Intraday Market Thoughts Archives

DUDLEY DEALS DOLLAR BLOW Bill Dudley, the head of the FRBNY may not be known as the most dovish FOMC member, but his remarks today were not only an explicit support for QE2 but also an answer to the more hawkish members (Richmond Feds Hoenig, Philly Feds Plosser & Minneapolis Feds Kocherlakota). Dudley countered the notion that balance sheet expansion destabilizes inflation expectations, and is the first FOMC member to give an idea on the quantity of asset purchases. He said $500 bln in additional purchases would be nearly equivalent to 50-75 bps in fed funds rate cut. USD INDEX drops to fresh 8-month low at 78.10, deepening losses furtehr below the 200-week MA of 80, which should now acts as resistance, coinciding w/ the NECKLINE. $EURUSD continues countdown to $1.3850. FOR MORE FREQUENT UPDATES & Analysis, the best way to follow me while Im on travel is via my twitter on http://twitter.com/alaidi

STRONG US DATA IS NO LONGER the sole requirement for reducing the likelihood of QE2 and further USD selling. As long as inflation remains muted, QE2 remains an inevitability. Todays release of Sep annual core price index came in at 1.4% for the 3rd consecutive month, while monthly core price index has not budged from +0.1%, thereby, countering any inflationary concerns associated with an expanding balance sheet. And we know the Fed is increasingly concered with "subdued inflation". So even if data show impprvement, ongoing signs of muted inflation to weigh on USD. Here is a another look at USDX CHART from Monday http://chart.ly/6t8tn9a current price is at 78.25 and 76 target looks more appealing as GOLD hist $1320 and Silver at $21.14.

USD WEAKNESS DEEPENS along with improved risk appetite brought about by rising Sep manufacturing PMI (4-month high in China) and better than expected Eurozone PMIs. The resulting rally in Asian and equities is keeping US equity futures well in the black (Dow futures +48 pts) at the expense of the USD. US Sep CONSUMER SPENDING exp +rose 0.4% vs exp +0.3% from +0.4%, while pers incomes +0.5% from +0.2%. Core PCE price index edged up to 1.5% from 1.4% which is the Feds favourite inflation gauge. Key data item of the day is Sep ISM manufacturing exp at 54.5 from 56.3, but could well surprise on the upside after yesterdays release of the Chicago PMI, which jumped to 60.4 from 56.7. EURUSD saw no resistance past $1.37 as it attained $1.3760 and I continue to stick with $1.3850. GBP mainly gaining on weak USD despite 10-month low in PMI, thus, be careful w/ pullbacks later in day ahead of ISM and consumer sentiment. Month/Quarter end rebalancing in portfolios to go on til end of day.

USDZAR breaks below 5 1/2 year trend line support and key 76% retracement pf the rally from the 2004 low to the 2008 high http://chart.ly/buoxl4m Quarter-to date, the South African rand ranked in the top 10 best perfomring currencies vs USD, +11%, ahead of the Brazilian real

Ashraf in Tuesday's edition of the Financial Times' Supplement on Foreign Exchange Markets http://twitpic.com/2tcuj5

Ashrafs Video Market Analysis for Reuters Thomson on USDJPY Seasonals & the moving average dynamics between EURUSD and USD Index http://bit.ly/cQeYks FX VOLATILITY SURGES as END OF MONTH and END POF QUARTER on portfolio rebalancing/relocation. Stronger than expected US data (Softer jobless claims and strong Chicago PMI) are boosting the US dollar on the preliminary argument that improved figures will defer fresh asset purchases from the Fed. But this argument appears premature, especially as the Fed itself remains uncertain as to whether (when) it will trigger QE2. USDJPY needed such a figure after negative readings in the Philly and Richmond Fed manufacturing. A confirmation will be required in tomorrow's release of the Sep manufacturing ISM, which is expected at 54.5 from 56.3.

MOODYS DOWNGRADES SPAIN from AAA to A1, 8 months after Fitch & S&P have both stripped Spain of its top rating. Moodys has consistently been behind the curve in its credit rating decisions. Most of the EUR losses focussed on EURJPY and EURGBP, while EURUSD pullback so far limited at $1.3550s as USD weakness remains the main theme on Fed QE and US Congressional bill. News that Anglo Irish will need as much as EUR 34 bln including a 67% haircut from NAMA. Technically, EURUSD has yet to regain $1.3850s on THE WEEKLY CHART, with $1.3520 now acting as key support (prev resistance). Watch USDCAD ahead of todays Jul GDP release, exp at -0.1%, which would be first negative monthly reading since August 2009. YEN STRENGTH STILL DOMINATES CHF as CHFJPY drifts near session lows at 85.11, suggesting EURJPY and CADJPY would be under more pressure especially in the event ahead of fresh worries from US jobless claims later today.

