Intraday Market Thoughts Archives

Watch Ashraf's interview on Bloomberg earlier today discussing the Fed, discount rate moves and FX http://bit.ly/bKpaUo

And a re-run of Ashraf''s discussion with Maria Bartiromo arguing for prolonged USD strength back on March 18 http://bit.ly/beC7df

WEEK HAS ENDED with the euro failing to break above that $1.3550 level and cable not able to break $1.53 as these technical parameters prove essential in commanding the overall USD trend against European currencies. US jobs figures showed a net increase of 162K while the unemployment rate held unchanged at 9.7%. Considering the upcoming rate hike by the Fed and improved US jobs figures, these fundamentals will continue dragging down the German-US yield disadvantage. Meanwhile, AUDUSD, which rose ahead of next weeks anticipated RBA hike still fails to break above 0.9230. Although hasnt broken above 1127, oil prices have rocketed past $85 partly on signs of a stabilizing global economy (China, EU and US data).

YESTERDAY's ANNOUNCEMENT on the website of the Federal Reserve Board http://bit.ly/bVCNAh about a closed meeting will be held on Monday, could signal the Fed will raise its discount by 25-bps to 1.0% as a way to further normalize the spread between the discount rate and fed funds rate back to pre-crisis levels. Making such a pre-announcement would reduce risks of upsetting markets as it is well telegraphed (not a surprise as was on the Feb 18 discount rate), but also would be done on Monday, when most European equity markets will be closed and US markets at thin liquidity. Whether the combination of todays US jobs report and Mondays potential discount hike would prop the US dollar, this has yet to be seen. Also, traders could conclude that a Fed decision to tighten might be driven partly its advanced knowledge of Fridays jobs figures. YEN WEAKNESS may ensue in the event of an overshoot in US payrolls (above 170-180K and unemployment rate below 9.7%), while USD strength could emerge gradually. $1.53 and $1.3570 in GBPUSD and EURUSD will be key levels to watch for todays FX session.

Strong US figures in weekly jobless claims (-6K) & ISM (59.6 from 56.5) but -1.3% in construction spending. USD weakness intensifies as GBPUSD hits $1.5260. The break of the 2 month trend line was accompanied by positive oscillator pattern. $1.5370 is the next resistance facing the rebound, which we expect to fail. The Bank of England continues to keep the door open for fresh QE and the election/fiscal uncertainties in the UK have all but disappeared. Accordingly, we expect renewed decline below $1.50. Gold to probe the 1127 resistance, a close above which could extend back towards 1137. Yen weakness may intensify further on better than expected NFP figure tomorrow. Ashraf is away on travel so updates are less frequent than usual.

Dow and S&P500 consolidate over the last 7 sessions with stochastics increasingly bearish (triple top in RSI, negative crossover in MACD). Although Nikkei was the only rallying index in Asian to have rallied on Wednesday, Thursday could be an occasion for a selloff, which could be extended by further yen strength as tonights Tankan survey is released (see calendar for Tankan). AUDJPY now testing key 61.8% retracement at 85.70s, while oil closes above 83, therefore closely watch whether these gains are sustainable into the rest of the week. Remember that on Jan 11 crude oil hit a $83.95 before retreating towards 78 in that same week. Will a disappointing NFP erode risk trades in FX to the benefit of USD and JPY?

The unexpected 23K decline in ADP is weighing on USD across the board, while the retreat in stocks is boosting JPY (dragging down yen crosses). $1.3550 in EURUSD remains the required break for the week in order for the rebound to ensue. Profit-taking at the last day of the quarter throughout Europe could also accelerate US losses but the more downside should take place in the event of actual net loss in March NFP. US crude still unable to regain $83.00, while gold has to close the day above $1117 to garner further upward action towards $1127.

