Intraday Market Thoughts Archives

The euro fell nearly a cent to close out the week after a dismal non-farm payrolls report and concerns about Italian banks. CHF and JPY led as the S&P 500 fell 0.7% to 1344. Fridays CFTC report showed increasing USD shorts. Access to our Friday trades below.

NFP was shockingly soft at 18K versus the 105K consensus. The unemployment rate unexpectedly ticked up to 9.2% as the household survey was even softer. Revisions compounded the negative news as April was lowered to +217k from +232k and May was reduced to +25k from +54k. Government payrolls fell 39K in the eighth consecutive month of double-digit losses. There was no silver lining in the report and nearly 44% of the unemployed have been off work for more than a year, increasing the risk that unemployment is crossing the threshold from a cyclical problem to a structural one.

Euro trading was a mess on Friday. EUR initially fell on talk that Italian banks will need to raise billions in fresh capital. EUR/USD hit a low of 1.4205 but dollar selling (mostly USD/JPY) sparked a wicked short-covering rally that pushed the pair nearly 150 pips higher in the 30 minutes following NFP. The gains did not last as EUR/USD eventually slipped back to close at 1.4264.

Commodity currencies were generally resilient to the risk off theme. Canada demonstrated why as it added 28.4K jobs, more than the US, which has 10x the population. Of the gains, 21K were part time and 7K full time. The pace of wage growth slipped to 2.0%, the lowest since Dec. 2010. Even though wage pressures are soft, we continue to believe the market is underpricing the risk of a surprise hike on July 19 or of a very hawkish statement.

On the week, EUR was the worst performer while JPY was the strongest. Nothing jumps out at us on the weekly charts as most moves were relatively small.

The weekly CFTC report showed EUR longs increasing by one-third to 43.2K. JPY net longs edged higher and net USD shorts increased 20%. The speculative community appears to be losing its appetite for CHF as the francs long position was nearly cut in half to 5.3K contracts. Long positing increased in commodity currencies, led by a 38% increase in AUD.

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US June NFP showed a paltry +18K vs exp 105K and previous 25K, with rising unemployment rate to to 9.2% from 9.1%. The most straightforward reactionary market move is the decline in USDJPY (always an immediate victim of poor US figures). See our new FRIDAY PREMIUM TRADES, including our longstanding shorts in USDJPY, with special emphasis on silver and EURUSD.

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Sterling retreats despite uncomfortably high PPI figures, German current account surplus slipped, Japanese current account beats expectations, while markets position ahead of US & Canada labour market reports. Latest update on Thursday's Premium trades.

UK June output prices rose 5.7% y/y vs expected 5.5% and last months 5.4% rise. Output prices m/m rise 0.1% from -0.2% in May. June input inflation +17% y/y from 16.1% y/y and 0.4% m/m from -1.7%. The dilemma facing Bank of England policymakers is expected to be once again thrown into focus today with the release of UK producer prices for June. Yesterdays decision to keep rates unchanged at 0.5% would appear vindicated when looking at the latest growth figures from NIESR, which showed that in the three months to June the economy grew by a meagre 0.1%. Not exactly growth, more a mild swelling. Even allowing for that, the PPI reading on an annual basis will continue to make for uncomfortable reading .

Germany May current account surplus slipped to an expected EUR 6.9 bln from a revised EUR 9.0 bln, with exports +4.3% (vs exp +1.5%) and imports +3.7% (vs exp +1.5%)

THURSDAYs PREMIUM TRADES successfully hit the targets of the i) the DOUBLE TRADE in EURUSD as well as OIL LONGS, but got stopped out in Silver & FTSE-100. Tune in for our latest Pre-NFP trades due in 60 mins. To view Thursdays trades, click here: http://ashraflaidi.com/products/sub01/access/?a=452 to become a Premium Member and receive our Intermarket Insights, sign up here: http://ashraflaidi.com/ products/ sub01/

In Asia the Japanese current balance for May came in slightly better than expected, showing a surplus of 391bn yen, up on expectations of 215bn, but below Aprils 546bn, indicating that the economy still appears to be struggling with the after effects of the earthquake but appears to be making better than expected progress.

The recent rise in the Canadian dollar could come to a shuddering halt today with the release of Canadian employment data. Canadas unemployment rate is expected to stay constant at 7.4%, while the net change in employment for June is expected to slip back to 10k, from Mays robust 22.3k figure.

