Intraday Market Thoughts Archives

Bond bulls and USD bears find little to argue about in today's predominantly strong US jobs report, showing a 280K rise in May NFP (highest in five months), accompanied by a 21-month high in average hourly earnings (2.3% y/y). The rise in the unemployment rate to 5.5% from 5.4% was appeased by rise in the participation rate.  The report bolsters the case for a Fed September rate hike, but the fact that the will be three more jobs report before Sep FOMC with inevitable erosion in the Treasury market, suggests Fed speakers will fill the airwaves with the message of an ultra-slow pace of rate hikes until liftoff becomes discounted to the extent of becoming a significant sell-of-the-fact. The charts below show the continued decline in the Stocks/Yields ratio, resulting from rising yields and falling stocks, which is more disconcerting development than in the May-June 2013 episode, when the ratio was dragged by a rise in both (yet faster pace for yields). Next week's US May retail sales report would be a crucial addition to USD sentiment if meeting expectations, but faster gains in yields towards the 2.60% resistance will continue to draw attention for the wrong reasons as long as Fed's core PCE price index doesn't play along.

New Premium trades for today were issued on EURUSD and EURCAD.

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After three years with City Index and FX Solutions, I'm happy to announce that I will revert to my full-time role with Intermarket Strategy Ltd, where I will focus on trading and strategy. With regards to TV interviews, they will be done via the relevant TV studios in London and elsewhere. All strategy pieces and Premium trades will originate exclusively from AshrafLaidi.com.

بعد ثلاث سنوات مع سيتي اندكس و اف اكس سلوشنز، يسعدني أن أعلن أنني سأعود إلى شركتي انترماركت ستراستجي، حيث سأتخصص في تداول الأسواق و إدارة التحليلات الاستراتيجية. كل مقالاتي و توصياتي ستنشر في موقعي حصريآ.

While bond yields rally across the board, Germany's 10-year bund yields lead the pack in the G10 world, breaking 0.95% and narrowing the gap with their US counterpart to the smallest level in four months.  As the extended rally in German-US spread moves in tandem with EURUSD nearing the 1.1470 resistance, the relation is likely to be prolonged by further upgrades in German growth by the Bundesbank (tomorrow), faster rise in Eurozone inflation relative to US and a high bar of expectations in Friday's US jobs report (NFP, UnempRate, AHE). All this justifies our decision to go long EURAUD and EURCAD in the Premium trades of the past 6 days. EURAUD entry at 1.4290 hit its 1.4560 target, while EURCAD entry at 1.3820 remains in progress w/ +270 pips so far.

USDX Index illustrating a clear case of Lower Highs (March 13, April 13 & May 27). Today, USDX closed below the 50 and 10 DMA (on the same day)

Tuesday's EURUSD 2.0% rise was the biggest percentage gain since March 18, but the main difference is that March 18 did not witness a rally in German 10-year bund yields (+30%) as back then. In fact, bund yields fell on March 18. The next biggest percentage daily drop in EURUSD before March 18 was on October 27, 2011, when ECB/EU/ IMF were ironing an agreement for Italy and Greece.

This week's bund yield rally erased TWELVE days of losses, suggesting the current s EURUSD gain is as much as it was a case of Eurozone data optimism (inflation differentials narrowing relative to the US) as it was a case of USD pessimism.

The USD side of things was highlighted by: i) US factory orders falling in 8 out of the last 12 months; ii) surprisingly dovish comments from Fed board governor Brainard on USD impact and soft US growth; iii) confluence of crucial factors (AUD/USD breaking out of its 2 week channel; iv) USD/JPY dropping more than 100 pips from psychological 125; v) GBPUSD bottoming at 50-10 DMA confluence.

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We look at three reason why the US dollar was battered on Tuesday and what it means. USD fell at least 0.5% right across the board while the Australian dollar led the way. A busy day is upcoming in Asia-Pacific trading, including Australian GDP. Ashraf's Premium Insights issued a new EUR-specific trade 3 mins ago with 2 rare charts, adding it to the long EURAUD, which is currently +110 pips in the green.

