Intraday Market Thoughts Archives

EUR vs EZONE SPREADS CHART: http://chart.ly/sweyqkc *** HOW COULD EURUSD rise 3.5% during the same 2 weeks when Irish/Greek/Spanish 10 year spreads rose 20-25% relative to Germany? Anticipation of Feds QE2 has been the main catalyst. But the euro can no longer sustain those highs solely on the back of the Fed asset purchases, while shrugging the ensuing widening in corporate spreads. Irelands ambitious new budget (yet to be approved in parliament) aims at cutting the deficit to 9.25%-9.5% of GDP in 2011 from the current 11.9%.

EUR PAYBACK PART 2: USD stabilizes after US jobs growth outpaced expectations in October along with +110K in upward revisions for September and August. Non-farm payrolls, rose 151K in Oct from a revised -41K (prev -95K) in September and a revised -1K (prev -57K) in August. Unemployment remained at 9.6% for the 3rd consecutive month. HOW COULD EURUSD rise 3.5% during the same 2 weeks when Irish/Greek/Spanish 10 year spreads rose 20-25% relative to Germany? Anticipation of Feds QE2 has been the main catalyst. But the euro can no longer sustain those highs solely on the back of the Fed asset purchases, while shrugging the ensuing widening in corporate spreads. Irelands ambitious new budget (yet to be approved in parliament) aims at cutting the deficit to 9.25%-9.5% of GDP in 2011 from the current 11.9%. EURO SHORTS WILL NEED need to see a weekly close below $1.40 for hopes of prolonged declines, but only a close (later next week) below the 200-week MA of $1.3938 would sharpen selling. A close above $1.40 this week, could qualify EURUSD for renewed gains towards $1.4320 & $1.4450 resistance. EURCAD DROPS below $1.41, testing its 55-week MA for the first time this year. The cross-over in weekly stochastics aiming at 1.4040-50 support, which would be followed by 1.38. HERES THAT EUR vs SPREADS CHART http://chart.ly/sweyqkc

IS IT PAYBACK TIME? EURUSD coming off the highs on escalating Eurozone debt concerns associated with the passing of the Irish budget and worries on banking liquidity in Spain. EUR losing across the board. The suggested trade in the event of a disappointing US jobs figure (less than 20K-10K), we could see EURJPY and EURCHF amid the biggest losers in the event of disappointing US jobs report. 113.50 in EURJPY and 1.34 in EURCHF. In fact, EURCHF Weekly is shaping up to be increasingly negative, eyeing 1.33. Ive mentioned in prev IMT that long USDCHF could be hedged out with EURCHF shorts translating into falling EURUSD, which is the case at present. In the event of positive US jobs report (ie above 80-90K), expect AUDJPY to edge up towards 82.60s.

MY BULLISH CALL ON USDCHF fell victim to the broadening USD damage post-FOMC. One hedging possibility is via shorting EURCHF, which is based on fundamentals (stubbornly rising bond spreads in Ireland, Spain and Portugal) and technicals (Double-top at 1.39 & trendline from June 2010). Since long USDCHF and short EURCHF constitutes shorting EURUSD, this runs the risk renewed gains towards $1.4420, which represents the 76% retracement of the decline from the all time high to the June 2010 low. An alternative hedge would be long GBPUSD only if we get a successful break above the $1.6320 trendline resistance (from the Aug high), which could lead to 1.6440s. BANK OF JAPAN will announce later tonight whether it will implement those asset purchases as part of the new QE program unveiled last month. Despite broad gains in yen crosses (yen declines), USDJPY drops back below 80.70 after failing 81.30. The BoJ could consider extra easing to counter the FOMC impact on USDJPY as well a establish a floor ahead of US jobs report.

STERLING HIGHEST PERFORMER among all top 10 traded currencies, building on this weeks robust services PMI and the expected BoE decision to not announce any QE. Prospects for further BoE asset purchases have receded thanks to recent data strength, but stay alert ahead of next weeks BoE quarterly inflation report, which has habitually weighed on the currency via weaker projections and dovish post-report pronouncements from BoE governor King. GBPUSD surges over 2 cents to $1.6297, coinciding with the trend line resistance from Aug 2009. A weekly close above $1.6310-20 would suggest prolonged gains towards $1.6460.

