Intraday Market Thoughts Archives

GBP GAINS across the board, completing the 7th rising week out of the last 8 weeks in a week when the Bank of Englands mixed messages regarding inflation became apparent to the public. Contrary to the rest of the G5, UKs inflation remains well above target, thereby fuelling expectations of a rate hike, which in contrast to Fed emerging rhetoric hinting at prolonged QE. A break above $1.57, to call up $1. 574055-day MA, followed by $1.5870. EURGBP nears the 0.83 support50% retracement of the 0.8070-0.8530 rally. While stocks hover in and out of negative territory, FX is gradually moving against the US dollar after the 2.4% Q2 GDP, which is considered to be sufficiently positive for currencies to drag down the talked-down USD following Bullards dovish comments.

A preferred scenario for the euro would be a softer US Q2 GDP reading than Q1 but not to the extent of triggering sharp sell-off in equities. Such a reading would be between 2.0% and 2.5%. A figure below 2.0% would be too negative for stocks and risk appetite to the extent of standing in the way of a EURUSD rally above 1.31. Subsequent downside could break below 1.29 but beware of London Close activity as we close the month. ALSO WATCH YEN, which could extend strength in event of disappointing figures.

YEN STRENGTH EXTENDED overnight after Japanese govt officials said a rising yen should be dealt with monetary policy rather than intervention. The 158-pt decline of the Nikkei-225 is largely the result of currency strength. As European equities and US futures dip into negative territory; EURJPY, CADJPY and USDJPY are all down. EURJPY may have broken that key resistance of 113.40 but continues to struggle against JPY, eyeing 111.60s. CADJPY LOWER HIGHS on the daily chart suggest interim resistance at 82.80, followed by 82.20. EURUSD support stands at $1.2945/50. All eyes on US Q2 GDP exp at 2.5% from 2.7% in Q1, with forecasts ranging from 1.0% to 3.4%.

S&P500 barely closed above its 200-day MA on Tuesday before falling Wednesday and Today. Daily stochastics show a double top, which in effect can be seen as bearish divergence. Fridays release of US Q2 GDP is expected +2.5% from 2.7% in Q1, but several economists allowing for an undershoot of 2.0%. Whether a disappointing figure would be USD negative will not only depend on the performance of equities, but also on the German-US 10 year yield differential, whose technicals indicate prolonged gains in favour of Germany (EUR). Also of significance is the technical significance of $1.3125-30 in EURUSD, which is presented by the 38% retracement of the euros decline from the Nov highs to the June lows, as well as the resistance on the reverse H&S formation.

SWISS FRANC SOARS on reports that the Swiss National Bank is dumping EURCHF, bailing out of its money-losing interventions, in which it bought EURCHF over past 18 months. The SNB tried defending EURCHF by buying in Q1 2009 at 1.50, followed by more purchases at 1.45, then at 1.43, 1.40 and even at 1.35. Now it seems the SNB is cutting its losses as it continues to close these positions well below the buying levels, thereby, helping CHF against EUR and across the board. Since USD is the days biggest loser, USDCHF is nearing Jan lows of 1.0380s.

USD DROPS ACROSS THE BOARD on a combination of cautious remarks from Moodys about the US credit rating and persistent improvement in the Eurozone consumer sentiment. Although Asian equities finished around neutral territory, markets are decidedly USD-negative. AUD stabilized at 0.89 before rallying over a full cent, eyeing interim resistance at 0.9075. GBPAUD and EURAUD hourly stochastics showing deterioration but daily charts remain bullish. EURUSD continues to eye the 1.3130 target, while USDCAD is increasingly confined to a symmetrical wedge between 1.0275 and 1.0440. RBNZs rate hike proved rather dovish, with the policy statement using words such as deteriorated and subdued regarding future growth and indicating NZD strength to be inconsistent with the growth outlook.

Watch Ashraf's Video Market Analysis discussing AUD, USD, EUR:

http://bit.ly/920r5L

And the Latest HOTCHART on GBPAUD:

http://bit.ly/drvzV6

Latest HOTCHART on GBPAUD is up

http://bit.ly/drvzV6

INSTEAD OF ONLY FOCUSING ON THE USUAL JPY and USD pairs, consider the ensuing moves in EURAUD, GBPAUD and GBPUSD. EURAUD on course for taking out 1.4570s, eyeing preliminary upside at 1.4670s, before key resistance at 1.4940-50. GBPAUD attempts to break above the 1.7390 trend line resistance (extending from July 6 high), a break of which to extend recovery towards 1.75 and 1.7670. USDCAD still showing no convincing signs of a break out of the 1.0250-1.0350s. Best to play CAD weakness against JPY than against USD, hence CADJPY vulnerable to 84. EURGBP increasingly vulnerable to 0.830, before subsequent target at 0.8260s.

