Intraday Market Thoughts Archives

The recording of last night's webinar is posted in the link below. Ashraf's part begins approximately 40 mins after the start. Ashraf goes through the technicals behind the decisions to long GBPUSD since Sep 6th and the enusing shift of bias in EURUSD. There's also coverage on yen pairs, gold, S&P500 and FTSE-100. Full Audio & Video recording 

A soft ISM non-manufacturing report and the continued US budget impasse weighed on the US dollar Thursday. The safe haven CHF was the top performer while GBP lagged. The BOJ decision is up next.

US politicians made little headway in the budget stalemate and markets soured .The S&P 500 fell the most in a month and EUR/USD hit an 8-month high. There are signs of cracks in both the Democratic and Republican fronts but no clear signs of hope for a deal. One piece of good news came from Boehner who provided assurances that Republicans will ultimately vote for a debt ceiling increase. Those headlines crossed shortly after USD/JPY fell below 97.00 and aided a recovery to 97.25.

As economists churn out numbers to attempt to quantify the cost of the shutdown, hard data is pointing to a softer US economy even before the shutdown. The ISM services index slumped to 54.4 compared to 57.4 expected. That's still comfortably in the growth phase but brings the Fed no closer to a taper.

The other data point on the day was initial jobless claims, which was released despite the shutdown. It showed 308K fresh claims compared to 313K expected and the Labor Dept said there were no special factors. Claims have been a bright spot in recent data.

Unfortunately the market won't get a look at the main jobs data point tomorrow with non-farm payrolls now officially delayed due to the shutdown. It will be rescheduled when Congress makes a deal.

Today's market reaction to upbeat Congressional headlines is instructive to what will happen when a deal is finally struck. The biggest gainers were USD/JPY and USD/CHF as safe haven flows reverse. Since budget trouble started last week, USD/JPY is down 160 pips. If the details of a deal extend to at least six months and include provisions to raise the debt ceiling, that hole could be erased.

Coming up later, the BOJ will render its decision. There is no set time but expect headlines around 0300 GMT. This week's upbeat Tankan numbers will probably keep the BOJ on the sidelines. One Tankan caveat was the softer capex survey results. The government and BOJ have been pushing Japanese companies to invest and policymakers would have liked to see progress.

China is on holiday once again.

Today at 16:00 Eeastern Time (21:00 London/BST): Ashraf's webinar on “Currency, Debt & Equity Markets Timing” with George Cavaligos (bonds & Elliott Wave) & Fari Hamzei (stocks, indices and market timing) REGISTRATION LINK After registering you will receive a confirmation email containing information about joining the Webinar.

Draghi steered clear of any bold policy pronouncements and Letta survived a confidence vote. The yen was the best performer while the Australian dollar lagged. China is closed for holiday.  

The market was positioned for some dovish rhetoric from Draghi but when he delivered comments that echoed last month, EUR/USD squeezed higher. Draghi maintained a slightly upbeat outlook on growth and promised to continue to do whatever it take, including another LTRO.

The euro also gained on an Italian upper house confidence vote in favor of Letta. It ends the political crisis in Italy and marks a decline in Berlusconi's influence.

The third factor that boosted EUR/USD was on the US dollar side of the trade. ADP employment was at 166K compared to 180K expected and the prior was revised lower. Initially EUR/USD was hesitant to react with Draghi's press conference just a few minutes away. After he made it clear there would be no bold new policy pronouncements, EUR/USD jumped to 1.3607 from 1.3510. It was the highest since February.

Late in the day, surprising comments crossed from RBNZ leader Wheeler. He said the central bank currently expects interest rates to rise by 2 full percentage points from 2014 to the beginning of 2016. It's a surprise, and meaningfully bullish comment. The kneejerk pushed NZD/USD to 0.8322 from 0.8260.

The gridlock continues in Washington and Democrats continue to refuse negotiations, betting the public will blame Republicans. It's always possible we see a rapid change in tactics as polls are released but for now there is no progress, although evening meetings are scheduled.

Coming up later, Australian releases the AIG Services PMI at 2330 GMT. The prior reading was 39.0. The Chinese non-manufacturing PMI will be released at 0100 GMT. The prior reading was 53.9.

Euro rallies across the board on breaking political and monetary news from the ECB & Italy. We anticipated in yesterday's Premium piece how today's ECB conference is unlikely to contain any jawboning as was in February 7th. Meanwhile, here's a seasonal chart of EURUSD record in the last 10 Octobers. Full Chart & Analysis

Currencies were generally unchanged and risk sentiment was upbeat despite no positive improvements in the US government shutdown. On the day, AUD was the top performer while NZD lagged. Australian trade balance is up later. 

There were no hints or rumors about a breakthrough in Congressional budget negotiations. At this point, Democrats may be happy to let the shutdown continue. In the last shutdown, the public blamed Republicans and they likely believe the same will happen this time around. If it continues through Friday non-farm payrolls will be postponed and that makes Wednesday's ADP report more important than usual.