USD EXTENDS SELLOFF DESPITE the Fed's opting for the lower end of monthly purchases ($75 bln), highlighting currency traders' mistrust with the USD outlook as the Fed becomes locked in QE into the summer. JC TRICHET's conference coming up later today will have to indirectly talk down the euro, otherwise, the single currency seems apt to target $1.4415-20 (76% retracement) followed by $1.4580--the 27month trendline resistance.

My take on CNBC yesterday today explaining why the Fed will NOT surprise on the upside with its QE announcement http://bit.ly/aEDDZt

The Federal Reserve has officially re-entered quantitative easing territory, announcing the purchase of $850-$900 bln in new and reinvested securities into end of Q2 2011, with a monthly average of $110 bln (new and reinvested). The policy constitutes a new form of adding liquidity into the US capital markets to stimulate bank lending. The $850-900 bln takes the form of additional purchases of $600 bln & $250-300 bln in reinvested securities.

MY VIDEO PRESENTATION FOR Reuters/Thompson on USDCHF (monthly & weekly) as well as the impending wedge in GOLD as it tests the 1330 support

the Gold part starts after 3:17 mins, when it was at 1350, now testing the bottom of the at 1330

http://link.reuters.com/xap63q

US-10 YEAR YIELDS FALL BACK BELOW their 55-day MA nearing 2.55%, DESPITE stronger than expected services US ISM (54.3 from 53.2), which is consistent with the renewed selloff in the USD (ex USDJPY). Yields have shown significantly strong positive correlation with USD. Regardless of whether the $500-700 bln in asset purchases has been well telegraphed by the Fed, the reality remains that the Fed is the only central bank reverting to full-fledged quantitative easing for at least an extended period. The relative insignificance of the Bank of Japans asset purchase program is a reflect of its timid size; 5 trillion yen, which is equivalent to less than $63 bln. Markets are focusing on the size of Feds QE2 opening gambit as well the projected duration. Announcing $100 bln in monthly purchases of US Treasuries for a minimal total of $500-600 bln appears to be the base scenario. In addition to the monthly and total amounts of asset purchases, the FOCUS WILL FALL ON THE WORDING, which will determine the extent of dovishness and data dependence. Will the extended period phrase become applicable to reinvesting principal payments of treasury holdings? Or, will the Fed base these purchases on the data i.e. until inflation no longer risks falling below zero. The Feds increasing focus on subdued inflation implies that recent stabilization in US data (home sales, ISM, spending & construction) will not stand in the way of increasing the balance sheet. Sep core PCE price fell to a fresh 9-year low of 1.2%, well below the Feds preferred unofficial objective range of 1.5-2.0%. STILL KEEPING A CAUTIOUS BIAS AGAINST S&P500 as it hesitates around the 1195, which is the 200-week MA. Remaining bearish on CHF. Sundays CADJPY call hit 80.45 target as yen accelerates losses across the board.

US DOLLAR on the backfoot ahead of this evening's FOMC decision (14:15 ET, 18:15 GMT/London). There is no discernible FX impact from the US midterm elections which saw a sizeable Republican sweep of the House of Representatives, removing vital decision-making powers from Obama's Democrats. The argument that a Republican majority in the house will be USD-positive due to the likelihood of stabilising the deficit does not have much validity partly because the fiscal hole is excessively significant that it won't matter by 1-chamber majority. There will be more on FOMC later today. In case you didn't see my recent tweets, I'm favouring USDCHF to regain 1.0050 and onto 1.0200 later this month with support holding at 0.9550. GBPUSD breaks out of 1.61 on better than exp Services PMI alongside a broadening GBP rally. Will cover FOMC scenarios later in the day on the possible disappointing reactions and USD impact.

