Intraday Market Thoughts Archives

Greek deal and ECB uncertainty; deflation in Switzerland; UK PPI rose m/m but declined y/y; LTRO estimates. Market turns to US and Canadian trade balance data and UoM consumer confidence

The USD is trading higher against all majors except GBP. Major European equity indices are in the red by about 0.4% to 0.9%. The relative strength loser is NZD followed by AUD.

Doubts about Athens' ability to actually implement all of the agreed on measures and the credibility of the Greek deal sent USD higher as the next part of the financial aid will be released only after the Greek parliament approves the austerity measures during its weekend meeting.

Another source of uncertainty emerges from the ECB and its involvement in the Greek debt deal. ECBs Draghi denied the central bank would take losses or forego some profits, which would be essential in freeing up funds for Greeks to meet their debt/GDP target by 2020.

Deflation in Switzerland grows deeper as January CPI printed -0.4% from -0.2% m/m which is -0.8% from -0.7% y/y. Continued deflation should strengthen calls for weaker Franc and cement the 1.20 EURCHF floor. Surprisingly, EURCHF is actually lower after the release, trading around 1.2095.

UK PPI input prices rose 0.5% from -0.6% in January m/m but declined to 7% from 8.9% y/y. Output PPI was 0.5% m/m from previous -0.2% which is 4.1% from 4.8% y/y. Annual input PPI reached a lowest point since 11/2009 and annual output PPI is at lowest level since 11/2010.

UK yield curve is significantly steeper today as BOE decided yesterday to buy more short term than long term bonds.

Because the ECB changed collateral criteria, banks started adjust their assessments for the second round of LTRO on 2/29. The estimated upper limit of the ranged increased to EUR 450 to 700 bln. Mario Draghi said yesterday that projections are for a number similar to December allotment which was EUR 489 bln.

The NY session starts at 8:30 am ET with trade deficit that is expected to widen in December to USD -48.1 bln from previous USD -47.8 bln followed by UoM consumer sentiment at 9:55 am which is seen lower in February at 74 from 75.

Canadian trade balance is due at 8:30 am and should reach a surplus of CAD 0.7 bln in December, slightly lower from November's CAD 1.1 bln.

Market volatility could also increase at 12:30 pm when FED chairman Bernanke delivers a speech on housing market.

Oil respected its January trendline resistance at 100, now heading towards the 98.20 target in the Premium Intermarket Insights. EURGBP longs and AUDNZD remain in progress, USDJPY and AUDUSD short stopped out, 2nd EURUSD long missed target by 8 pips. . Gold and USDCAD trades remain in progress. For direct access, click here: http://ashraflaidi.com/products/sub01/access/?a=602

Greece officially announced an austerity deal but doubts still linger. EUR was the top performer Thursday while JPY lagged badly. The RBAs economic outlook acknowledged revised down GDP growth but was not sufficiently clear on the reason for holding rates unchanged. EURUSD fell short of our second long target of 1.3330. Gold and oil trades are in progress, while AUDUSD long is done. EURGBP long on track.

Greek politicians appeared to hammer out an austerity deal that would be acceptable to the Troika. The previous sticking point on pensions was solved with larger military cuts. The euro climbed to a two month high of 1.3322 on the news.

The euro was also boosted by the ECB decision. Rates were held at 1.00% and Draghi noted that the economy is stabilizing at a low level. Further helping risk appetite were US jobless claims, which fell to 358K versus 370K expected.

The euro began to drift lower on a multitude of questions about the Greek deal. First, the official release stated that a general deal was reached, which suggests that negotiations arent completed. Next, a Greek deputy minister resigned in protest and he is said to be a favourite in the April election. Finally, EU leaders said the Troika will not approve more bailout funds until the deal is ratified by Parliament something that sends a signal of distrust.

Greek Parliament isnt scheduled to vote on the austerity bill until Sunday so the no disbursement until implementation rhetoric from the Troika leaves Greece in a very tight timeline if it wants to begin the PSI swap on Monday.

