Intraday Market Thoughts Archives

Stocks and the euro are back up to almost exactly where they were last Friday following Mario Draghis verbal commitment to support the single currency and Eurozone seven days ago. But this time it was thanks to the data, SEE MORE BELOW on EURUSD, DAX & FTSE-100: http://www.cityindex.co.uk/market-analysis/ashraf-laidi-blog.aspx

USD gives up most gains; UK services PMI declined; Eurozone retail sales lower; German and Eurozone final services PMI revised higher; periphery yields ease. Market turns to NFP, unemployment rate and ISM non manufacturing. Friday mornings Premium Insights are out. See below for details.

The greenback has been steadily losing yesterday's gains throughout the Asian and London sessions. European equity indices rose by more than 2% and the relative strength winner is NZD while JPY lags.

Euro along with other currencies pushed slightly higher against the buck on two rumors. First was that the Spanish government would hold a press conference and ask for support from EFSF and the second that the ECB would hold a press conference on EFSF intervention.

UK services PMI declined to 51.0 in July from 51.3 in June which is the slowest growth in 19 months. Input prices rose despite falling fuel costs which increased the pressure on margins. Employment rose for the 8th month in a row and new work rose. GBPUSD reaction was minimal initially but later the pair pushed nearly to 1.56.

Eurozone retail sales grew only 0.1% in July from previous 0.8% m/m and declined further to -1.2% from -0.8% y/y. On a positive note, final prints of July services PMI were revised slightly higher in case of Germany it was from initial estimate 49.7 to 50.3 and for Eurozone from 47.6 to 47.9. EURUSD retraced a significant part of yesterday's gains and trades around 1.2280.

Spanish and Italian 10 year yields eased compared to yesterday's highs but remain elevated at 7.00% and 6.07% respectively.

The US session starts at 8:30 am ET with July NFP that is expected to rise to 101K from previous 80K while the unemployment rate is seen steady at 8.2%. Hourly earnings are seen lower at 0.2% from previous 0.3%.

The last report of the week is ISM non manufacturing at 10:00 am that is anticipated to remain at 52.1 in July.

Latest Premium Insights ahead of today's US jobs report and US services ISM, with focus on EURUSD, AUDUSD, AUDJPY and gold. Also charts on daily AUDUSD and S&P500. http://ashraflaidi.com/products/sub01/access/?a=672 Non-subscribers can join here: http://ashraflaidi.com/products/sub01

Latest Premium Insights ahead of today's US jobs report and US services ISM, with focus on EURUSD, AUDUSD, AUDJPY and gold. Also charts on daily AUDUSD and S&P500. http://ashraflaidi.com/products/sub01/access/?a=672 Non-subscribers can join here: http://ashraflaidi.com/products/sub01

Trusting Draghi was the wrong trade it wasnt enough. The euro fell hard after the ECB left rates unchanged and unveiled no new programs. Asian trading will be quiet as the market begins to settle down ahead of non-farm payrolls. Ashraf is working on new Premium Insights due out later tonight strategizing for Fridays US jobs report.

The ECB was expected to unveil some set of decisive crisis measures including some combination of negative deposit rates, bond buys, LTROs or other creative programs. In the end, there were only words and hints that more is to come.

Minutes before Draghis press conference, the euro surged more than a cent to 1.2405. Last Friday when the ECB President said the ECB had the power to preserve the euro --trust me, it will be enough -- he put his personal credibility on the line.

When Draghi failed to deliver, the euro tumbled two cents to 1.2200. Draghi hinted the bond buys will come but peppered it in with wisdom like saying it was pointless to short the euro.

Draghis strongest statements urged Spain and Italy to call for help from the EFSF. Such a call requires automatic budget supervision but when Rajoy and Monti dismissed those calls later in the day, the euro fell further, as low as 1.2128.

Periphery borrowing costs shot higher. Italian 10-year yields hit 6.33% after falling as low as 5.75%.

