Intraday Market Thoughts Archives

The market took a surprisingly sanguine view to a report that Trump is eager to hit China with $200 billion in additional tariffs. The yen was the top performer while the New Zealand dollar lagged. USD/CNH remains in a descending trendline resistance with 6.90 becoming the next barrier, while USDX monthly candle suggesting a gravestone doji on this final day of the month.  The FTSE Premium short was closed for 160 pts gain. Below is a detailed video on existing and future trades for Premium subscribers.

Click To Enlarge

A review of $200 billion of proposed 25% tariffs on virtually everything the US imports from China is underway and scheduled to wrap up on September 6. That same day, Trump wants to announce them, with implementation a short time after, according to a Bloomberg report. The headlines sent the US dollar lower against the yen and weakened risk assets but only modestly USD/JPY dipped to 111.00 from 111.20. The S&P 500 finished down 13 points.

The market is either stuck in sleepy summer mode or believes this is yet-another negotiating tactic. The report cited six sources, which makes it almost certain that it's a deliberate leak, likely with the aim of winning Chinese concessions. It's entirely unclear if that's coming. Unlike NAFTA, Trump's cabinet appears to be united in its determination to drive a hard bargain and the apparent success of bullying tactics with Canada and Mexico will further embolden them.

What was also notable was the asymmetry of the market reaction. As with other US-China flare ups, it hasn't been a classic flight-to-safety. The US dollar slid against the euro and made only modest gains against the commodity currencies. For Canada, in particular, a US-China trade war may prove to be an opportunity to increase exports to both nations as they refuse to trade with each other.

دلائل هامة على هبوط قادم في مؤشرات الأسهم العالمية تعرف عليها في الفيديو الاسبوعي من خبير الأسواق العالمية أشرف العايدي (الفيديوالكامل)

A hint that the EU is prepared to give the UK a workable Brexit deal sent sterling soaring on Wednesday. The pound was the top performer yesterday and today. Key US inflation is due at 13:30 London time, with the July core PCE price index expected at 2.0% y/y from 1.9%. Global equity indices are falling across the board on worries that the US-China trade isue shall remain unresolved. Note that the DAX trade stopped out earlier this week, rose 16 pts above the stop before plunging over 150 pts. a New Index trade has been posted, while the FTSE100 short is currently 140 pts in the money.

Click To Enlarge

“We are prepared to offer Britain a partnership such as there never has been with any other third country,” EU negotiator Michel Barnier said at a press conference at the same time that UK negotiator Raab was lamenting the difficulty of negotiations in UK parliament. 

The German foreign ministry later walked that back by saying the UK won't get special rules but after a small blip, cable continued higher and finished at the best levels of the day, up 150 pips to 1.3043. It was the biggest one-day percentage gain in the pair since January.

This is far from a deal but it's a signal the EU is prepared in aims of getting a decent deal done and not with the constant threat of a no-deal Brexit. A separate report said negotiations probably won't be concluded in October, citing negotiators, but Raab and Barnier have been publicly cordial and the chance of a November deal is rising.

The news comes at a perfect time for cable bulls. The CFTC report last week showed bets against the pair at the most extreme since May 2017 at -72K. It's been a one-way decline to 1.27 from 1.43 in mid-April and even a modest retracement would hit 1.33. Also note the divergence between CHF and CHF futures positioning.

Meanwhile in North America the spirit of deal-making was also in the air as Trump, Trudeau and Pana Nieto all expressed optimism about NAFTA negotiations. That helped the loonie higher for a fourth day.

A jump in consumer confidence to the best levels since 2001 lifted the US dollar Tuesday. The Swiss franc was the top performer while the Australian dollar lagged. GDP numbers are a focus in the day ahead. The revised Q2 GDP is up next.

استغلال انتقائي في انخفاض الدولار الأمريكي (فيديو للمشتركين فقط)

Click To Enlarge

The US dollar has been retreating over the past two weeks on the combination of diminished emerging market worries and dovish comments from Powell but economic data reversed the trend partway through Tuesday's trade. That's when US consumer confidence from the Conference Board was reported at 133.4 compared to 126.4 expected. The sub-indexes were equally impressive, hitting highs dating back to the turn of the millennium.

The dollar was slow to respond initially but slowly and steadily gathered momentum. Cable had been as high as 1.2935 but fell to 1.2868 and closed near session lows. Gold also fell $10 in an outside reversal day.

The turn in the dollar also came with a rise in Treasury yields. The 10-year note moved up to 2.88% from 2.84% and that will be the place to measure the sustainability of the rally in the days ahead. Signs on trade will remain the underlying driver but also mind risks from month end flows.

