Intraday Market Thoughts Archives

Bad news on the unemployment rate and "better" news on the payrolls front was the theme for both the US and Canada. US payrolls fell by 216K (exp -225K) and the unemp rate hit a 26-yr high of 9.7% (exp 9.6%, prev 9.4%). Canadas unexpectedly created 27K in August (expected -20K) but the unemployment rate rose to an 11 year high of 8.7% from 8.6%, dragging USDCAD down to a session low of 1.0880 before rebounding towards 1.0920 on continued selloff in oil prices. As the pendulum of risk appetite swings from the negative unemployment rates to the positive payrolls (better than expected and positive revisions), we expect to see oil capped at 68.80, GBPUSD capped at $1.6380 (showed the typical pop high followed by a drop to $1.6290, USDJPY capped at 92.90 (though we saw a print of 93.24. We still expect GBPUSD to reach $1.6270, followed by 1.6230 next week, especially if a retreat in US stocks in the last 30-40 mins of trading prompts profit-taking in Monday Asia. Follows us on the NEW & IMPROVED STOCKTWITS http://desktop.stocktwits.com/ twitter/alaid.com

US & CANADIAN JOBS PREVIEW. Once again pay attention to the interplay between the US unemployment rate and non-farm payrolls, with the former expected to rebound to 9.6% in August from 9.4% and the latter seen -230K from -247K. If the ADP continues its patterns of overestimating job losses by an average of 123K (as it did in last 3 months), then payrolls would show a decline of around 175K, in which case would be a great positive for risk appetiteat least into the 30 mins following the data release. But if the unemp rate does hit 9.6% and markets continue to show lack of resilience, then the data could be an opportunity for exploiting bounces in GBPUSD and USDJPY on the short side. Markets could also show scepticism with a btter than expected payrolls, arguing that the effect of Cash-for-Clunkers would be short-lived. CANADAs JOBS (due 1.5 hrs before the US)Unemp rate seen rebounding to 8.8% after remaining flat at 8.6%, while payrolls seen -20K from -44K. USDCAD support stands at 1.0930-34, w/ interim TL resistance at 1.1095, before 1.1130.

What proved to be an inconsequential day in US equities, was in fact the 4th consecutive daily decline in the Dow and S&P500, a pattern not seen since end of May. OIL breaks below 68 and looks to close below the 50-day MA, while the DOLLAR INDEX has yet to break above its 50-day MA (even thought it did break above its 5-month trend line). http://www.ashraflaidi.com/forex-blogs/1157/ One sign of deteriorating appetite is RISING BONDS as 10 yr yield dips to 3.30%, eyeing a double bottom at 3.28 from mid July. This could well be be broken by payrolls. The employment component of the manufacturing ISM edged up by 0.8, showing the smallest increase among all other components of the index. HOT CHART ON NZDGBP IS NOW IN THE MONEY, while the short AUDCAD is expected to stabilize at 0.9250s.

Regardless of the outcome of the upcoming Australian Q2 GDP (1:30 GMT exp +0.6% from +0.4% q/q, Aussie extends losses even against the damaged CAD. The chart http://chart.ly/hc52bh manifests the dynamics of unwinding carry trades, especially as markets wind down expectations of a Q4 RBA hike. This rationale is similar to GBPNZD trade, with the higher yielder (NZD) set to underperform. Those who joined us late, read Sunday night's IMT on THE MOTHER OF ALL VOLATILITIES. Another thing, JOY strength could extend further as the NEW JAPANESE GVT will not formally take over until 2 week's time.

The best manufacturing ISM figure in June 2007 (52.9) and the first figure above 50 since January 2008 could not fail to prevent a deepening sell-off in US and Europe equity indices of about 2%. The ISM was largely driven by the new orders component, and the Cash-for- Clunker program (which is now terminated) had a significant impact in the index. Aside from rumours of a failed US financial institution, disappointing sales figures from Ford (+21% vs exp _39%) and Chrysler (-12%) despite the Cash-for-Clunker helped deepen the selloff. Sterling hit a 7 week low at $1.6140 and still expected to reach $1.6050 as is CADJPY still expected to reach 83.80. Aussie extends selloff after the RBA statement dampened speculation of an Q4 rate hikedespite maintaining that the next move will be up than down. The technical vulnerability of risk appetite (equities, energy and risk currencies) continues to deteriorate to the benefit of the USD and JPY. More losses could be seen on Friday when US unemp rate rebounds to 9.5-9.6% after a typical mid-recession pullback.

CHINA's CLSA INDICATOR for August due Tuesday at 2:30 am GMT (3:30 am BST) could trigger fresh sell-off in Chinese Asian shares if the index breaks its 4-month rising streak and drops from July's 52.8. Another PMI indicator- CFLP-could also be released at the same time. The July CFLP rose to 53.3 from 53.2. Ashraf's interview earlier on Bloomberg TV discussing the DPJ victory, the short and medium term prospects for the yen & sterling. http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vFL0PByWQrG4.asf

While the latest wave of risk aversion seems far from over this week (especially ahead of US ISM, ADP and jobs report), markets are likely to witness a bounce in risk appetite (short-covering) into the Asian session, following the 50% retracement in US equity indices off their lows of the day. FX players may consider exploiting the bounce in appetite by favouring AUDUSD into the 0.8470s ahead of the upcoming Reserve Bank of Decision (4:30 am GMT), which will highlight the case against further rate cuts. And since the Aussie has been the clear outperformer over the last 2 days (showing the least declines vs USD relative to other FX), further upside may be expected towards the 0.8470-75 region, but we doubt that any gains are sustained beyond this key resistance level of 0.8480. The aforementioned figures (espclly US jobs) may limit any concerted return to risk-seeking trades. Also, oil's break of the TL support from the Jul 13 low is a reminder of the limitations of any recovery in oil beyond 73.

MOTHER OF ALL VOLATILITIES? Historic landslide Japanese election ushers in the household-friendly Democratic Party of Japan, a holiday-shortened week in Europe and an US jobs report with an expected rebound in the US unemployment rate back to 9.5% from 9.4% (not to mention Canadian unemployment). USDJPY collapses in line with our technical and fundamental predictions calling for general YEN strength and particularly deepening losses in USDJPY. Here are SOME OF OUR INTERMARKET WARNINGS: Last October we warned about the 5-year cycle http://bit.ly/E7P7d In August we warned about the 4-week peak cycle http://twitpic.com/egjpi and last week we warned about the implications of a close in the Shanghai Index below the key 2,947 level in order to qualify for bearish engulfing monthly chart, with dangerous repercussions for September http://twitpic.com/feeb7