In the US, market expectations for a positive non-farms payroll report for June have been heightened by yesterdays blow-out 157k ADP number.

Markets built higher US employment expectations after Thursdays ADP report easily surpassed expectations. Commodity currencies led the market with JPY and CHF trailing in a classic risk on move. Asia-Pacific trading will mostly be quiet but Japan releases a number of national accounts indicators at 2350 GMT.

The ECB met expectations by hiking rates a quarter point to 1.50%, noted inflation risks to the upside, something officials will monitor very closely, code words that mean further tightening is likely in the months ahead. The real surprise was a move by the ECB to temporarily suspend minimum credit rating requirements on Portuguese debt. This allows banks to continue to hold it as collateral.

EUR/USD was volatile. It plunged to 1.4222 after the ECB decision but hawkish comments from Trichet and the Portuguese ratings move sent it to a session high of 1.4367. The daily chart traced out a bullish hammer reversal.

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The ADP employment report boosted sentiment as it climbed to +157K from +36K in May. Its a number that suggests Fridays non-farm payrolls around 170K but we should warn that the standard deviation from NFP is 96K. The NFP consensus reads 89K but its clear that the market has built in expectations for something around 125K.

Markets gained further after S&P upgraded its outlook on California to stable from negative. Initial jobless claims were a non-factor at 418K versus 420K exp.

The S&P 500 gained 1% to close at 1353. Its the highest close since May 10. Crude closed in on $100 with WTI rallying $2 to $98.78. Copper gained 2% but precious metals were relatively unchanged (gold closed at $1532)

Asia-Pacific Preview

Japan releases data on bank lending, money supply and national accounts at 2350 GMT but the only one likely to have any effect will be the current account, which is expected to slip to 190B in May from 550B in April. A deficit may cause some hand wrangling in political circles but JPY is unlikely to make much of a move

Bank of England set to hold rates while growth concerns remain, with industrial and manufacturing data set to remain weak, ECB expected to hike rates despite debt and economy concerns, Australian employment data weighs on AUD, while US awaits ADP.

Recent economic data from the UK has seen the Bank of England hold rates at historic lows for a lot longer than most people had anticipated. Todays release of industrial and manufacturing production data for May is unlikely to change the belief of MPC policymakers that the UK economy remains too fragile to withstand a rate rise. Expectations are for a recovery from Aprils disappointing figures, though one has to remember that the Royal Wedding and Easter break played a large part in the disappointing April numbers. Both industrial and manufacturing production are expected to rise 1%.

Later in the day the Bank of England will likely announce that interest rates will remain on hold at 0.5%, so there shouldnt be any surprises there, given recent dovish comments from various policymakers.

It is in Europe that we could see some fireworks given the recent volatility caused by the recent ratings downgrade of Portugal by Moodys, and the rather hysterical European politicians reaction to it. There appears to be definitely a case of shooting the messenger, however it could be argued that the recent tightening policies of the European Central Bank arent exactly helping. Recent economic data appears to suggest that economic growth is starting to slow, especially in Spain and Italy and recent retail sales data in Germany and the Euro zone has been pretty awful.

Even so it will be a major surprise if the ECB does not raise rates by 0.25%, thus increasing borrowing costs to 1.5%, and putting further pressure on, not only the consumer in Europe, but also on peripheral bond yields with Italian 10 year yields already hitting levels last seen in 2008 in trading yesterday.

The tone of Trichets press conference will also be quite key, especially in view of recent events. Will he be hawkish or dovish, in other words will he flag up further rate rises down the line, or will he play down market expectations of further rises and adopt a wait and see approach. If he adopts a wait and see approach, which would seem logical given the softness of recent data, and market turmoil, then the single currency could start to slide again.

Yesterday's Chinese rate hike had seen the Australian dollar fall back, while this weeks RBA rate meeting had suggested that further tightening might be some way off due to a slowing economy. Today's unemployment report for June came in contrary to that belief suggesting that the economy still appears to be moving along nicely, showing a net gain of 23.4k jobs, above expectations of 15k, while the unemployment rate stayed constant at 4.9%.

In the US today's ADP data for June and weekly jobless are set to give the markets a taster for tomorrows all important June non-farm payrolls report.