US FX PRESSURE ON CHINA is another source of trouble for the USD (the other source being anticipated QE2) as US House of Reps is set to pass legislation enabling US to levy tariffs against nations whose currencies said to be artificially and fundamentally devalued. While weve been in this boat of threats before, the House bill must be backed by the Senate before winning approval from President Obama. Although it is unclear whether the White House will approve such a combative bill on China, FX markets simply need prolonged attacks from Congress on China to sell USD further. The RULE OF THUMB in FX is to sell any currency whose country engages in policies of competitive devaluations. Readers of my book will find in detail how the Bush tariffs on Chinese and Brazilian steel manufacturers coincided with the top of the US dollar in 2002. You will also remember that 2002 was a midterm-election year. USDCAD seen at 1.0375-80 ahead of tomorrow's Jul GDP, exp at -0.1%, the first negative monthly reading since August 2009. But before that, we have UK Sep GfK Consumer Confidence seen at -19 from -18 due at 23:01 GMT

GBPUSD FAILS TO KEEP UP WITH EURUSD after fresh evidence of weakening UK housing (mortgage approvals at 7-month low, M4 money supply growth at new low of 1.9%). As GBPUSD struggles to regain $1.5840s (76.4% retracement), GBP downside seen more optimal against JPY and CHF, as GBPJPY eyes 131.70, followed by 130.80. GBPCHF seen retest 1.5200 lows. Meanwhile the case for higher EURUSD (above $1.38) was outlined in previous IMT. Tonights September release of UK GfK consumer confidence (11:01 GMT) exp at -19 from -18 could also see further losses in GBP crosses in Asia trade nearing the aforementioned levels.

USD INDEX LOOKING FOR 76 , which is the 18-month trend line support on the 6-currency basket (see chart http://chart.ly/6t8tn9a ) as EURUSD extends rebound past $1.36. A break below 76 on the USDX suggests protracted declines towards the 74 low (Nov 2009). 3 weeks ago I said EURUSD needed to break ABOVE its 200-day MA after the USDX broke BELOW its own 200-day MA. Well, now we need the same thing on the WEEKLY basis. The chart here shows USDX broke BELOW its 200-WEEK MA last week, thus, we need for EURUSD to break ABOVE its own 200-WEEK MA, currently at $1.3894, which coincides with the 61.8% retracement of the decline from the $1.5151 high (Nov 2009) to the $1.1876 low (June 2010). Thus, $1.38 appears as a conservative target for the next EURUSD advance.

US DATA DOUBLE BLOW BOOSTS EURUSD & METALS as US consumer confidence hit a 7-month low at 48.5 and the Richmond Fed manufacturing index dropped to -3 from +12. FX markets have grown reluctant from bidding up the US dollar on falling equities because data deterioration implies the inevitable; escalating asset purchases from the Fed to the point of inflating the balance sheet beyond the $2.3 trillion limit. The FED's MANDATE is to support maximum sustainable employment and stable prices. Both have undershot; FX markets can afford to extend euros run-up based on improved conditions from the core nations and on the notion that IMF and EU credit facilities would be sufficient to support Ireland. $1.37 now appears ripe as the target of the reverse H&S formation, especially if a close above $1.3510 is held today.

EURJPY fails to regain 114, the resistance prevailing since mid May. Weve already seen a failure in late May-early June, followed by a congestion/resistance during Jul 28Aug 9. Anticipating further pullback in EURJPY may be risky ahead of any possible Japanese intervention, BUT anticipated euro retreat could call up 111.80s via a EURUSD print near $1.3310-20s and USDJPY around 84.00. The short-term technicals appear more bearish than the weekly picture, whose oscillators appear to suggest a rebound towards 115.80s. The fundamental source of further yen gains could be a disappointing US consumer confidence survey later today (exp 52.5 from 53.5). Thus, EURJPY recovery seen capped near 113.60s before a renewed retreat back towards 112.70 and 112. With all yen crosses well off their highs, the negative bias could be intensified on emerging risk aversion/profit-taking in equities.

Ashrafs interview from the NYSE for Arabiya TV http://youtu.be/MIMCiR2NM8w and a graphic illustration by Ashraf of the Federal Reserves asset purchases and transmission mechanism http://twitpic.com/2skj7u Tomorrows GfK consumer sentiment from Germany and US consumer confidence have the ability to move the market. EURAUD hourly and daily stochasticks suggest prolonged downside towards 1.3875.

DOW 11,000 appears increasingly viable on a combination of market-friendly data from Germany (IFO) and the US (new & existing home sales) and inevitable liquidity injections from the major central banks. It is a question of time before the Fed steps up its round of treasury purchases aimed at preventing inflation from slowing excessively. Annual CPI is at 1.1%, while the Feds favourite inflation indicator annual core PCE price index is at 1.4%. Last week, the Fed clearly showed its concern with inflation has declined to a level that is slightly below that which FOMC participants view as most conducive to a healthy economy. Consequently, with no downside surprise in the data, both the Dow-30 and S&P500 look set to retest their 200-WEEK MAs at 11,000 and 1,200 respectively. Interim resistance for S&P500 stands at 1169, which is the 76.4% retracement of the decline from the 1,219 high to the 1,007 low. EURUSD stalls below its 50% retracement of $1.3510, while EURGBP struggles to regain the 0.8520 trendline resistance on the hourly chart. For, now EURUSD requires a new solid catalyst to get it over $1.35 and so we could see a another retreat towards 1.3400 before the $1.38 target on the basis of reverse H&S formations. No major US data today means stocks could wekk extend their gains nearer the aforementioned levels. .