Intraday Market Thoughts Archives

The LATEST ON GOLD/SILVER RATIO CHART http://chart.ly/qbgpo8r The Gold/Silver Ratio has just hit $40, lowest since 1984 (if we used the closing prices). But if we used intra-month lows, then it is the lowest since 1997. As silver seeks to regain its 1980 high of $49, the Gold/Silver ratio will likely find the mid-teen levels reached in 1980. As long as the Fed sticks with its QE2 rhetoric, metals and commodities traders are more emboldened to play the metals trade via silver than gold (which is already at record highs).

Although the US Jobs report showed the rare occurrence of NFP at the higher end of expectations (192K & Jan NFP revised to +63K from +36K) and unemployment rate lower than expected (8.9% from 9.0%), markets are not taking the news too well. I argued in the last IMT that markets may have been expecting a strong report considering the normalisation from inclement weather conditions. Another aspect worth looking at is that Average Hourly Earnings slipped back to 0.9% from 0.4%, therefore putting back any inflationary argument back to rest. Despite Gold regaining $1430s and oil prices on the rise again, USDX holds right above the 3-yr trendline support of 76.20-30s. The bulk of USDX weakness is driven by EURUSD hovering near $1.40s. GBPUSD remains unable to regain $1.63, while AUDUSD (not included in USD Index) goes from bad to worse, struggling to stay atop the 1.01 figure its high profile failure to break above 1.02. I reiterate that AUDUSD shorts must be protected above 1.02, while looking for incremental targets at 1.0120, 1.0060 and 0.9980. Canadas Feb PMI exploded to 69.3 from 41.4. I cannot emphasize enough my bearishness on NZDCAD (as was done in past 2 days), down -180 pips as the fundamentals deteriorate for NZD and continue to brighten for Canada. NZDUSD IS NOW BELOW its 200-day MA of 0.7360, testing the Dec 2010 double bottom.

WILL US Job report be all about reversal of bad weather effects? US Feb NFP expected at +200K from +36K with the unemp rate at 9.1% from 9.0%. But expectations that negative weather effects would be partially reversed allow for the possibility of seeing +230K-250K in NFP and possibly for the Unemp rate to remain unchanged at 9.0%. Such a scenario would be positive for the USD and broadly negative for JPY. While yen pairs would likely rise across the board, USD dynamics are selective. Traders must watch the reaction in the US 10- year yields and equity futures indices for the markets receptiveness to the data. Recall the disappointing Jan NFP of only +36K led to an actual RISE in US bond yields and decent reaction in stocks because of the 0.4% decline in the unemp rate and the rise in Average Hourly Earnings (AHE) to a 2.5 year high of 0.4%. USD would be especially boosted if AHE pushes further above 0.4%. EURUSD faces further upside towards $1.4070s but the trade with more certainty is prolonged weakness in AUDUSD highlighted by the inability to break 1.02 and EURGBP increased resistance at 0.8590s. CAD Traders watch out for the IVERY PMI, expected to rebound towards 47 from 41.4, which would be a decent excuse to trigger fresh CAD gains vs GBP and NZD.

NEW POLL: Will the Bank of England Raise Rates Before the European Central Bank? Rising speculation of higher interest rates by the Bank of England and the European Central Bank has been the primary booster to GBPUSD and EURUSD. Markets are currently pricing higher odds for a May BoE rate hike. But could it happen in April?

CLICK HERE FOR POLL: http://bit.ly/fCL73v

The ECB did not disappoint euro bulls when it upgraded its 2011 and 2012 inflation forecasts to 2.2% from 1.8%, and to 1.5% from 1.7% respectively. As warned in yesterdays IMT, the ECB has tightened the policy bias by paving the road for a May rate hike (some expect it in April). Whether the Eurozone could handle 25-bps more in rates shall depend on the reaction to peripheral nations bond yields. At a time when equity indices appear increasingly vulnerable to rising oil prices and MidEastern events, a broad sell-off in risk currencies may also bring about the usual reaction of rising bond yields in Portugal, Ireland and Spain. 1.3950-55 is the 200-week MA in EURUSD as well as the trendline resistance from the $1.5160 high thru the $1.428 high. There is NO CHANGE in EURGBP rallies nearly 100 pips to 0.8570s but has yet to break (close) above the important trendline resistance of 0.8580 (see prev IMT). Falling GBPUSD following weak services PMI is part of the answer, while the technical explanation remains the all-important $1.6370-80 trendline resistance. AUDUSD weakness despite improved risk appetite reflects the difficulty of breaking above 1.02 and the ongoing success of teh shorts at the 1.0180s targetting 1.0120-1.0100s.

Euro rallies across the board on further PMI strength, while GBP is pressured by the lowest services PMI in 4 months. Eurozone Feb services jumped to 56.8 from 55.90 to hit its highest since Aug 2007, while the prices paid index rose to 52.8 from 49.8. Euro gains in anticipation of a hawkish press conference from JC Trichet, who will seek to open the door for a possible rate hike as early as May but MAY NOT necessarily go for the actual hike in rates. Central banks often aim at managing inflationary expectations via rhetoricand therefore do not always follow-up on their words. This was the case of the FOMC in Spring 2007 when the US central bank aimed at avoiding further dollar declines but was unable to raise rates in light of the broadening cracks in the sub-prime housing market. EURGBP regains 0.85 and could retest 0.8530s but is expected to run out of steam at the 0.8580 resistance, which marks the trendline extending from the Oct 2010 high. Im still bearish in EURGB to retest 0.8380 and 0.8180s. In the case of the US services ISM, markets will watch the PRICES PAID index for the latest on inflationary pressures. NZDUSD downtrend intact, with trendline from Feb 2 trendline holding any rebound at 07530.