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Risk currencies are being led by the Aussie after bigger than expected 23.4K increase in June jobs and robust showing in full time jobs as well as 4.9% unemployment. As we approach the ECB decision, there are all sorts of analysis and if, then scenario analysis regarding a rate hike, no rate hike and use of vigilance phrase, which complicates the prediction for the pair. Yet, JC Trichet could well raise rates and simultaneously issue a cautious outlook for the Eurozone. That is why we issued a DOUBLE TRADE in EURUSD for our Thursday Premium Edition, along with new trades in

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The euro fell but other markets reacted surprisingly well to a round of negative news including credit downgrades, the Chinese rate hike and a disappointing ISM non-manufacturing report. EUR and GBP lagged while CHF and JPY led the market. The next 48 hours will be the busiest of the month in terms of data and it begins with New Zealand GDP and Australian employment.

The euro fell slightly more than one cent on Wednesday, primarily due to continuing fallout from the Portuguese downgrade. Speculation about an Irish downgrade and talk of European bank ratings cuts also weighed. Portuguese and Irish 10-year bond spreads hit records with governments there paying around 10% more to borrow than Germans.

The ISM non-manufacturing fell to 53.3 compared to the 54.6 prior and 53.7 expected. The details were somewhat soft as new orders fell to 53.6 from 56.8.

The US focus now shifts to Fridays non-farm payrolls. The ISM employment index ticked to 54.1 from 54.0 and that fits in nicely with the 100K consensus. Negative signs came Wednesday from Challenger, who said planned layoffs increased 11.6% from May to June. Separately, the NFIB employment barometer fell to -7% from -3% -- their chief economist called it a serious reversal and that it quashes any hopes of a positive trend in job creation.

Aside from the fall in the euro markets were relatively stable. The S&P 500 closed near the days highs, up 0.1% to 1339. This is a sign that either: a) the positive underlying sentiment in markets is strong enough to overcome bad news, or b) the market is locked in tight ahead of upcoming data and the ECB and BOE decisions. The answer is unclear to us but given the run-up in risk trades, the more rewarding trade is to position for negative sentiment.

Asia-Pacific Preview

NZD vied for the top place in the G10 complex with CHF and JPY, perhaps anticipating a strong Q2 GDP report at 2245 GMT (Exp +0.3% q/q). Reports of an earthquake sent a 30 pip shudder through NZD but it quickly recovered on reports of minimal damage.

At 0130 GMT Australia releases June employment. Expectations are for a +15.3K reading and a steady 4.9% unemployment rate. The past two reports have been weak after several months (years, in fact) of upside surprises. We dont sense a bias in the market here but note that the 38.2% retracement of the recent rally rests at 1.0637 so we may drift toward that target (spot at 1.0696).

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USD started to gain yesterday on the news of Portuguese multinotch downgrade by Moodys. This trend has continued throughout Asia and London and continues into New York morning. PboC increases interest rates, GBP and EUR ignore positive data. Focus turns to ISM services PMI.

Chinese central bank hiked interest rates 25 basis points to 6.56% today, ahead of next weeks CPI data. This is already a third hike this year confirming official concerns over increasing inflation. Even though todays rate increase does not come as a surprise, the reaction is fairly typical as the AUD is hit the hardest.

As a consequence of Moodys downgrade, periphery bonds spreads continue to widen which is adding pressure on the already falling Euro. Portuguese-German spread on the 10 year bond reached its highest level since Euro was introduced, over 1046 bps.

UK mortgage lender Halifax reported that House Price Index rose 1.2% in June, significantly higher than Mays 0.4% and German Manufacturing Orders for May reached 1.8% while analysts expected -0.5%. Neither of these releases was able to improve the risk off sentiment.

New York session kicks off at 8:30 am ET with Canadian Building Permits for May. Analysts expect a significant increase to 5.1% from the previous, shockingly bad print of -21.1%. ISM Non-Manufacturing PMI for June is due at 10:00 am ET and market expects a slight decrease to 53.9 from previous 54.6.

International banks meeting set to weigh on the euro in the wake of Moodys Portugal downgrade, UK shop price data and house prices, US non-manufacturing ISM. Both EURJPY and EURUSD are 10 pips away from Tuesday's Premium trades.

You have to hand it to the ratings agencies, every time Europe's leaders look to keep all their debt balls in the air with respect to the sovereign debt crisis, they get thrown another one to juggle. While Moody's actions in downgrading Portugal to junk status may not have been entirely unexpected the timing of it could not really have been worse, given today's meeting of international banks in Paris to discuss a deal to discuss the roll-over of a whole load of Greek bonds on a voluntary basis without triggering a credit event.