The RBA's quarterly Statement on Monetary Policy cut its June 2012 GDP fcst to 3.5% from 4.0% and acknowledged the signs of economic stress in the Eurozone. It also mentioned rising cost of banks' funding costs relative to cash rate, which may explain the bank's decision to not have cut rates.

Our first Premium EURUSD long hit all targets, while the 2nd remained 15 pips away from the final target. Full details can be seen here: We have a new set of Premium trades, including 2 on EURGBP. Gold and oil trades are in progress, while AUDUSD long is done. For direct access, click here: http://ashraflaidi.com/products/sub01/access/?a=602

Ashraf will be at the New York Traders Expo on Feb 19-22 speaking on behalf of FX Solutions. Ashraf's 2 workshops are on Monday, Feb 20 & Tues, Feb 21. See link for detail on times.

http://www.moneyshow.com/tradeshow/new_york/traders_expo/speakers/speaker_details/?speakerid=129874OTE

Greek deal could be concluded today in Brussels; BOE keeps rates steady and adds GBP 50 bln in QE; UK manufacturing production rose and trade deficit narrowed. Market focuses on ECB decision and later to Draghi's press conference. We have a new set of Premium trades, including 2 on EURGBP. The first EURUSD long hit all targets.

USD trades within a narrow range against most other majors. GBPUSD rose after only GBP 50 bln in QE was announced. European equities are about 0.3% higher

It seems that the Greek saga is finally coming to its last phase. Greek finance minister Venizelos is in Brussels today at the European finance ministers meeting to discuss one remaining issue which is the size of the pension cuts. Initial reports suggested that the deal is to be signed later in the evening, however, a German official has already said that he does not see any decisions being made today.

Meanwhile, Greek privatization target was increased to EUR 65 bln through 2017 and November unemployment rate jumped to 20.9% from 18.2%.

The MPC kept rates steady at 0.5% and announced a GBP 50 bln increase of the Asset Purchase Facility. Despite the smaller than expected amount, gilts fell and GBP rose due to the fact that markets were expecting the possibility for a surprise just before the announcement, hence the smaller outcome ended up favourable for GBP across the board.

In other news, UK manufacturing production rose 1% in December from previous -0.1% (0.8% from -1% y/y). Annual industrial production improved to -3.3% from previous -3.6% and finally trade deficit has narrowed to GBP -7.1 bln from GBP -8.9 bln.

The ECB left rates unchanged at 1.0%, denying some market observers the surprise of a 25-bp cut.

The key event of today's New York session is ECB press conference that starts at 8:30 am ET. The market will wait for details of how exactly will the ECB be involved in the Greek deal and whether it will take a loss on its Greek debt holding. Jobless claims that are due at the same time are seen only marginally higher at 369K from 367K.

At 10:00 am ET wholesale inventories are due and are seen higher in December at 0.5% from 0.1%. NIESR will release its estimate of the UK GDP which is likely to lead to GBP volatility.

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A Greek deal continues to inch forward but there was no major breakthrough. EUR and USD were the top performers Wednesday with GBP lagging. Early in the Asia-Pacific session, the kiwi slipped on employment data; later Chinese inflation dimmed rate cutting hopes. The focus on Greece will be temporarily preempted by the ECB and BOE decisions. We have a new set of Premium trades, including 2 on EURGBP. The first EURUSD long hit all targets.

Greek political leaders continue to meet and are expected to approve austerity measures that will open the way to bailout funds. A draft deal promises permanent spending cuts, lowering the minimum wage by 20% and state-asset sales. The rise in the euro on the crosses reflected optimism that the austerity is sufficient to balance Greeces books.

Eurozone finance ministers and the IMF will meet on Thursday with the aim of ratifying the aid for Greece.