Heading into the shutdown, US manufacturing had some momentum. The ISM manufacturing data followed up on some positive regional readings by climbing to 56.2 compared to 55.0 expected.

In Europe, the Italian stock market rose more than 3% on signs that members of Berlusconi's party will defy him and continue to support the Letta-led government. Throughout the short crisis the FX market has demonstrated that it's not overly concerned with what happens in Italy. That's instructive and will likely continue as long as Italian yields stay below 5% (last at 4.42%).

Prices action was middling on the day but there were some interesting developments at the margins. Cable touched a fresh cycle high at 1.6259 but faded back below 1.6200. That kind of spike reversal can signal a top but more evidence is needed.

EUR/CHF was higher on the day and bottomed above yesterday's low. That could be an early sign of a bottom.

Up later, the Australian dollar will try to continue its upward momentum with trade balance numbers on the docket. At 0130 GMT the deficit is expected at A$400m compared to A$700m in the previous month.

As the focus falls on the US govt shutdown, don't forget tomorrow's ECB press conference (tomorrow not Thursday), which could be an opportunity for Draghi to talk down the euro. In today's new version of the Premium Insights, we compare the current weekly stochastics with those of February 6^th –the eve of Draghi's euro-slamming press conference and the currency's peak for the year. We compare and contrast the two cases and give our trades for the day. No indication yet, as to whether Italian PM will call a snap election this week or try to form a new govt. The ADP report on US private sector jobs is due tomorrow, 15 mins before Draghi's conference. Aussie stabilized right above its 100-DMA after the RBA removed its easing bias. US manufacturing hit a fresh 2-year high, giving temporary USD support, but any positive implications for an October Fed tapering are muted by the govt. shutdown and the looming debt ceiling.

Politicians in the US, Italy and Japan are dominating as a new quarter gets underway. The third quarter wrapped up with NZD and GBP as the best performers and USD and JPY lagging. Aside from the political risks, there are major risks from economic data in coming hours with the Japanese Tankan survey, jobs data and China's official manufacturing PMI.

The first US government shutdown in 17 years appears highly likely at this point. The midnight ET deadline is a few hours away and both sides are refusing to budge on Obamacare. Midway through US trading there was some optimism about a temporary funding extension but it faded.

Markets erased some of the early moves but that may have been more due to quarter-end flows rather than a significant change in fundamentals.

In Italy there is some hope as members of Berlusconi's PDL party threatened to break away. He strictly controls his party so dissent is unusual. Reports from a closed door meeting later in the day outlined his plan to support some temporary measures and then force an election.

In Japan, the government announced the planned VAT increase will proceed but there has been no definitive word on long-rumored corporate tax cuts to help offset the effects. The finance ministry is opposed to cuts but most other politicians favor them.

All the assessments in Japan could change with the quarterly Tankan survey at 2350 GMT. This major economic data point steers Japanese policy and will be closely watched by the BOJ and politicians. The consensus estimate for large manufacturers is a rise to +7 from +4 and small manufacturers to -12 from -14. Capex is forecast to rise 6.0%.

At 0100 GMT, China releases its official PMI. Yesterday's final reading from HSBC was revised down significantly so the market may be overly optimistic with a forecast for 51.6 compared to 51.0 previously.

As the governments of Italy and the United States sustain a new crisis of political gamesmanship and budget disarray, here are the three key dates to watch this month as the USD index breaks below that crucial trendline. Full Charts & Analysis here

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Major developments hit markets on the weekend with the US poised for a government shutdown and Italy's government on the brink of collapse. The yen shot higher at the open and the euro sank. The Chinese private manufacturing PMI is up later.

Italy's delicate coalition unravelled Saturday after Berlusconi's cabinet ministers pulled out after failed negotiations on delaying a scheduled VAT hike. PM Letta now has two or three days to preserve his government and the market will be hanging on every headline. So far the reaction is unequivocally negative with EUR/JPY down 100 pips to 131.90 and EUR/USD down 30 pips to 1.3490.

The US is nearing its own political crisis as optimism about a budget compromise has faded. The Senate will meet on Monday afternoon and assuredly shoot down a Republican funding bill with a caveat that delays Obamacare for a year. If no funding bill is passed, the government will begin an economically destabilizing shutdown at midnight. In the background, the debt ceiling is only 2-3 weeks away.

Other headlines that could swing the market will come from Japanese industrial production at 2350 GMT. It's expected to contract 0.3% in August. Afterwards it's the Chinese HSBC/Markit manufacturing PMI for September at 0145 GMT. It's the final release so the impact is lighter than the flash reading, which was 51.2.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR +66K vs +32K prior JPY -93K vs -89K prior GBP +1K vs -6K prior AUD -35K vs -27K prior CAD -6K vs -19K prior CHF +6K vs +1K prior NZD +8K vs +6 prior US Dollar Index longs at 4K vs 22K prior

This is the first look at positioning after the Fed decision and it's clear US dollar bulls were in a rush to the exits. Now, with the US govt or the brink of a shutdown and Italy's govt collapsing it could be the yen's turn.