US economic data was soft. June factory orders fell 0.5% when they were expected to rise 0.5%. Durable goods orders were also revised lower. Initial jobless claims were 5K better than expected at 365K.

The Asia-Pacific week winds down with a look at the Chinese service sector. At 0100 GMT China releases its non-manufacturing PMI for July. The prior reading was 56.7. The HSBC services PMI will be released 90 minutes later. The prior was 52.3.

Quick Look at our NEW FORMAT PREMIUM INSIGHTS http://yfrog.com/es2g0lgj Non Subscribers can join here: http://ashraflaidi.com/products/sub01/

-AB

Draghi initially re-ignited expectations of imminent action when he directly hinted at re-activating bond purchases in the secondary market (mainly on the short end of the yield curve) and forecasted inflation to fall below 2%. But the market started turning around when Draghi reminded of the ECBs inability to purchase bonds in the primary market and the need for EFSF to receive unanimous eurozone approval in order to obtain the license to raise funds from the ECB. SEE HERE on why Euro remains most vulnerable to non-farm payrolls after Fed/ECB inaction http://www.cityindex.co.uk/market-analysis/ashraf-laidi-blog.aspx

Ashraf webinar TONIGHT -- Thursday with Fari Hamzei & George Cavaligos at 15:00 Chicago, 16:00 New York, 21:00 London. The webinar will go over the euro's latest Post ECB/Fed moves & pre-NFP analysis as well as on gold, GBP & oil. REGISTER HERE: Register here: https://www1.gotomeeting.com/register/587846961

BoE on hold; UK Construction PMI rose; Eurozone PPI declined; Swiss retail sales rose and PMI improved; Spanish auction. Market turns to ECB decision and press conference (see its options below), jobless claims and factory orders. A new set of Premium Insights will be released after the ECB press conference, focusing on NFP in teh aftermath of the ECB. Don't forget Ashraf's join-webinar tonight at 16:00 ET, 21:00 London time.

The FOMC inspired dollar rally faded and the greenback weakened against most majors during Asian and London sessions. EURUSD pushed back to 1.23 and commodity dollars were able to erase all post FOMC losses. European equities are gaining about 0.50%.

All eyes are on the ECB that will announce its decision at 7:45 am ET and the press conference that will follow 45 minutes later. Draghi induced optimism made expectations so high that the ECB now faces the risk that unless it announces a massive new policy measures, markets would be disappointed and the sentiment could drop along with the common currency. Lowering the minimum bid rate, LTRO3 or bond buying via SMP are some of the possibilities. Perhaps even granting the ESM a banking license is an option, despite the German opposition.

ECB Options

1. Restarting bond purchases SMP. CitiFX says 58% of its respondents expect this to happen but the market continues to see this unlikely to happen today.

2. EFSF buy Spanish and possibly Italian debt in the primary market, while ECB buys them in secondary market.

3. Broadening the range of collateral accepted by the ECB (equities and non-sovereign bonds).

4. Another 3-year LTRO, or issue a longer term such as 4 or 5 years.

5. Cut refinancing rate to 0.50% and deposit rate to below zero.

The BoE left rates unchanged at 0.50% and announced no new QE as expected. The MPC increased the asset purchase facility by GBP 50 bln on July 5th.

The construction output in the UK expanded in July as PMI rose to 50.9 from previous 48.2. However, new work received experienced the second fastest drop since 1/2010. GBP was not able to stage a recovery and EURGBP continues to push higher, currently trading just below the 0.79 handle.

In other news, Eurozone PPI declined 0.5% in June, the same pace of a decline as in previous month and Swiss retail sales rose 3.7% in June from previous 6.4% on annual basis. Swiss manufacturing PMI improved slightly to 48.6 in July from 48.1 in June.

Spain sold bonds totaling EUR 3.13 bln vs. EUR 3 bln target but had to pay up as all average yields rose. Spanish 10 year yield moved lower and trades around 6.64%.