AUSSIE may be firming up against USD and JPY but is sharply lower against European currencies after softer than expected Aussie Q2 CPI (0.6% q/q vs exp 0.9% and 3.1% on y/y basis), which is boosting EURAUD as warned in prior IMT; Improved stochastics and appearance of double bottom is calling for 1.4620 and 1.4710 in focus by weeks end. The pair could especially be boosted by any downturn in risk appetite as higher yielders usually do. The fact that AUDUSD failed to break 0.9070 3-month trend line is also key. But even if we do see a retest of 0.9070, the very dynamics pushing AUD higher would likely boost EUR. BANK OF ENGLAND PARLIAMENTARY TESTIMONY will be key for GBP as hawkish Andrew Sentence makes his case for higher rates, likely to contest Kings dovish stance; :845 am GMT (9:45 BST)

Tonight's Aussie Q2 CPI (1:30 GMT) will be key in providing clues on the next RBA decision but the tricky part comes in the mixed showing of q/q and y/y data. Mondays Q2 PPI showed softer than expected q/q PPI at 0.3% but a higher 1.0% on y/y basis. See Monday's PPI in calendar here: http://www.ashraflaidi.com/economic-calendar/ Expectations are higher for both the q/q and y/y basis (again see calendar) therefore a strong number and sufficiently positive risk appetite will be needed to boost AUDUSD beyond the 0.9070 trendline resistance extending from the April 14 high. Any disappointing figures dampening hopes for another rate hike will likely see prolonged gains in EURAUD, especially as the double bottom could complete its formation. AUDJPY attemtoing 79.80.

EURO-BUNDS CORRELATIONS: Euro proving to be more responsive to rising bund yields than USDX is to rising US bond yields. EURUSD correlation with German 10 year yields stood around 0.93 since May vs. -0.62 for the correlation between USD Index and US 10 yr yields. The CHARTS below http://chart.ly/rmn3ns show EURUSD is more responsive to gains in German bund yields (lower left chart) as opposed to the relationship between USDX and 10-year note (upper left), where the correlation breaks more occasionally and sometimes becomes inverse. This means that EURUSD will likely extend gains on strong Eurozone figures, which may include econ data and European earnings.

US Consumer confidence fell 4 pts in July, but remains above 50, which may sustain major equity indices above their 200-day MAs. GBPUSD touches its 200-day MA for the 1st time since January, with momentum remaining positive for a retest of $1.5580 and $1.5620. EURUSD 4-hr run the risk of calling up $1.2910 but watch out from the usual London-close volatility for a retest of $1.3070s. USDCAD shows a sharp rebound on the hourlies but beware of from failed rebounds at 1.0350s, a level proving to be a former support now a possible resistance. Oil has yet to break above $80.00 and US equity indices must close the week above their 200-DAY MAs. EURJPY finally breaks above the 113.40 resistance, eyeing next barrier at 113.90s. Weekly formation suggests further gains ahead towards 115.50.

UK July CBI Shot up to a 3-year high at +33 from -5.0 vs. expectations of 0.0, lifting cable back to $1.55 & dragging EURGBP below 0.84. A breach above 1.5520 is likely to extend gains towards 1.5570-80. EURGBP 4-hr stochastics showing negative cross-lover, suggesting 0.8330 to loom large. CADJPY sharply recovered following the Wall St rally, eyeing 85 resistance, while USDCAD looks for the 1.0270 support. FTSE-100 hits a 6-week high near 5,400, breaking above its 100-day MA after having broken its 200-day MA yesterday for the 1st time since mid May. AUDUSD breaks above its 200-day MA, testing the 0.9070 trendline resistance from the April high. More on Aussie CPI later in the day.

German 10-YEAR YIELDS now surging to 2.77%, 1-bp away from breaking above the June high, which would be the highest since May. With US 10- yr yields standing at 3.02%, the yield advantage of the US has shrank to 25-bps. EURUSD nears 1.3030 target, followed by 1.3130. EURGBP faces ceiling at 7-day trendline of 0.84. USDCAD eyes 1.0270, 61.8% retracement and 3-month Trendline support.

US NEW HOME SALES shot up 23.6% in June (highest rise since 1980) following a revised decline of 36.7% in June. The decline the supply of new homes to 7.6 months from 9.6 months is also helping to lift equities at the expense of JPY and USD. Extended gains in risk appetite boost EURUSD to $1.2955; eyeing resistance at $1.3030s. CADJPY tests 84.60 resistance, a break of which to call up 85.00s, Closely watch oils movements, breaching above 100 and 200 day MA to retest $80 per barrel. USDJPY remains capped at 87.70. since May 19. Both S&P500 and Dow further move up above their 200-day MAs. Prolionged gains extension in equities could exacerbae the monthly technicals in USD Index.

MIXED FORECASTS for todays June new home sales report from the US, with some economists expecting a rise to 320K from 300K, while others seeing 280K. Although the May report showed a 32.7% plunge to 300K, we may yet see another decline, in which case could exacerbate the existing decline in USDJPY toward 86.40 (see previous IMT). A decline of more than 15% will likely drag further CADJPY back towards 83.45-50s. GBPUSD eyes the April high of $1.55 a breach of which could extend towards $1.5580. LAST WEEK's WEBINAR WITH FARI HAMZEI is on here: http://bit.ly/b6nDQ

YEN RALLIES across the board, unwinding some of last weeks losses; USDJPY fails to break 87.70 50% retracement of the 89.13-86.28 decline, now eyeing 86.80 prelim support; US June new home sales. CADJPY continues to turn the corner, eyeing 83.40s from the current 84.00s after having failed the 61.8% retracement at 84.60s. Thus, although USDCAD is showing a highly uncertain wedge; theres potential for a clearer retreat in CAD vs JPY. US June new home sales due later today. In the event of improved risk appetite, GBPUSD and is seen retesting $1.55; EURUSD at 1.3030s.