When slowing economic growth across Europe is thrown into the mix as well as concerns about Italy's banks and a new austerity budget, with Italian 10 year yields pushing back towards 5%, there are increasing concerns that EU policymakers are starting to lose control of the situation.

Moody's reasons stemmed from their belief that Portugal could well need another bailout with the likelihood of private sector participation. They also stated that banks rolling over Greek bonds may incur impairment charges.

As would be expected the single currency slipped back on the news of the downgrade, however yesterdays disappointing economic data hadn't really helped in that regard before that, and today's German factory orders for May could well disappoint as well, with expectations of a fall of 0.5%, from Aprils rise of 2.8%. For now the single currency is finding support above the 55 day MA at 1.4410.

Gold prices surged on the back of the downgrade towards the 55 day MA at $1,516.

The pound had a slightly better day after better than expected services PMI, however the retail sector continues to feel the brunt of consumer concerns about the UK economy and today's BRC shop price index data for June continue to show upward pressure on prices, coming in at 2.9%

House price data continues to trade sideways with June prices showing no change expected on a month to month basis.

US non-manufacturing ISM for June is due out later and markets will be hoping that it out performs in the same way as the ISM manufacturing did last week and surprises to the upside.

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A Portuguese downgrade dragged the euro lower in generally quiet trading. The Swiss franc appears to have regained its footing as US stocks declined for the first time in six sessions.

The lone market-moving news was from Moodys who slashed Portugals rating to Ba2, down four notches and below investment grade. The move is ominous and suggests a very high possibility Portugal will need to follow Greece toward a second bailout. EUR/USD fell as low as 1.4397 but has rebounded to 1.4426. See the earlier IMT for more.

As Ashraf explained, the euro was somewhat spared by expectations of a rate hike on Thursday. Traders looking to exploit further sovereign concerns in Europe should look to the Swiss franc. It has rallied broadly and will not be overwhelmed by the ECB decision. The commodity currencies were all lower versus CHF on Tuesday after 5 days of gains.

Another trade that was boosted by the flight to safety from Europe was gold as it surged $30 to $1515. Ashraf called for gold longs on Monday and the precious metal now rests just below the initial target.

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The upcoming data calendar remains scarce. The lone release of note will Japans May preliminary leading indicators report. A rebound to 99.8 from 96.2 is expected but the report is unlikely to have any market-moving impact. In Mondays session, rumours circulated of a Chinese interest rate hike this weekend. Moodys also spooked markets with a report saying local government loans may default at a 10% rate. The fallout may dictate trading on in the hours ahead.

The $1.6 cent decline in EURUSD made fundamental sense after a double whammy release of Ezone data, followed by Moody's downgrade of Portuguese govt debt rating to junk. But increased signals of a Thursday ECB rate hike may keep EURUSD shored up above key support levels. Monday's EURUSD shorts hit all targets, while EURJPY are still working. For our Tuesday Trading ideas from the latest Premium edition click here:

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Euro drops below $1.45 on weak PMI & falling Ezone sales, partially hitting our targets in our Premium euro shorts. RBA downgraded 2011 outlook & China PMI came in soft.

UK services PMI edged up to 53.9 in June from a 3-month low of 53.8 in May. The figure surpassed consensus forecasts of 53.5. Yesterdays fairly positive June construction PMI data, on the face of it seemed a fairly positive number, raising expectations of a fairly good quarter for Q2.

Euro slipped off the $1.45 figure as Eurozone services PMI slowed for a third straight month in June, coming in worse than expected at 53.7 from May's 56.0. Euro was largely able to shrug off last weeks disappointing economic data and Greek volatility and Standard and Poors ratings downgrade warning for Greece has seen it able to hold in and around the 1.4500 level.

Eurozone retail sales fell 1.1% in May, more than reversing the revised 0.7% increase seen in April. The bulk of the decline from Germany.

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The Reserve Bank of Australia kept interest rates unchanged at 4.75%, no surprise really given the weakness of recent economic data in not only the jobs market, but also yesterdays disappointing retail sales data. The biggest surprise however was the bank's decision to downgrade its 2011 growth outlook citing supply chain disruptions from the Japanese earthquake and uncertainty as a result of Europe's sovereign debt crisis. This slight change of emphasis has altered perceptions of the need for a rise in interest rates in the near future making the AUD vulnerable to a downward correction.

Chinese PMI data has continued its recent softer tone with HSBC services June PMI data coming in at 54.1 , down from 54.3 in May, reinforcing fears of a slowdown in one of the worlds biggest consumer of commodities and raw materials.