CORRECT LINK to Ashraf's Video on Thomson Reuters Charting Weekly NZDUSD, EURCAD, Possible RBNZ Rate Cut & Bank of Canada Hawkishness http://bit.ly/gaSp50

ADP hit a 2-month high of 217k in February. Recall, the 247K increase in December was the highest since 2006. Whether this data means that the US jobs report will finally surprise on the upside remains to be seen. The report was good enough to boost equities at the expense of the US dollar. GBPUSD regains $1.63 for the 1st time since mid Jan, probing $1.6330 --76% retracement of the decline from the Aug 2009 high. EURUSD rallies on combination of overall USD damage and in anticipation of Thursday's ECB press conference, whereby JC Trichet could reiterate the prevailing hawkishness among the Executive Board, thereby setting up for $1.392s. Longer term technical eye face the same 3-year trendline resistance at $1.41. WATCH THE USD INDEX and the 76.35 trendline support. A close is needed below this level in order for the pair to be considered in the danger zone.

Gold broke to new highs at $1434/oz. Silver hit $34.70s even as USD rose against all currencies with the exception of the JPY. The accompanying sell-off in equities was the fundamental reason to the stabilization in the USD, while the technical support for USDX held up after regaining 77. I mentioned in Monday's IMT that any deepening of USD bearishness would be confirmed in the event of a close below 76.50. US and European bourse shrugged off strong PMI & ISM manufacturing data as MidEastern stocks tumbled by as much as 7% (Saudi Arabia) on fears of planned Day of Rage protests on March 11 in the worlds second biggest oil producer. The divergence between AUD pairs and gold also highlights the unease of global equities. Aussie Q4 GDP rose 0.7% q/q from 0.1%. EURCAD and NZDCAD remain preferred shorts against CAD, EURGBP is hardly moving from its 0.85-0.846 range but still on daily & bearish formation. Markets turn to UK construction PMI at 9:30 am GMT (exp 53.3 from 53.7) and US ADP at 13:15 (exp 184K from 187K)

PMI & ISM Surveys Blast from Europe and US this morning as the Feb manufacturing surveys attempt to beat the record year highs reached in March. German PMI exp at 62.6 from 62.6 and UK manuf PMI expected at 61 from 62. There is also UK Feb Nationwide HPI at 7 am GMT exp at -0.2% from -0.3%. UK mortgage applications and money supply data are due at 9:30 GMT. As Ive responded to a readers email in reference to the strong CAD: Its been a long while since I called for going against CAD. I always preferred shorting GBP and EUR to CAD Mondays stronger than expected release of Canada Q4 GDP at 3.3% from 1.8% helped drag USDCAD down to 0.97. Preferable CAD longs seen against EUR and NZD with the latter idea highlighted by the latest severe earthquake in NZ. As for GBPUSD, it has yet to regain both trendlines (extending from Nov 2007 high and from the Aug 2009 high). Accordingly, any protections for GBPUSD shorts may be considered above 1.6370-1.6400. USD broke below 77 but deepening bearishness would be confirmed once we see a close below 76.50. On the USD positive side is the weaker than exp China PMI, while on the negative side is Bernankes testimony 15:00 GMT, reiterating that inflation sufficiently weak to justify zero interest rates into June.

EURGBP back below 0.85 after failing the 0.8590 trendline resistance (extending from the Oct 24 high thru the Jan 25 high), dragged by a negative daily slow stochastic, while facing the Jan 11 trendline support at 0.8390. Prelim support stands at 0.8460. Watch out for tomorrows UK manufacturing PMI (exp 61.5 from 62), which is always a market mover. We have yet to see a touch/close above $1.6330s in GBPUSD, which is the confluence of the trendline resistance from 2007 and 2008. Playing EURUSD ahead of Thursdays ECB via GBPUSD and EURGBP remains a consideration, especially on robust UK data via GBPUSD longs and EURGBP shorts on the rationale of dovish ECB. US equity indices slip in the red but we have yet to see the first 2 consecutive weekly decline in 12 weeks. ASHRAF REMAINS ON TRAVEL in the US. IMTs shall revert to normal frequency on Wednesday.

WE ENTER A BUSY WEEK of central bank speeches, global manufacturing indices (PMIs & ISMs) and the US Feb jobs report. Bernanke will center his efforts to convince the US Senate/House that inflation remains sufficiently weak for the central bank to maintain QE2 into the summer. Two days later the ECB will reiterate the need to consider raising rates near the summer if inflation does not remain anchored (already 0.4% greater than the preferred 2.0% level). Irelands Fine Gael won elections after Fianna Fail lost of its seats. Fine Gael, however, fell short of gaining overall majority, which means a coalition with Labour is the most plausible outcome. The least likely outcome is for Fine Gael to strike a deal w/ Independents/, while markets await to see how will incoming PM Kenny plans to renegotiate of the terms of the IMF bail-out. AUDUSD breaks through the 1.1050s resistance to hit an Asian session high of 1.0182, half a cent below the all-time high of Dec 30. Aussie retail sales & GDP should help gauge momentum for the possibility of new highs but all eyes will be on whether STOCKS WOULD post a scond consecutive weekly decline, which hasnt happenned since 12 weeks. Similarly, GOLD BREAKS the Dec 6 trendline, eyeing a possible retest of the 1423 high from Jan 3. ASHRAF REMAINS ON TRAVEL in the US. IMTs shall revert to normal frequency on Wednesday.