IT HAS BEEN 2 TUESDAYS since the PBOC raised rates, which led to some notable declines in equities and pullbacks in EURUSD. But readers Twitter followers were warned instead that would ONLY be the beginning of a 2-week consolidation in EUR until the FOMC meeting and that the range would be between $1.37 and $1.4050. Please have a look at these IMTs from Oct 19-20 (th from bottom) reiterating the upcoming consolidation.

http://bit.ly/9dzMaZ

KEEP A CLOSE WATCH ON 10-yr YIELDS as these drop back towards the important 55-day MA of 2.58%, which previously acted as a key resistance. Although we closed the week above the 55-day MA, I did point out my apprehensiveness regarding the potential for false break. Whether the 55-day MA previously acting as a resistance will now act as a support remains to be seen. But any close below 2.57-56% today should translate into extended upside in AUDUSD towards 1.0070 and EURUSD into 1.4120.

5-GRAPHS-in-1; Combining EURUSD, SP500, Greek/Portuguese/Spanish Spreads vs. Germany http://bit.ly/aNgChh The top half clearly shows the highly correlated failure of both EURUSD and SP500 to close above their 200-week MAs, while the lower half shows the notable (and simultaneous) rise in Portuguese, Greek & Spanish 10-year spreads relative to Germany. JC Trichet warned France and Germany against shouldering the cost of any future bailouts with bondholder funds via debt restructuring and said that taxpayers should finance any future Eurozone bailouts. WATCH THE $1.37 support very carefully.

On that Daily GBPUSD Chart http://chart.ly/hbdblph

So basically, the Doji will remain in force as long as NY closes between $1.6050 & 1.6030. A close between 1.6030 & 1.6000 would suggest a gravestone or a bearish inverted hammer. I already mentioned the possibility of a weekly Double Top on Sunday for this week, but we do need the fundamental confirmation for such occurence, which could come in the form of disappointing showing on UK PMI construction (Tues), services PMI and BRC report (both on Wed) and Halifax home prices as well as PPI on Friday. Downside seen extending towards $1.585-, followed by 55-day MA of $1.5660. Aside from these UK-specific risks, the FOMC/Election/Jobs report could further propel these USD dynamics.

CABLE DOJI & $USD PLAY. USD BOOSTED BY STRONGER than expected US data on ISM manufacturing, personal spending and construction, with the rationale being decent figures possibly leading the Fed to opt for the lower end of its QE start up i.e. $100-120 bln. Do not forget that todays release of Sep core PCE price fell to a fresh 9-year low of 1.2%, which is the Feds preferred inflation gauge, that is well below its unofficial objective range of 1.5-2.0%. GBPUSD broke above $1.6050 after stronger than expected manuf PMI but we must watch whether the $1.6050-1.6100 becomes a double top w/ mid October. Todays daily chart is already showing a DOJI candle nearing the London close, therefore a CLOSE between 1.6055 & 1.6035 will confirm such a candle to be a bearish reversal for remainder of the week. On the positive side, STERLING INDEX has placed in a bottom and is testing its 55-day MA at 80.50. techs may be slated to test $1.5980 and $1.5940. SPX/VIX Ratio extends decline to 56.2 from last weeks +58 as S&P500 attempts a fresh break above 1190 but VIX refuses to close below 20.

FOLLOW-UP on CADJPY PLAY from my earlier tweets Sunday evening, favouring the pair to regain 79.90s from current 79.20. A break above 80 eyes 80.90trend line extending from April high. Favourable CADJPY rationale based on combination of Japan intervention rumblings, Fridays 0.3% rise in CAD Aug GDP following 0.1% drop in July and the latest rise in Chinas October PMI, which jumped to 54.7 from Septembers 53.8. Yen pairs rose across the board, triggering intervention speculation but the overall move in USDJPY was less than 100 pips which is smaller than the average high-low move typical of intervention. This does not meant the BoJ did not step in. I reiterate that Japan could well defend the 80 yen figure as threat of volatility escalates this week from i) US elections. Ii) Fed decision on QE2 iii) US Oct jobs report. The fact that the Cino-Japan relations have taken another turn to the worse regarding the 2 disputed islets is another reason Japan could slow the extent of the rising yen as China loads up on JGBs. And considering a JAPAN MARKET HOLIDAY ON WEDNESDAY, this means the post-US election reaction will hit a Japanese vaccum, which could draw the BoJ to trigger interventionist measures.