In the fourth quarter, New Zealands unemployment rate fell to 6.3% from 6.6%. The consensus was for a decline to 6.5% but the headline doesnt tell the whole story. The economy added fewer jobs than expected, climbing 0.1% vs 0.4% expected. The culprit for the fall in unemployment was a drop in the participation rate to 68.2% from 68.5%.NZD/USD jumped 30 pips on the headline but immediately gave back the gains and turned lower.

China January CPI rose 4.5% compared to the 4.0% expected. It was a large miss and suggests the PBOC will be in no rush to loosen policy any time soon, perhaps not even this year. The Australian dollar fell a half cent in the aftermath of the report but quickly regained its footing, underscoring the demand for AUD.

In Europe, Greek leaders are attempting to scale back Troika demands to cut pensions. A compromise would boost EUR and broader sentiment.

The major events of the session are the BOE decision at 1200 GMT and the ECB decision at 1245 GMT. The Bank of England is expected to boost its asset purchase plan by 50-75B pounds. The larger the amount, the more cable will decline. The ECB is expected to leave rates unchanged but there is a small chance of a rate cut, something that would cap recent euro gains.

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Thursday's Bank of England announcement (7:00 EST, 12:00 GMT) is widely expected to kick off QE3 with an additional 50 bln in asset purchases, bringing the total to 325 bln. Market consensus had been reduced from the original 75 bln following improved UK data (10-month highs in services PMI, 7-month highs in services PMI). The decline in 10 yr gilts from 2.60% ( at the start of QE2) to the current 2.20% as well as the 22% rise in the FTSE-100 since early Oct has also helped alleviate stress in the markets. We have a new set of Premium trades, including 2 on EURGBP. For direct access, click here: http://ashraflaidi.com/products/sub01/access/?a=602

Greek leaders meeting postponed; German auction; Swiss unemployment rose and German trade surplus declined. Market awaits Canadian housing starts, oil inventories and at the end of the session NZD labor market data. Latest Intermarket Insights will be out after the London close.

EURUSD fell shy of gaining above the $1.33 level as USD trades within a narrow range close to London opening levels. European equities are gaining about 0.5%.

The meeting of Greek leaders scheduled to start at 6 am EST where they should respond to bailout conditions is delayed. It seems that a provisional agreement with the ECB/IMF/EU has been reached but some specific issues remain to be discussed. Greek PM Papademos said he hopes to present the final agreement for approval at the meeting of Eurozone finance ministers.

According to a WSJ report, the ECB is said to consider selling its Greek debt to the EFSF in exchange for EFSF bonds. The ECB bought the Greek bonds at a heavily discounted price but it appears as though most of the profits a reported 11B euros will be foregone. This could cause problems with no-bailout provisions in the ECBs treaty but thats unlikely since the ECB will not lose any money.

Germany sold EUR 3.293 bln of 2017 bond (target EUR 4 bln). The average yield rose marginally to 0.91% from 0.9% and cover declined to 1.8 from 2.8. According to MNI, the whole Eurozone has issued about 15% of its total 2012 funding targets.

On the European data front, Swiss unemployment rate ticked up in January to 3.4% from 3.3 n.s.a. (remained 3.1% s.a.) and German trade surplus declined to EUR 13.9 bln from EUR 14.9 bln.

ECB deposits declined slightly to EUR 495.35 bln.

The US session starts at 8:15 EST am when Canadian housing starts are due and are expected to decline slightly in January to 193K from previous 200K.

Crude oil inventories are due at 10:30 am EST and are expected lower at 2.9M from previous 4.2M. Such a decline could further fuel soaring WTI that trades nearly 4 USD higher from yesterday's low at 96.

At the end of the session at 4:45 pm EST, New Zealand will release labor market data that could boost the already strong NZD. The employment is expected to rise 0.4% in Q4 from 0.2% and the unemployment rate is seen marginally lower at 6.5% from 6.6%.

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The euro rallied to the highest since mid-December on reports that a draft Greek austerity deal is awaiting approval. The euro was the top performer while JPY lagged. Asian trading has been quiet with Japans trade deficit as the lone indicator. BERNANKE's testimony also boosted the euro and risk assets after the Fed Chairman played down Friday's stronger than expected US jobs report, thereby, maintaining market hopes/expectations for further easing measures.