Jobless claims at 8:30 am are seen higher at 375K from previous 353K and factory orders that are due at 10:00 am are expected to decline to 0.4% from 0.7%.

LINK TO ASHRAF'S WEBINAR TONIGHT: https://www1.gotomeeting.com/register/587846961

The US dollar rallied after the Fed held off on any new action while acknowledging the slowdown in the US economy. The dollar gained roughly a half-cent against other currencies in the aftermath of the decision; cable was the laggard after the weak UK manufacturing PMI. The highlights in Asia are comments from the BOJs Morimoto and Australian retail sales.

The FOMC mildly downgraded its economic forecasts cryptically altered its forward guidance, suggesting that it is closer to action but not as close as the market was anticipating. Most marketwatchers expected the Fed to prolong its extended period pledge to mid-2015 from late-2014 but there was no change to the guidance.

Instead, the Fed said it will closely monitor incoming information and will provide accommodation as needed. That is a slight departure from the prior statement that said the FOMC is prepared to take further action as appropriate. In no way does it guarantee a new round of QE3 at the next meeting in September.

Instead, the Fed will continue to watch economic data and developments in Europe. On Wednesday, signals were mixed. ADP employment was at +163K in July, beating the +120K consensus. The ISM manufacturing index remained in contractionary territory for the second month at 49.8 compared to 50.2 exp.

The highlights of the Asia-Pacific session come at 0130 GMT. Thats when BOJ board member Morimoto delivers a speech and Australian June retail sales are released. Morimoto may hint at more easing after the IMF today urged Japan to do more to fight deflation. Australian sales are expected up 0.7% in June and up 0.9% in Q2 after inflation.

Quick Look at our NEW FORMAT PREMIUM INSIGHTS http://yfrog.com/es2g0lgj Non Subscribers can join here: http://ashraflaidi.com/products/sub01/

-AB

The only meaningful change in today's FOMC statement is more willingness to carry out contingency plans by stating: will closely monitor incoming info" "will provide additional accommodation as needed, from Junes statement: prepared to take further action as appropriate. The Bernanke Fed hands the stimulus torch back to Draghi, on whom the onus of further market up-lift shall fall. Take a LOOK AT OUR NEW FORMAT PREMIUM INSIGHTS BELOW:

US DOLLAR RALLIES ACROSS Dollar rallies across the board, hitting metals and risk currencies as the Fed further softens its economic outlook without extending the period of exceptionally low rates from its existing 2014 to 2015.

INTERESTINGLY, GBPUSD is down on the day twice as much than EURUSD (-0.63% vs -0.35%) as the euro may be relying some sort of action from the ECB in tomorrow's meeting, such as signalling a restart of SMPs and potentially paving the road for a 4 or 5 year LTRO in September.

Fed is well aware of the DIVERGENCE between the broadening macro deterioration in the US/world, and the notable improvement in market metrics (EUR-OIS spread is at 12-month lows, G10 equities are only 3-5% below their 2012 highs, VIX at 5 points above its 5-year lows and Spanish and Italian 10-year govt. yields are 10-15% off their highs).

Recall, that the euro is up mainly on last weeks statements from the ECB and not from improving data.

Such stabilization in overall risk appetite has clearly reduced the urgency of implementing the Feds additional measures. This has been the modus operandi of the Fed these days.

Quick Look at our NEW FORMAT PREMIUM INSIGHTS http://yfrog.com/es2g0lgj

Ashraf Laidi

German and Eurozone manufacturing PMI revised lower; UK manufacturing PMI dropped. Market turns to ADP report, ISM manufacturing and later in the session to FOMC. Info on Premium Insights is below.

The common currency dipped briefly below the 1.23 handle after headlines appeared quoting Bundesbank president Jens Weidmann that "the ECB should not exceed its mandate". Once it became known that the comment was made during an interview on June 29th EURUSD pushed back above 1.2300 where it continues to trade.

