Intraday Market Thoughts Archives

CAD CHARTS: Considering our NEGATIVE STANCE ON OIL oil and latest price action in CAD, these charts http://chart.ly/rb56fy suggest signs of a temporary CAD stabilization vs. GBP and USD. Weekly oscillators in GBPCAD are converging with the weekly price action, especially as such combination has proven bullish in prior occasions. GBP element of GBPCAD stabilization may emerge from the cacophony of election polls favouring the Tories. Any rebound from the current 1.5455, is seen limited at 1.6350s. USDCAD parity corresponds with the 76% retracement of the rally from the 40-year low of Nov 2007 to the Mar 2009 high. Todays jobs report helped USDCAD mark a floor at parity, but more is required in the way of Canada FX rhetoric and oil pullback (already struggling to regain $86) for the pair to regain 1.0130. A rebound in USDCAD faces preliminary resistance at 1.0380-00, but only a severe event risk on global risk appetite would lift USDCAD above 1.05.

DAILY CRB CHART Index (23 commodities) http://chart.ly/kqqkhy failed to break above the right shoulder resistance of 280, which corresponds with the 61.8% retracement of the decline from the December high to the February low. The CRB is based on 23 commodities, but is dominated by WTI crude (23%), followed by natgas, gold, copper, corn each of which has 6% share in the basket. We continue to draw attention towards oil prices and their expected underperformance relative to gold and metals. This helps support expectations for a short-term slide in CAD vs. USD, GBP.

GBPUSD breaks past the $1.53 resistance on soaring UK producer prices (highest since Nov 2008). Cable tests the Mar 17 high of $1.5380, and could extend gains $1.543038% retracement of the decline from the $1.6450 high. EURUSD cheers Trichets remarks that ECB wont allow a Greece default. The latest resistance on the euros 23-week downchannel stands at $1.3480-00, only a break of which would eliminate the downtrend. Considering latest round of USD weakness, USDCAD could knife through parity again in the event that Canadian Mar jobs figures (11:00 GMT) show payrolls of at least 15K (exp 20K from prev 21K). Unemp rate exp unchanged at 8.2%.

ALTHOUGH GREEK 10-year bond yields have soared to a record 472 bps above their German counterpart (SEE CHART http://chart.ly/cfyrsp ), the rise in Portuguese and Spanish spreads has been limited to 2-month highs, half the level of the record highs reached in late January. EUR is increasingly victimized by Athens periodic manoeuvrings to raise 13 bln by end of next month, yet markets remain wary of recent funding developments. The chart http://chart.ly/cfyrsp illustrates the palpable divergence between the EURUSD exchange rate and the S&P500. What was a positive correlation between two legitimate representations of risk appetite, has now turned into a -0.48 daily correlation, the biggest negative correlation since May 2008. Year-to-date, EUR is the worst performing currency out of a group of 35 currencies, falling 7% against USD and as much as 10% against the Aussie. The road to $1.30 remains intact.

Ashraf's Interviews (English and Arabic) on CNBC-Europe, BNN and CNBC Arabia.

Ashraf on BNN discussing the euro, greek debt, IMF and Canadian dollar http://bit.ly/9A2K5U

Ashraf on CNBC Europe discussing the British pound and Bank of England Decision

http://bit.ly/bruo1Q

Ashraf on CNBC Arabia discussing China-US currency revaluations and the global economy http://bit.ly/bKxiEc

In todays ECB press conference, JC Trichet is expected to reiterate the ECBs accepting of BBB-rate bond collateral beyond year-end in order to extend Greek participation at ECBs regular refinancing operations. As this greases the wheels of sub-standard-liquidity creation in contrast to tightened policy in the US, Australia and Canada, the euro is expected to pursue its ongoing decline, towards $1.30 and $1.28 before quarter-end. GBP is the 4th worst performing currency so far this year out of 35 currencies, with any positive data reaction being displayed mainly against EUR. GBPUSDs ongoing failure to regain $1.53 (despite positive construction and manufacturing data) underlines the looming technical weakness. We expect a gradual path towards $1.5030 and $1.4870. Medium term target stand at $1.4380.

ASIDE FROM YIELD SPREADS, Euro is being dragged down by a re-escalation of the sovereign bond spreads, as Greek 10 year yields rise by more than 408 bps above their German counterpart, which is a new record high. http://chart.ly/px42dy We warned in February about a Q2 rebound in these spreads as was the case in Jan 2010. The follow-up rebound was also seen in Jan-Mar 2009. With Asian stocks expected to follow US markets lower on Thursday (especially if Aussie jobs report disappoints), the case for sub $1.33 EURUSD is established. $1.3270 stands as interim support, followed by $1.3230.

