Intraday Market Thoughts Archives

It's all about timing. Less than 24 hours ago we posted “the mystery” chart showing a rare combination of a doji and Death Cross. We asked non-Premium members to guess the instrument. Our Premium members had already shorted it. The chart turns out to be the Eurostoxx50, which fell 1.7% in after-hours trading. Yesterday, we tweeted the latest DAX30 chart and the recurring failure to fill the gap-down from January 4th. After 6 failures, the DAX has given up and is on its way to the preliminary target of 10420s.  

What is the cause?

Reporters will tell you that remarks from Boston Fed president Eric Rosengren about modest wage growth returning in the US and little evidence of downside risks to the global economy being the culprit. Another reason? USDX had enough from testing the May trendline support, gold unable to break the 100-week MA or VIX cannot be remain unable 12 when US profit growth is negative and equity indices are at their tightest range in over 10 decades. Yes, since 1916.  Our Premium short in the DOW30 was closed at 18180 for 400 pts, leaving other trades open for our subscribers.  

The market dislikes uncertainty and that's why bonds skidded lower after the ECB press conference. The euro was the top performer while the kiwi dollar finally lagged. Chinese CPI and Japan's tertiary index are up next. The mysterious chart below is among our Premium shorts. Non-members will have to guess what is this chart.

Hopes for changes to the ECB QE program going into Thursday's announcement were low but there were expectations for some clarity on what may come next. Instead, Draghi said the ECB had formed committees to study the smooth implementation of QE and repeated that buying would continue beyond March if necessary.

The market has already priced in bond buying beyond March and it wants to get a sense of what's on the table. Draghi said those key problems weren't even discussed. That led to an initial euro rally to 1.1325 and a day-long slump in bonds across the board. German 10s moved up 5.5 bps to -0.6% and Italian 10s rose 7 bps to 1.15%.

Later, a strong US dollar bid emerged. It was driven partly by USD/JPY and partly by rebounding oil while Treasury yields followed European bonds higher. That pair shot to 102.50 from 101.50. But the dollar bid extended across the board with the market perhaps sensing that the ECB thinks the Fed might act first.

In terms of economic data, US initial jobless claims remained low at 259K compared to 265K expected. The surprise release was US oil inventories, which fell 14.5 million barrels due to the effects of Tropical Storm Hermine. It was the second largest decline on record and led to a 4% rally in crude.

But even as oil jumped, the Canadian dollar slipped and finished near session lows. That's an indication of just how strong the late-day dollar bid was. That might indicate flows rather than something sustainable.

The economic calendar to finish the week in Asia includes Chinese August CPI at 0130 GMT. PBOC speculation is low at the moment so this won't be a big market mover but it's expected at 1.7%. We continue to keep an eye on the yuan fixings.

The other release to eye is the Japanese tertiary index, which is expected up 0.4% in the 0430 GMT release. BOJ-watching will be in full swing now and leaks plentiful.

The Bank of Canada took a surprisingly cautious tone in comments that undercut the loonie on Wednesday. The kiwi was the top performer while cable lagged after Carney reiterated the potential for further moves. Comments from Williams and the Beige Book underscore the unlikelihood of a Fed cut. A new EUR trade has been issued ahead of Thursday's ECB meeting.

The BOC left rates at 0.50%, as entirely expected but also highlighted downside risks. They essentially said that growth was slower in H1 than they expected and it's looking like H2 might miss as well but they're going to wait and see.

USD/CAD had been at a session low of 1.2823 before the release and jumped to 1.2912 afterwards. It later trimmed some of the gains when the API energy inventory report showed a massive drawdown.

The market had been pricing just a 13% chance of a BOC cut around year-end. That's likely to rise and CAD to decline, especially if incoming data gives Poloz more cause for concern.

In the US, the Fed's Williams had the opportunity to push back against low rate hike odds but he stuck to a similar script, stopping at saying anything more than that Sept is a 'live' meeting. The Beige Book was also an opportunity to highlight economic optimism but, if anything, it was downcast on the economy and said overall inflation pressures were 'slight'.

At best, the Fed can argue that it may hike to trim financial risks because the case for inflation just isn't there. If economic data continues to muddle along, the case won't materialize at all and that raises the question about how far the dollar could fall.

Lately, the broad dollar slide offers some insight into the risks. Since July 26, what was a relatively upbeat/hawkish period for the dollar, it's been the worst G10 performer.  NZD/USD is up nearly 7% since that time. On rate differential alone (nevermind crowded USD positions) the euro could rise five cents.