The catalyst for the initial move was the euro. Eurozone CPI was higher than expected but Greece was the main driver. Murmurs about a deal were abundant and that set off the squeeze a EUR/USD that caused so much dollar selling that it spread to other dollar pairs and began to feed on itself.

The reality of the Greek situation was much less clear. Greece and Eurozone creditors submitted competing proposals to each other and reports suggest a wide gulf remains. Dijsselbloem said creditors were 'still far from a deal' but the market believes otherwise.

The second reason for USD weakness – and the reason it turned into a rout – was positioning. The kind of we saw Tuesday is only possible on highly-unexpected news or when one side of the trade is overcrowded. CFTC positioning numbers have underscored the infatuation with USD and the recent one-way gains in the US dollar turned a crowded trade into an overcrowded one.

The final reason was a speech from Fed Governor Brainard. It's her first speech to touch on how she feels about the economy and monetary policy and it was abundantly clear that she's dovish. She fretted about consumer spending, exports, foreign demand and said the slowdown may be more significant than expected.

Despite the large moves in the dollar, it's no reason to change underlying views. The risk of a squeeze is ever-present in a trend and it's a reminder to manage risk. It comes down to economic data and perhaps the most-important news on the day was a strong report on US May autosales.

The focus will remain on economic data in the hours ahead. The main release is at 0030 GMT when Australia releases Q1 GDP data. The consensus is for 0.7% q/q growth. Estimates moved up in the past few days but it may just be a shift in timelines as capex intentions are falling. Fade moves on GDP, which is already 2 months old. At the same time, the BOJ's Shirai holds a speech.

Other data includes the Japanese Markit services PMI and HSBC China services PMI.

Without the help of special effects or Greece rumours, it was the perfect storm of inflation-positive German and Eurozone inflation and German unemployment, which lifted 10-yr German bund yields by 30% to 0.67% today. The yields breakout above the 2-week trendline implies a possible extension towards 0.77%. Full charts & analysis.

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The market proved that it's hungry for good US dollar news once again as it rallied hard on positive news and had only a shallow dip on negative news. The dollar was the top performer on the day while the loonie lagged. The RBA decision is due up next. Ashraf's EURAUD Premium long was +100 pips in the green and is now +85 pips in the money so far.

News is the best way to judge the enthusiasm of a market. Given two pieces of news -- one good, the other equally bad – the underlying bias of a market is often revealed. An example arguably appeared on Monday. First, the PCE report was soft with core inflation rising 1.2% compared to 1.3% expected and spending on the soft side. That led to a 20-30 pip decline in the US dollar.

Ninety minutes later, the ISM manufacturing report was slightly stronger at 52.8 compared to 52.0 expected and construction spending data was +2.2% compared to +0.7% with positive revisions. That led to a complete reversal of the earlier losses and 60 pip US dollar rally.

The example isn't perfect and there are never truly two pieces of economic news that are equal but it's instructive. Especially in the case of USD/JPY as the pair hovered near 124.14, which was the 2007 high and hadn't definitively broken.

The market could have gone either way but surged higher and closed at 124.78, in the first bona fide close above that important level. It's a sign that the market is hungry for US dollars, especially against the yen. We saw that kind of enthusiasm in the CFTC report as yen shorts jumped. If the Fed tips its hat toward rate hikes, we'll get another level of that enthusiasm.

But in the short-term, the focus is on the free falling Australian dollar. It's down in 11 of the past 13 sessions and the RBA is up at 0430 GMT. There is no serious talk of a rate cut so the focus will be on the bias. Most traders think the RBA is in a wait-and-see mode after the latest decision but Stevens would relish the opportunity to knock AUD down another level and through the April low of 0.7553.

A crucially positive trifecta for USD emerged via a higher than expected May ISM manufacturing, ISM's employment component and construction spending, boosting the greenback across the board. The figures had followed an earlier release of slower than expected US personal consumption and core Personal Consumption Expenditure price index (Fed's preferred inflation gauge). We now turn to the RBA and flash Eurozone CPI. Full charts & analysis.

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