Intraday Market Thoughts Archives

Ashraf discusses various topics on CNBC. The prospects of negative ECB interest rates (misinterpretation vs exaggeration), Novotny's remarks highlighted by Austrian banks' situation, the Hedgehog-Fox analogy regarding Bernanke-Draghi, macro-market divergence, equities and views on EURUSD and USDJPY. Play video here

The rare triple positives in US jobs report; strong NFP; high upward revisions; lowest unemployment rate since December 2008 underline the improving situation in US jobs, but the disinflationary dynamics in the US and global economy should continue to bolster the arguments of the doves at the Fed. Speculation that Fed dove Janet Yellen will succeed Ben Bernanke will also sway the balance against tapering QE. USD rallied on the broadly positive US jobs report before falling against all currencies with the exception of the yen as stocks hit new record highs. We added 3 new Premium charts in AUDUSD to affirm our positioning in the pair. The final USDJPY long hit all targets, while both EURUSD remain in  progress and the long GBPUSD nears its final target. The rare convergence in AUDUSD can be seen in the Latest Premium Insights

The Canadian dollar weakened late on Thursday after a man from the department in change of boosting Canadian exports was named as the new Bank of Canada Governor. On the day, the US dollar was the best performer while the euro lagged on hints about negative deposit rates. Japan is on holiday and the China non-manufacturing PMI is on the calendar. Aussie and China figures are due later this evening, which merits extra attention to Ashraf's Premium trades in AUDUSD. For all these, see the latest Premium Insights

Stephen Poloz will replace Mark Carney on June 2. Poloz currently leads the government-run Export Development Canada. The Canadian dollar initially weakened on speculation he would lower rates to boost exports.This analysis is overly simplistic: Poloz has been an economist for 30 years including a stint at the Bank of Canada. The market is pricing in no chance of BOC cuts for the next 12 months and there is no indication Poloz will lower rates to weaken CAD.

The BOC appointment came at the end of a busy day. The ECB decision caused tremendous volatility in euro crosses and a 4-year low initial jobless claims helped spark a US dollar rally. BOJ Governor Kuroda also stamped a timeline on the Japanese recovery, saying he expects it will be clear from mid-year.

There is some talk about an SNB response following the ECB moves. The tighter interest rate differential could prompt them to act. A move to penalize deposits is more likely than an outright hike in the floor but Switzerland has ignored warnings about currency manipulation before.

The focus starts with Australia when the AiG Performance of Services index will be released at 2330 GMT. This is normally a second-tier indicator but with Tuesday's RBA decision up in the air, every data point is magnified. The prior reading was 49.6.

China data follows at 9 pm ET (2 am London) in with the April non-manufacturing PMI. The prior reading was 55.6.

WIth the ECB cutting the Lending-Deposit interest rate spread to its lowest level since 2008, here is how the 3 rates are charted and what it could mean for the euro. Full charts and analysis

Ashraf's monthly joint webinar on "Currency, Debt & Equity Markets Timing" with Fari Hamzei and George Cavaligos starts this evening--Thursday, May 2^nd at 3 pm Chicago, 4 PM EST and 9 pm London. Ashraf kicks off the webinar to discuss the recent Premium trades ahead and after today's ECB rate action with their technical rationale, while shedding light on tomorrow's NFP report. A recording of the webinar will be available 24 hours later. Premium subscribers can hear the recording prior to the NFP. Register for the webinar here:

The ECB dual rate cuts in the lending and refinancing rate reduced the spread between the lending (emergency) rate and the deposit rates to 1.00%-- lowest since 2008 (Oct, Nov & Dec 2008), a time when the ECB rushed to reduce the cost of emergency loans at the peak of the global financial crisis. Euro losses intensified as Draghi reiterated the willingness to deliver a negative deposit interest rate from its current zero %. All our existing non- USD Premium yen shorts hit their targets and so did our longstanding EURUSD short. 1 EURJPY hit all targets, the other stopped out. We just issued 2 fresh trades in EURUSD alongside a tactical and technical note in the latest Premium Insights

The FOMC maintained a fairly upbeat assessment of the economy but added a line to suggest QE risks go two ways. The Swiss franc was the best performer on the day while the Australian dollar lagged on risk aversion. In Asia, the HSBC China PMI is the highlight. 4 new Premium trades were added for EURJPY and USDCAD each in today's update to the latest Premium Insights.