Today's March ADP rport (12:30 GMT) is an appetiser for what could be the first net creation of US jobs since December 2007, expected to show arise of 40K in March from -20K in February. Signs of improved US labour markets were seen in yesterday's consumer confidence, whose perceptions index (jobs plentiful minus jobs hard to get) reached the best level since August 2009. EURUSD weighed by concerns with Greece reopening of its 20-year bond as well as falling Asian equities. What was a resistance of $1.3550 is now prelimin ceiling at $1.3470, with downside target standing at $1.3320. AUDNZD shows gradual descent in its daily chart, suggesting 1.2810, followed by 1.2770.

ALTHOUGH ASHRAF is given only 3 minutes in the following CNBC interview, watch this brief but expansive coverage on the US dollar, oil, gold and CRB, underlining the intermarket dynamics of today's market action http://bit.ly/9NdtZi

Ashraf

Read Ashraf Laidi's article in the April issue of Futures Yield vs. Risk detailing the shift from risk appetite to yield differentials http://bit.ly/buI0GW The article was written in February, but published at the April issue of Futures Magazine

CAD drops against most currencies despite advancing global stocks, while USD and JPY deepen losses for the 2nd consecutive day of the week. USDCAD vulnerable to retesting 1.0130, while EURCAD failed at the 14-day MA of 1.38 before retreating towards $1.3730. Bank of Canada Sr. Deputy Gov Jenkins reiterated yesterday the cenbank had no target for the loonie and that it would be inappropriate to forecast it. BoC continues to mention the dampening effects of the strong CAD in its policy statements but showed no sign of verbal concern. Canadian March jobs report will NOT be published this Friday, but Wednesday will see the release of Jan GDP exp +0.5% from +0. 6%. Due today is Feb industrial product and raw materials price indices at 13:30. NOTE that London time is now 1 hour ahead of GMT.

Ashraf's interview with CBC News World in Canada http://bit.ly/bPqfjz discussing the loonie, exports, productivity and inflation differentials as well as the USD and the Fed. US CRUDE gains about $2.00 to $82.15 per barrel on emerging optimism from the EU-Greece deal and improved dynamics in the US. Only a weekly close above $83 would signal a definite return of the oil bull.

YEN IS WEAKEST CURRENCY of the day, while AUD IS STRONGEST after more hawkish rhetoric from RBA Chief Stevens making the case for an April tightening when he warned the nation over the prolonged overheating in housing. RBA is now expected to hike by 25-bps to 4.25%. AUDUSD eyeing the interim resistance at 85.00 while AUDUSD soars nearly a cent since Asia Monday but must close above 0.9200 to convince the market of a successful breach of its 2-week down trend. CADJPY eyeing 90.80, but as was seen last week, a close above 91 will be needed to sustain this recovery. Medium term resistance stands at 92.2061.8% retracement of the 107.04-68.51 move. LOW US INFLATION and STEADY SPENDING will support the case for both the doves and hawks at the Fed as US Feb core PCE price index (Fed's preferred inflation indicator) slowed to 1.3% y/y from 1.8%, while pers. spending slowed as expected to 0.3% from 0.5%. GOLD capped at 1119.

The days of +$1.5300 GBPUSD are behind us for at least 3-4 weeks according to this weekly chart http://chart.ly/58ybcf . While we may see a short term bounce towards $1.50, any rebound is seen limited at $1.53. The impulsive downmove continues to seek the preliminary support of $1.4840, followed by $1.4720 and $1.4380. Those who attempt to short at $1.49 or below and happen to be stopped out at $1.5050s, ought to rethink their margin utilization. We remain negative on EURUSD as we have been since January 4th. We constantly pointed out $1.38 was required to end the downtrend and that has NOT happened. Despite Greeces venturing to the bond market this week, the $5 bond issue is aimed at meeting short-term obligations (April), making all of these manoeuvres a means of surviving from one day to the next. Downside shall open up for $1.3360, followed by $1.3315-20 before the eventual $1.32 and $1.30 before mid April. Upside capped at $1.3470-80, while substantial ceiling stands at $1.3540.