Even though the final readings of German and Eurozone manufacturing PMI indices for July were both revised lower, EURUSD along with commodity dollars hold ground. In case of Germany the PMI was revised to 43.0 from 43.3 and for Eurozone the revision was to 44.0 from 44.1 which is the lowest since 6/2009.

GBPUSD dropped sharply lower to 1.5619 from 1.5690 session high after UK manufacturing PMI plunged in July to 45.4 from June's 48.4. Even though analysts expected an improvement to 48.6, manufacturing production fell at the fastest pace since 3/2009. Output and new orders dropped but manufacturing employment rose slightly. GBPUSD trades off session lows around 1.5630 while EURGBP trades near session highs around 0.7870.

The US session will start at 8:15 am ET with July ADP that is expected at 120K from previous 176K followed by ISM manufacturing at 10:00 am that is seen higher in July at 50.2 from June's 49.7.

The key event will be the FOMC decision that is due at 2:15 pm. In light of yesterday's positive data, it seems that the most likely outcome is the continuation of the "wait and see" mode at least until the next meeting on September 13th. By that time the FOMC will have more data available and they will present a new set of economic projections. Regardless of today's outcome, traders will begin positioning ahead of the tomorrow's much anticipated ECB decision that could result in additional unconventional policies.

EURUSD and USDJPY hit all targets, USDCAD, AUDUSD, Gold and Silver remain on track. 3 charts on EURUSD, AUDUSD are also among the Premium Insights Click here for direct access: http://ashraflaidi.com/products/sub01/access/?a=671 Non Subscribers can click here: http://ashraflaidi.com/products/sub01/

-AB

Euro extended higher on Tuesday despite German warnings that Draghi may not deliver a decisive blow that reverses the crisis. The euro was the top performer on the day while the pound lagged. The official Chinese manufacturing PMI is the highlight of Asia-Pacific trading. Details on the existing Premium trades are below.

Even with the FOMC decision a day away, all eyes remain on Europe and what the ECB will deliver on Thursday after Draghi said trust me, it will be enough to preserve the euro.

The ECB leader was meeting with hardliners in Germany in an attempt to reach consensus but the tone of todays comments suggests that point has not been reached. An unidentified official from Germanys central bank told CNBC the ECB should stick to price stability, implying that it is against bond buying. A German finance ministry official was also quoted saying there are no talks about granting the ESM a banking licence.

Separately, a report from Bloomberg said Spain has struck a deal with Germany that will ensure aid in the bond market for a fresh set of reforms.

Through it all, the euro marched 50 pips higher to 1.2330 in US trading before edging back to 1.2295.

US economic data showed some bright spots as the Chicago PMI, the Case-Shiller home price index and consumer confidence figures beat estimates. Congressional leaders also agreed to extend spending measures beyond the fiscal cliff until March, leaving tax rates as the lone battleground.

At 0100 GMT, China will release its official July manufacturing PMI. The consensus is 50.5 after a 50.2 reading in June. The HSBC flash reading was strong at 49.5 compared to 48.2 in June so there may be a slight upside bias priced in.

At 0130 GMT, Australia releases second quarter house price index figures expected to show a 4.2% y/y drop in prices.

Our latest Premium Insights have 7 new trades, 2 in progress and 6 all hit from Thursdays edition. New trades are in EURUSD, USDCAD, AUDUSD, Gold and Silver. 3 charts on EURUSD, AUDUSD and Silver. Click here for direct access: http://ashraflaidi.com/products/sub01/access/?a=671 Non Subscribers can click here: http://ashraflaidi.com/products/sub01/

-AB

Register for Ashraf's Joint webinar on Thursday with Fari Hamzei & George Cavaligos at 15:00 Chicago, 16:00 New York, 21:00 London. The webinar will take place hours after the ECB decision and 1 day after the Fed announcement, but 1 day before the US July jobs report. REGISTER HERE:

Register here: https://www1.gotomeeting.com/register/587846961

German retail sales disappoint but labor market steady; Eurozone CPI and unemployment rate unchanged; Italian unemployment rate rose. Market turns to core PCE; personal spending, Chicago PMI, consumer confidence and Canadian GDP. Latest trades in our New Look Premium Insights in EURUSD, USDCAD, AUDUSD, with Gold and Silver.