Ahead of the FOMC decision, most analysts expected a slightly more downbeat assessment of the economy given the recent slide in economic data but the Fed barely tweaked statement. This suggests officials want more time to evaluate if the weakness is transitory. The most notable change was a line saying the FOMC is “prepared to increase or reduce the pace of its purchases” The direction of markets and Fed officials has been toward tapering purchases but this could be a signal that risks go both ways.

The market was erratic following the release with 50 pip whipsaws in the euro and yen. The indecision is understandable given there was no strong signal in the statement and because of uncertainty ahead of Thursday's ECB meeting.

Risk trades were also suffering after April ADP jobs report increased by 119K. It was the slowest employment growth since September and missed the 150K consensus. The ISM manufacturing index was very close to expectations at 50.7 but the employment and new orders components were weak.

A softening global economy was clearly the theme on Wednesday with oil prices down 2%. The theme will remain in focus in the upcoming session with the HSBC China PMI scheduled for 2145 GMT and the official non-manufacturing PMI 45 minutes earlier.

China's official PMI a day ago was a touch soft at 50.6 and the HSBC survey is forecast at 50.5. Look for the Australian dollar to fall further on a weak reading, especially a sub-50 number.

More disappointing US data confirm the case for the Fed to downgrade its growth and inflation outlook, which will likely weigh on the USD as the statement is released at 14:00 ET (19:00 London time).  Weaker than exp ADP came in at 119K from a downward revision of 131K (158). The services ISM slowed to 50.7-- its lowest since December, while both of the employment and prices paid indices tumbled. And so with the FOMC surely expected to downgrade its economic view today, the ECB has little choice but to cut rates in order to avoid another excessive euro rally, that's detrimental to the recession-bound Germany. We issued 2 new Premium trades in USDCAD and EURJPY seen in the latest Premium Insights

The US dollar slumped after a soft Chicago PMI. The Swiss franc was the top performer while the US dollar lagged. The official Chinese manufacturing PMI is the highlight of Asia-Pacific trading as markets shift into data overdrive for the remainder of the week. New Premium trades and charts on EURUSD, GBPUSD and USDJPY were issued ahead of Wednesday's UK PMI, US ADP, FOMC decision and Thursday's ECB decision. All these are found in the latest Premium Insights

It's growing more difficult to ignore the soft trend in US economic data and the Fed will no doubt take notice in Wednesday's FOMC decision. The latest bad news was in the Chicago PMI as it fell to 49.0 compared to 52.5 expected. It was the lowest reading for the manufacturing survey since 2009.

As Ashraf noted earlier today, the Fed may push back expectations for tapering QE. As a result, the US dollar broadly softened allowing the euro to jump as high as 1.3186 and cable to a two-month high of 1.5569.

Housing and the consumer remain bright spots in the US economy as the S&P/Case-Shiller house price index slightly beat expectations with home prices up 9.3% year-over-year. Consumer confidence rose to 68.1 compared to the 61.0 consensus.

There were remarkable signs of divergence in markets as April ended. US ten-year Treasury yields fell to the lowest of the year while the S&P 500 closed at an all-time high. The divergence is possible because of Fed buying but at some point it will break down.

The S&P 500 has slumped in the month of May for three consecutive years and it's a historically weak month. We warn, however, that doesn't hold true for the first trading day of the month. It has been a positive day in 7 of the past 9 years. In the two years where it closed lower, there were significant intraday gains at some point.

A busy final three days of the week begins in China with the April manufacturing PMI. The consensus call is for a slight decline to 50.7 from 50.9. Several other lower-tier indicators are also on the schedule but markets will be hesitant ahead of the more important numbers later in the day.