Signs of a slowdown in the Australian economy will force the Reserve Bank to hold rates unchanged on Tuesday and are making expectations of an August hike vulnerable. The Australian dollar is likely to fall if policymakers do not take strong incremental steps toward future rate hikes.

At 0430 GMT, all 28 economists surveyed by Bloomberg expect the RBA to leave interest rates at 4.75%. Yesterdays unexpected drops in retail sales and inflation cemented those expectations and are cutting into the chance of an August hike.

May retail sales fell 0.6% compared to the 0.3% rise expected. At the same time, the Melborne Institute/TD Securities monthly inflation gauge was flat in June after a 0.2% rise in May; the annual rate fell to 2.9% from 3.3%. Building approvals also slumped 7.9%.

At the previous meeting, on June 6, the market had priced in a 16% chance of a hike. When it didnt come, AUD/USD fell 60 pips to 1.6080. The pair eventually bottomed at 1.0390 on June 26 but popped back to 1.0775 during last weeks risk rally. Whats critical from a fundamental and technical perspective is that the pair has failed to close above 1.0774 -- the high before Junes unexpectedly dovish RBA statement. This will be a key closing level in the day ahead.

The market is still hanging on to the idea that the RBA could hike in August but we see it as a long shot. We also expect the chance of a hike in August to fall to virtually nil if the RBA continues to say: The Board judged that the current mildly restrictive stance of monetary policy remained appropriate. The OIS market is pricing in just 15 bps of tightening in the next 12 months.

Given that, AUD/USD is looking rich at the moment (1.0732). Even if the RBA introduces slightly more constructive rhetoric, we think the rally will be short-lived (48 hours max). It will take a significant hawkish shift to propel AUD back toward a re-test of the all-time highs at 1.10. This would manifest itself in something like the Feb. 2010 statement which said: The Board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term.

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Euro eneters a new tug of war, this time between expectations of an ECB rate hike and negative commentary from credit agencies and European officials reminding of the Greek's dire situation despite obtaining its latest lifeline after passing the required austerity measures in Parliament. Bringing on new trades for EURUSD, EURJPY, S&P500, FTSE-100, Silver, with the latest on those trades in USDJPY, Gold & US Crude. Key Daily & Weekly Charts in EURUSD & S&P500 shed light on the technical picture in early Q3

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UK Construction PMI in focus after disappointing manufacturing on Friday, Eurozone PPIs seen slipping back but rate hike this week remains likely, S&P makes another Greek warning, China slowdown fears increase after non manufacturing PMIs slip, Australian retail sales.

Sterling looks set to remain in focus today, as it trades near 15 month lows on its trade weighted index, with the release of the latest construction PMI data for June. Given that Fridays manufacturing data was a little disappointing, markets remain concerned that further weakness will raise fears about the sustainability of UK growth and prompt concern about further QE, a subject which seems to be being given greater discussion on the MPC.

While the probability of further QE in the short term remains unlikely the mere fact it is being speculated upon highlights the fragile state of the UK economy.

Expectations are for small fall back to 53.5, from Mays 54.

In sharp contrast the talk in Europe remains of the next rise in rates despite evidence that price pressures may be starting to slip back. This mornings PPI figures for May are expected to show a decline of 0.1% month on month, while the year on year figure is expected to slip back from 6.7% in April to 6.3%. Despite this the ECB is expected to raise rates by another 0.25% this week, despite the risks such a move would have on struggling peripheral economies borrowings costs. You would think that the recent events in Greece would give them pause, however Trichet repeated his strong vigilance message last week, which historically presages a rise in borrowing costs.

In signs that the Greek saga will continue to rumble on ratings agency Standard and Poors reminded the markets this morning that for all the talk of loan rollovers and debt relief such an event would in all likelihood be treated as a credit event or selective default.

Concerns about a slowdown in China remain in focus after non-manufacturing PMI data slipped back from 61.9 in May to 57 in June. While on its own these figures dont appear to be that bad, following as they do on the back of the disappointing manufacturing PMIs on Friday, there is a concern that the recent policy tightening may well be starting to do its job too well.

It would appear that consumer reluctance to spend isnt being confined to western economies after Australian retail sales slipped back sharply in May, falling 0.6%, after the 1.1% rise in April, with clothing being amongst the hardest hit. Expectations had been for a 0.3% rise. Building approvals also plunged, falling 7.9% as rising prices start to weigh on demand.