Rumors of weak manufacturing PMI data from China kept the greenback bid at the beginning of London trading. Later in the session risk trades pushed higher across the board some breaking above their yesterday's highs. However, some of these gains were erased after German senior lawmaker said that he could not see ESM banking license becoming a reality.

Europe had a busy calendar today. German retail sales were below expectations as they declined 0.1% in June after falling 0.3% in May. Nevertheless, the annual figure improved to 2.9% from previous -1.1%. German labor market showed no change in July as unemployment remained steady in at 7K and the unemployment rate stayed at 6.8%.

Eurozone CPI was steady in July at 2.4% and the unemployment rate was unchanged at 11.2%. Italian labor market continues to deteriorate as the unemployment rate rose again in June to 10.8% from previous 10.6%. EURUSD currently trades around 1.2285 and a breakout seems unlikely as participants will not want to open fresh positions ahead of tomorrow's FOMC and Thursday's ECB decisions.

The US session starts at 8:30 am ET with core PCE that is anticipated to rise 0.2% in June from 0.1% m/m but remain steady at 1.8% y/y. Personal spending is seen 0.1% higher after a flat reading in May.

Chicago PMI is due at 9:45 am and it is expected to decline in July to 52.6 from 52.9 and finally consumer confidence that is due at 10:00 am is seen lower in July at 61.5 from 62.0.

CAD traders await May GDP that is expected to slow to 0.2% from previous 0.3% m/m but rise to 2.6% from 2.0% y/y. USDCAD traded just a few points above parity during the London session.

Our latest Premium Insights have 7 new trades, 2 in progress and 6 all hit from Thursdays edition. New trades are in EURUSD, USDCAD, AUDUSD, Gold and Silver. 3 charts on EURUSD, AUDUSD and Silver. Click here for direct access: http://ashraflaidi.com/products/sub01/access/?a=671 Non Subscribers can click here: http://ashraflaidi.com/products/sub01/

Our latest Premium Insights have 7 new trades, 2 in progress and 6 all hit from Thursdays edition. New trades are in EURUSD, USDCAD, AUDUSD, Gold and Silver. 3 charts on EURUSD, AUDUSD and Silver. Click here for direct access: http://ashraflaidi.com/products/sub01/access/?a=671 Non Subscribers can click here: http://ashraflaidi.com/products/sub01/

One day after Draghi hints at a shock-&-awe solution from the ECB, German Finance Minister Schaeuble starts the week by denying reports that the EFSF could start buying Spanish sovereign bonds (his Sunday comments to Welt Sonntag). If Germanys denials continue to hit the wires at the same time that Greece tripartite coalition publicly struggles to agree on slashing the budget by 11.7bn then it would be difficult for EURUSD to revisit its rebound above .. Click to here to for the rest. MONDAYS PREMIUM INSIGHTS will be issued at approximately 20:00 EST (1:00 BST). http://www.cityindex.co.uk/market-analysis/ashraf-laidi-blog.aspx

Big week ahead; Spanish GDP worse; European business climate falls; UK mortgage approvals lower and CBI realized sales fell; Italian auction. 5 trades from Thursdays Premium Insights hit all targets, 3 in progress and 3 unfilled. Dont forget to register for Ashrafs Thursday webinar (Post FOMC & Pre-NFP) with Fari Hamzei & George Cavaligos. See link below.