ONE REASON WE MUST WATCH GOLDs rally is that it is surging to second consecutive daily record high in EURO TERMS (GOLD/EUR), now at 855, while GOLD IN YEN TERMS is testing the January 11 high of Yen 107,000, which may suggest a topping formation in the metal as has been the case each time it neared record highs against non-USD currencies. GOLD/USD hits $1140, which is just below the Mar 3 high of 1145. Those who have access to GOLD vs. AUD, the metal is testing the previous failed points of AUD 1230, seen on Mar 28, 17 and 16. A close above 1143 in GOLDUSD could pave the way for 1157.

Escalating talk of a Chinese currency revaluation must not overshadow the possibility of a looming interest rate hike after the PBOC is expected to start issuing bills as long as 3-year maturities in a way to further drain liquidity. But it can also argued that such measures may reduce the need for other tightening measures such as raising rates and increasing reserve requirements. Elsewhere, UK march services PMI due at 8:30 GMT (9:30 London time) exp 58 from 58.4. GBPUSD upside may retest $1.53, but prolonged gains seen capped at $1.5340, while any disappointment in UK figures will recall the $1.5180 figure.

Ashraf's interview (English & French) held 2 weeks ago on the Canadian dollar, Canada interest rates, the euros downtrend, the US dollar and US interest rates. Chinese FX revaluation and the Aussie are also discussed in the interview. Text in French & Audio in French. http://bit.ly/9O8hzn

WEEKLY CHART in EURUSD and GBPUSD http://chart.ly/dz8xg6 demonstrates the importance of consistency when taking a position in these pairs. What was a key trend line resistance at $1.38 for EURUSD has now become $1.3580. Similar formation is looking up for GBPUSD as $1.53 looking increasingly out of reach as far as daily closes.

EURO's DOWNTREND REMAINS INTACT based on a deteriorating yield gap and Greek fiscal uncertainty. US 10 year yields are now 90 bps above their German counterpart (highest in 3 years) while on the short-end of the curve, USD 3-month LIBOR is only 29 bps below that of that EUR 3-month LIBOR, the lowest spread since December 2007. Euro's WEEKLY FAILURE TO CLOSE ABOVE $1.3580 is the latest in many a prominent technical failures, thereby re-affirming the case to short the single currency from a fundamental and technical stand point.

GBP is the day's weakest currency and JPY is the strongest out of a group of top traded 12 currencies. GBPUSD hits fresh session lows despite the strongest UK construction PMI in over 2 years. PM Gordon Brown is expected to formally call the election on May 6. Mixed opinion polls are said to be the reason behind GBP weakness, specifically an ICM poll in the Guardian showing the Conservatives lead being cut to just 4 points. Other surveys continue to show Conservatives lead at double digits. Technically, cables failure at $1.53 remains prominent, just as EURUSDs inability to close above $1.35, now vulnerable to $1.3370. Tokyo traders bought back yen, dragging yen pairs down across the board. NZDJPY eyes 65.15, EURJPY eyes 125.22.

TONIGHTs RBA DECISION is said to be a close call (we expectc +0.25) due to recent data weakness (retail sales declines, trade deficit widening) and a report by Hedge Fund consultancy Medley Advisors (Robert Medley was advisor to George Soros) arguing for the lagging nature of housing prices. Fed funds futures price a 60% chance of a 25-rate hike to 4.25%. Last weeks surprise TV appearance by RBA Govenor Stevens warning over the overheated property market and the need to normalize interest rates at incremental steps may seal the deal for the fifth quarter of a point rate hike. Despite the major banks rate hikes of their own mortgage rates, applications for new mortgages remained on the rise. Another dynamic likely to push RBA into tightening is the latest showing of strong Chinese data, tempering fears of a slowdown in Australias major trading partner. Regardless of todays decision, RBA watchers will scrutinize the statement for any signs of concerns with the rising Aussie and the slowdown on the retail sector. AUDUSDs lower highs since November and the 5-month trend line resistance at 0.9220, suggests broadening cautiousness. But a decision to raise rates may trigger a short-term pop towards 0.9230s before retreating lower on what dealers may interpret as a an intermediate pause in tightening due to the emerging signs of a slowdown in consumer spending. AUDJPY showing its first sign of a retreat after 6-daily gains at 87.15.

US dollar remains off its Friday lows ahead of the US March services ISM survey (10:00 EDT, 14:00 GMT) and the anticipated Fed Governors meeting at 12:30 EDT (16:30 GMT), which is highly expected to produce a 25-bp increase in the discount rate to 1.00%. This will reduce the spread between the discount rate and the fed funds rate to 0.75%, and as the chart shows (created 3 weeks ago). http://bit.ly/adHYEG the spread will be 25-bps away from regaining its pre-crisis level of 100-bps. Combining Friday's strong NFP, today's expected rate hike and a robust ISM report, the growth and yield case for the US dollar is expected to hold. Meanwhile, the only realistic sources for any JPY strength remain a chinese rate hike, a stock market pullback or unexpectedly strong Japanese figures. Pls see links in previous IMT to register for this week's webinars with Ashraf as part of the 3-day ITC Online Forex Conference.

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