set to retest the $1.4070 low (38% retracement of the $1.3560-$1.4380 rally, before extending towards $1.3930. USDJPY closed above 90 yesterday for the first time in 2 weeks, could be unable to follow through today if equities furtehr pare recent gains. As 90.70-75 proves a challenging obstacle, focus is set on 88.70 ahead of tomorrow's potentially hurrendous Q4 GDP.

EUR lost more ground after Trichet said he doesnt rule out any more interest rate cuts. Although Trichet signalled rates to be unchanged next month, today's remark may be interpreted by some participants that a rate cut could be in the works at next weeks Council meeting. This is inlikely to be the case by the a central bank accustimed to telegraph its policy moves ahead fo time. Greater than expected rise in German joblessness also added to the euros selloff. EURUSD is seen holding above the interim support of $1.3035, a break of which would see the $1.2980, which is a 61.8% retracement of the rally from the $1.277 low to the $1.33 high.

The resulting dollar rally following the Fed decision is in line with my morning note which stated currency markets may curtail some of the dollars recent losses as a knee-jerk reaction to finding out that the Fed would not start purchasing long term treasuries. The FX market reaction is largely dollar-driven (and not risk appetite driven) as the US currency steadies across the board.

Well aware of the risks of rising long term treasury yields occurring despite ultra low short term rates, the Fed has reiterated its readiness to contain such a risk by signalling the potential to buy long term treasuries (to drive down yields), which it sees no need to do at the moment due to the steepening of the yield curve (widening difference between 10 and 2 year yields) emerging since the end of December from 120 bps to 170 bps. EURUSD seen supported at $1.3050, USDJPY capped at 91.40

Correction: The S&P500 index is on its way of posting its 4 straight daily gains (and not 6th straight day as originally mentioned). Nonetheless, the VIX is posting its 6th consecutive daily loss as well as touching an intra-day low of 38.09 (lowest since Jan 6th). Also watch the 200-day MA of the VIX, which is currently at 36.28. The VIX has not closed below this VIX since September 3rd. Bottom fishing at the lows of the VIX could be accompanied with the usual inverse relation in stocks, thus, prompting renewed reduction in risk appetite (JPY positive). FOMC decision at 19:15 GMT (14:15 EST) not expected to announce purchases of LT treasuries but coudl provoke knee-jerk USD selling as Fed renews need to keep rates at ultra low levels.

TO BUY OR NOT TO BUY. All eyes will be on the FOMC's decision on whether to buy long term treasuries as it signalled in the last meeting. Dollar already falling across the board on these expectations. Since dollar weakness is not an issue with the US central bank, buying long term treasuries may be a viable option, in which case we could see broad USD weakness. CABLE seen targetting $1.4380 and $1.4450, but EURGBP may not fare as well, as it is seen dragged towards 0.9200

Technical analysis expert John Murphy currently on Bloomberg TV describing GOLD as his top investment idea for 2009 is an example of what I predicted over the past 2 weeks to be increased media coverage for the metal as it surpassed $830 and $870. We have yet to see a break of $920 for the achievement of $970s. A US consumer confidence figure of below 40 and S&P/Case Schiller Home Price Index y/y decline of at least 17% is likely to intensify gold's rally, especially as equities remain in positive territory.

Germany's IFO business survey showed an unexpected in 2 of its 3 component indices in January, further extending the existing rally in European and antipodean currencies against the US dollar. Considering the IFO surveys historically effective track record in prompting sharp moves in the euro (up or down depending on the direction), we could see EURUSD prolong its advances to as high as $1.3475. The dollar losses could be intensified in the event the FOMC announces the purchase of long term US Treasuries at its meeting tomorrow. GBPUSD seen targetting $1.4350.

NOT what the dollar wants to hear: According to Reuters:"White House says Fed has fired most of bullets on monetary policy, need fiscal stimulus now". Combining this headline with White House's stepping up of pressure on China's currency, the outlook for the US dollar may become challenging, especially if Chinese jawboning unfolds. AGAIN, 9:00 GMT release of IFO could prove instrumental in powering GOLD past $920 and onto $950 in event of better than exp Climate & Expectations indices. Exp 81.0 & 77.5 respectively.

EURUSD unlikely to repeat last week's wobbly tone especially ahead of the zero-bound FOMC. Interim resistance stands at $1.3250 but more challenging obstacle stands at 50-day MA of $1.3320. GBPUSD made its obligatory bounce from the latest 23-year low of $1.35, but gains are increasingly capped at $1.3980. The clue rests in EURGBP, where a close above 0.9430 see calling up 0.9650. Tuesday's IFO (9 am GMT) will be key catalyst in propping EURGBP.

The past week has witnessed a rise in bond yields that was accompanied by a not-so smooth strengthening in the value of the dollar. Despite the dollars leap to 23-year highs vs GBP, the currency made more modest gains vs the euro while nearing 14-year lows against the yen. The USD's gains were sketchy at best as the rise in bond yields emerged from supply concerns (excessive borrowing) rather than improved economic data. With 10-yr yields at 6-week highs, expect a pullback from further announcements of Treasury-purchases from Wednesdays FOMC, which should further support GOLD and possible boost EUR and GBP.