Looking ahead, the final reading on Q2 Japanese GDP is expected to be unrevised at 0.0% q/q. The larger market impact will likely be from July Australian trade balance, which is expected to show a deficit of AUD 2.7B. More than the spread, the absolute reading on exports may drive the Aussie reaction.

مقابلتي مع قناة العربية على قوة الين، الاقتصاد الأمريكي وقرار البنك المركزي الأوروبي غدا

A trio of weak US economic data points in the past three trading days raises the question about whether or not the Fed will even be hawkish on Sept 21. On Tuesday, the New Zealand dollar was the top performer while the US dollar lagged. Looking ahead, Australian GDP and a Fed speech are the compelling storylines. Our Premium GBPUSD short was stopped out as USD weakness accelerated across the board after the poor ISM figures. There are 2 USD shorts currently in progress and in the green 

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Varying degrees of disappointment in ISM manufacturing, non-farm payrolls and ISM non-manufacturing in the past three trading days have cut the implied odds of a Fed hike in Sept to 24% from 42%.

To us the odds are lower still, and it would be an unnecessary risk to markets. The Fed may not even shift to more-hawkish rhetoric on Sept 21 in a nod to the calendar. The subsequent FOMC meeting is 6 days before the election and then not until Dec 14. So if the Fed isn't going to hike this month, it has plenty of time to send a signal before December.

The Beige Book on Wednesday may offer a clearer picture of the Fed's thinking but be warned that it's skewed hawkishly this year and given false signals. The main final input for the Fed will be the Sept 15 retail sales report.

Another spot to watch is a 0115 GMT speech from the Fed's Williams. If there is any downgrade, even subtle, in his rhetoric, it will be a clear sign that the Fed is on the sidelines.

In the meantime, risks around EUR (the ECB on Thursday), CAD (the BoC on Wednesday) and AUD (GDP) abound. Up first is the 0130 GMT release of Australian Q2 GDP. Partly lost in the RBA-watching yesterday was a great Q2 current account number. It's helped to boost the consensus for Q2 growth to +0.6% from +0.4% but it's still probably not fully priced in.

Another important input will be government spending, which surged in Q2. But what could cause a whipsaw after the data is that if private consumption is weak. Even if the headline number is strong, weak signs from consumers could quickly send AUD/USD in a break after five days of gains.

Six days after the manufacturing ISM index dived back into contraction territory along with its employment and new orders components, today's release of the services version does its part of deterioration, hitting 5 1/2 year lows at 51.4 from 55.5. Charts & full piece.

The pound rose again in holiday-thinned trading Monday as yet-another data point showed a solid economy. The yen was the top performer as some of last week's softness reversed and the US dollar lagged. CFTC positioning showed growing bets against the euro and for the loonie. The RBA decision is due at 04:30 GMT. US services ISM is at 14:00 GMT. The latest Premium video has been posted.

A powerful theme in the past two weeks has the rise of the pound. It led all G10 currencies last week as GBP/JPY rallied 440 pips.

The drivers have been entirely fundamental. It continues Monday as the Markit services PMI was at 52.9 compared to 50.0 expected. That's the largest jump on record as it increased from July's 47.4 reading in the immediate aftermath of the vote.Cable immediately rallied three-quarters of a cent.

Although the pound later gave back much of the gains the upbeat data can no longer be regarded as an outlier. Since mid-August here are some data highlights:

Jobless claims fell 8.6K vs +9.0K exp Retail sales ex auto fuel +1.5% vs +0.3% exp CBI retail sales +9 vs 0 exp Nationwide house prices +0.6% m/m vs -0.2% exp Markit manufacturing 53.3 vs 49.0 exp

UK consumers, it seems, kept calm and carried on after a small fright in the aftermath of the vote. PM May filled the power vacuum and instilled some confidence. Now it might be time for the pound to carry higher.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -82K vs -77K prior JPY +64K vs +60K prior GBP -92K vs -95K prior CHF +8K vs +1.8K prior AUD +43K vs +43K prior CAD +22K vs +17K prior NZD +1.8K vs -0.9K prior

Nothing jumps out from the latest report. EUR shorts had been diminishing for the previous five weeks and the small increase here is just a bounce. The net long in CAD is starting to get interesting, especially if OPEC proves to be a flop.