USD mixed in the ongoing session. It is weaker against JPY and commodity dollars and slightly stronger against EUR, CHF and GBP. European equities are gaining nearly 1% and the relative strength winner is AUD.

This will be a busy week with key events being the FOMC, ECB and BOE decisions along with US jobs report on Friday. The ECB president Draghi's comments that sent EUR higher last week laid ground for some sort of easing policy (LTRO3, rate cut, bond buying via SMP) and if the market does not get it, the sentiment improvement may prove to be short lived. The FOMC meets one day ahead of the ECB which could, unless a new coordinated action is announced, put it in a difficult position. The market is currently pricing the probability of a 25 bps cut by the ECB at 17%.

European data showed that Spanish Q2 GDP slowed to -0.4% from -0.3% q/q (-1.0% from -0.4% y/y) and Eurozone business climate worsened in July to -1.27 from -0.95. Yet, Spanish 10 year yield continues to decline and currently trades around 6.58%. EURUSD trades slightly lower around 1.2275.

In the UK, lending to individuals declined sharply in June to GBP 0.3 bln from previous GBP 1.1 bln, mortgage approvals slumped in June to 44K from 51 in May and CBI realized sales fell in July to 11 from previous 17. GBPUSD trades lower around 1.5695.

Italy sold bonds with various maturities totaling EUR 5.48 bln vs. 5.5 bln target. Average yields declined but cover was mainly lower as well.

Data calendar for the US session is limited to Dallas FED manufacturing that is due at 10:30 am ET and it is expected to decline sharply in July to 2.5 from previous 5.8.

Ashrafs Thursday Joint webinar with Fari Hamzei & George Cavaligos at 15:00 Chicago, 16:00 New York, 21:00 London Register here: https://www1.gotomeeting.com/register/587846961

ECB officials will hold high-level meetings as President Draghi tries to convince Bundesbank leader Weidman to unleash the tactic in an effort to end the crisis. The euro was the best performer last week while the US dollar lagged. CFTC positioning showed a pullback in EUR shorts and an increase in JPY longs. 1 EURUSD long hit all targets as did both EURJPY longs. See more blow in our NEW LOOK Premium Insights.

Bloomberg reports that Draghi will meet with Weidman in the coming days and hopes to convince him to use new tools as the crisis in the eurozone reaches a new stage. The report suggests the ECB will buy bonds on the primary and secondary market. An LTRO operation beyond 3 years, an ESM banking licence and rate cuts are also up for discussion.

The euro began rallying Wednesday and continued higher through the end of the week, touching 1.2390 before receding to 1.2322. The ECB and BOE meet Aug 2, one day after the Fed ensuring the week ahead will be momentous.

Fridays US GDP report was in-line with the consensus estimate at +1.5% but Q1 growth was revised to 2.0% from 1.9%. The July final University of Michigan consumer sentiment reading was revised to 72.3 from 72.0.

A weekend report from The Economist said a full bailout of Spain is looming. Reuters also reports that the ECB may write down its Greek debt holdings in a last ditch effort to restore confidence.

CFTC futures positioning data, which reflects the close on Tuesday, showed EUR shorts pared back but still highly exposed to a short squeeze. The market is quickly piling into AUD and JPY longs.

EUR net short 155K vs 167K last week

JPY net long 25K vs 11K prior (highest since Feb)

GBP net short 3K vs 7K prior

AUD net long 26K vs 14K prior (highest since May)

CAD net short 2K vs 1K prior

1 of 2 EURUSD longs are in progress (other unfilled by 9 pips). Both EURJPY hit al targets. USDJPY short awaiting fill. USDCAD short unfilled (need 1.0120). 1 of 2 GBPUSD longs in progress, other unfilled. GBPJPY, AUDUSD, silver and oil are all in progress. DIRECT ACCESS to today's Premium Trades is found here: http://ashraflaidi.com/products/sub01/access/?a=670 Non subscribers can click here: http://ashraflaidi.com/products/sub01/

-AB