Today's attempt by EURUSD to break above its 100-DMA appears to have more momentum than that of 2 weeks ago. Reports that a Thursday ECB rate cut was not a done deal were partly attributed to today's euro rally. Meanwhile, the broad decline in the greenback is a result of rising expectations that the FOMC has little choice but to downgrade its economic view on Wednesday and dampen expectations of any early reduction of QE. Meanwhile, ECB's Draghi is now “forced” by the market to deliver the much anticipated rate cut --even if it has little macroeconomic effect. Leaving rates unchanged would prop the euro higher, while cutting rates will depend on the extent of the ECB's downgrade of its Eurozone view. We issued a new edition of the Premium Insights with 2 new Premium charts on EURUSD and trades on USDJPY and GBPUSD. The rest of the insights will be released later today. More on the latest Premium Insights.

The S&P 500 closed at a record closing high on Monday but it hasn't broken the intraday record. The US dollar was the laggard on the day with risk appetite improving but a turnaround can't be ruled out. Japanese markets re-opened after a holiday and employment numbers are due. A new set of Premium Insights will be issued on Tuesday.

The S&P closed fractionally higher than on April 11 to set a new high but fell short of the 1597 intraday high and the important psychological barrier at 1600. The April gains in stocks come despite some troubling economic data in the month.

April is historically the best month for US stocks but the May-October period is traditionally weak. With a nearly 10% year-to-date gain, the best days of the year may be in the past.

The Canadian dollar has been highly correlated with stocks over the past month and USD/CAD is pressing against the mid-April low of 1.0084. Look for CAD and the S&P 500 to confirm the direction of the next move in risk assets together.

One bright spot in the US remains housing and pending home sales jumped 1.5% in March, better than the 1.0% rise expected. Personal spending numbers were also a touch strong at +0.2% in the month compared to the 0.1% consensus.

A WSJ article on Sunday raised fears about disinflation and a flat core PCE price index compared to +0.1% added to the case.

Japanese markets are thin because of Golden Week but desks are likely to be fully staffed with several major releases on the schedule. At 2330 GMT, the unemployment rate is expected to remain at 4.3%. Twenty minutes later watch for data on industrial production and retail sales for the first signs of the effects of the weaker yen.

Last week's +0.3% GDP figure in the UK was enough to make the pound the top performer last week in a sure sign of stagnant global growth. Then Friday's US growth figure missed by a half-point and dashed the near-term hopes of the USD/JPY bulls. This week opens a day later than usual in Japan as Golden Week holidays begin. The Premium Insights issued 2 new trades in GBPUSD on Friday and 4 comparative monthly GBPUSD charts highlighting our principal bias on the pair. Today's charts (issued below) are related to the latest Trading Note issued on GBPUSD. All charts and trades are in the latest Premium Insights.

The first quarter GDP report from the US was a disappointment with annualized growth at 2.5% compared to the 3.0% consensus. Consumer spending was unexpectedly strong but it wasn't enough to overshadow the drag from trade and inventory drawdowns.

USD/JPY fell immediately and continued to drop until stalling just ahead of the 21-day moving average at 97.55.

The week ahead could be unpredictable for yen crosses with Japanese desks understaffed. A portion of Friday's decline in USD/JPY was probably on position squaring ahead of the holidays. There is a line of thinking that Japanese firms will begin to re-allocate asset weightings offshore following the holidays. At some point this week, we could see traders buying USD/JPY to frontrun that move.

Commitments of Traders

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

EUR -34K vs -30K prior

JPY -80K vs -93K prior

GBP -60K vs -62K prior

AUD +31K vs +53K prior

CAD -72K vs -76K prior

NZD +28K vs +31K prior

CHF +1K vs -3K prior

US Dollar Index longs at 38K vs 50K prior

For the second week in a row, AUD traders backed out of long positions. Signs of a slowdown in China and the potential for an RBA rate cut are concerns but even with the large shift in positions, the Australian dollar hasn't weekend much since April 14.