Up next, the US presents a second look at Q2 GDP at 1230 GMT. Those won't be major market movers but they will help to frame the narrative.

هل سيتابع الدولار الأمريكي انخفاضه إلى ما دون 1.28 مقابل نظيره الكندي؟ أو هل سنرى ارتداداً فوق 1.31 في حالة حدوث انهيارالمفاوضات بين الولايات المتحدة وكندا؟ التحليل المفصل

Click To Enlarge

The Canadian dollar has broken a major triangle resistance vs USD despite Canada being left out of a US-Mexico agreement. Does that mean a US-Canada deal is inevitable despite tough US talk? The DAX short was stopped out, while USDCHF was closed for over 150 pips. A new JPY trade has been issued to Premium subscribers with 2 charts & 6 supporting points.

Click To Enlarge

USD selling is being led by EURUSD and AUDUSD, while USDCAD breaks below a 6-month trendline support. US and Mexican leaders lauded a breakthrough in NAFTA talks. That's undoubtedly good news or the global economy and shows the Trump White House can make a deal. That was reflected in a 22 point jump in the S&P 500 to a fresh record.

What's less certain is what this means for Canada. The US-Mexico talks were touted as a way for both countries to sort out bilateral issues in the deal – mostly on autos – while leaving some of the other sticky issues for trilateral talks. Instead, they cut out Canada and struck a deal on their own. Mexican president Nieto added some token lines aimed at including Canada but the foreign minister said the deal will go ahead with or without Canada. The Premium short in USDCAD is currently yielding 160 pips and remains open.

That's likely the message the Canadian negotiator Freeland will receive on Tuesday when she arrives in Washington after cutting a European trip short. Some parts of the deal may be acceptable to Canada. The sunset provision is gone and replaced with a 16-year deal that doesn't require re-ratification. However there is no longer a dispute resolution system and it was that clause that caused Canada to walk away from talks in 1987.

US Congress insists that Canada be part of the final deal. All the large US labour unions insist that NAFTA should remain trilateral and include Mexico.

What's also unclear is what's included on dairy another other sensitive issues. From the outside, it looks as if Canada has been placed in a corner with few options but that doesn't mean Trudeau will go quietly. Headline risks are high in the day ahead while we should not forget the 81% odds of a BoC rate hike in October.

On Friday, the theme was all about the pain in emerging markets. But as the US dollar extended its decline late Friday and the Chinese yuan dragged down USDCNY further away from 7.0, things changed quickly (see the USDCNY chart below and draw your own conclusion). Reports of a bilateral deal between the US Mexico to revamp the North American Free Trade Agreement, propelled CAD across the board and dragged USDCAD below 1.2960. I will discuss more NAFTA later tonight. The Premium service has closed the short USDCHF trade for 180 pips and a detailed note was sent to subscribers.

If you were to have a look around markets outside of currencies last, it might have looked quiet day with stock, bonds and oil little changed. Yet in FX, the dollar was massively bid until a retracement on Friday.

The answer was emerging markets. Trump tweeted negatively about South Africa late Wednesday in the day and that led to a 1.7% fall in the rand. The selling spread elsewhere including Brazil where political uncertainty continues to weigh. The EM sales were clearly going into dollars with the same flows also helping to cushion the fall in the euro.

It's a theme that has been unfolding throughout the month. Despite some recent stability, the Turkish lira remains down 18% on the month. Currencies from Russia, Brazil, Argentina and South Africa are all down 7-10% well with many others struggling. Surely several currencies with USD-pegs are under tremendous pressure behind the scenes.

So while the political drama around Trump and Brexit dominates headlines, and the S&P 500 hits records, there are genuine problems below the surface. It's a time to be cautious especially with trade risks highly elevated.

The Fed is in a tough spot as most signs remain positive in the domestic economy. Powell spoke on Friday and took a broad look at how inflation has disappointed for years and what the central bank should do about it. He continued to advocate for gradual easing and that was a theme among other Fed members as well. That raises the odds of a December hike but the more-meaningful shift from Powell was a hint that inflation dynamics only justify a rise to neutral and then it may be time to wait-and-see. That led to some initial selling in the dollar Friday and will be a theme to watch. Key US inflation data are due Thursday.

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -5K vs +2K prior GBP -72K vs -61K prior JPY -47K vs -58K prior CHF -47K vs -46K prior CAD -27K vs -26K prior AUD -50K vs -51K prior NZD -25K vs -27K prior

Pound net shorts are now the most-extreme since May 2017.