On Wednesday, Greek cabinet members will review a draft austerity deal that will fulfill Troika demands and clear the way for a PSI deal. The news sent EUR/USD to 1.3270 from 1.3100. Its expected to be approved, which means Troika approval could come as soon as Thursday.

The Greek debt swap is set to commence on Monday with Greeks parliament expected to pass the austerity measures the day before. One hiccup may be revelations that Greek government revenues plunged 7% in January compared to an 8.9% rise expected.

The official contribution to the PSI deal was the final hurdle but it appears to have been settled, according to a WSJ report. They say the ECB will sell its Greek debt to the EFSF in exchange for EFSF bonds. The ECB bought the Greek bonds at a heavily discounted price but it appears as though most of the profits a reported 11B euros will be foregone. This could cause problems with no-bailout provisions in the ECBs treaty but thats unlikely since the ECB will not lose any money.

In the US, Bernanke read from the same script as last Thursday (pre NFP). In comments, he said 8.3% unemployment understates the weakness in the jobs market but made no mention of further stimulus.

The lone indicator released in Asia was Japans current account. At 303B yen it fell short of the 340B expected. The trade surplus was the lowest on record and current account the lowest since 1996.

Monday's euro and Aussie shorts were stopped out, oil short remain in progress and gold longs are partially done. Click here for more detail http://ashraflaidi.com/products/sub01/access/?a=601 NONsubscribers can join here http://ashraflaidi.com/products/sub01/

Juncker: Greece cannot be forced out of EMU; German industrial production dropped; French trade deficit widened; Greek auction solid; SNB's Jordan reconfirmed EURCHF floor. Market turns to Canadian building permits and Bernanke's testimony. Latest Premium Intermarket Insights are in progress. AUDUSD trades were stopped out after the RBAs unexpected decision to hold rates.

The greenback recovered previous losses and trades unchanged since London open. European equities are losing about 0.5% and CAD is the relative strength loser.

Sentiment improved after Eurogroup's head J. C. Juncker said that Greece cannot be forced out of the Eurozone and that even in case of an exit, other countries would have to invest unimaginable sums of money. This view corresponds to chancellor Merkel's comment that Greek default is unacceptable.

USD started to gain after German industrial production dropped -2.9% in December m/m from previous unchanged print (0.9% from 4.4% y/y) which was significantly below market expectations. The only other report today was French trade deficit that widened to EUR -5 bln in December from EUR -4.1 bln.

Greece was able to sell EUR 812.5 M in 6 month bills today (target EUR 625 M). The average yield was marginally lower at 4.86% from 4.9% and cover was 2.72 from 2.8. A solid result considering the ongoing, never ending negotiations and the current 24 hour strike over new austerity.

EURCHF moved higher ahead of SNB's T. J. Jordan speech at the Swiss-American chamber of commerce where he repeated that the SNB will enforce EURCHF floor with utmost determination and will not tolerate floor's breach. He also reiterated projections that the Swiss economy will slow considerably in 2012. Surprisingly, EURCHF started to lose again after his comments.

ECB deposits declined slightly on Monday to EUR 503.38 bln.

The NY session brings Canadian building permits due at 8:30 am ET that are expected higher at 0.2% in December from previous -3.6% followed at 10:00 am by US IBD TIPP economic optimism index that is seen at 48.1 from 47.5.

The key event will be Fed chairman Bernanke's testimony on economic outlook before the budget committee in Washington DC. The testimony starts at 10:00 am and is followed by Q&A session that often causes more volatility than the speech itself.

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Parik Urban

Disappointment about the lack of a Greek deal was short-lived as the euro rebounded back above 1.31. On the day, moves were very small across the board. There is considerable uncertainty about the RBA rate decisions but the market is favouring a cut. Ashrafs latest Intermarket Insights include trades on AUDUSD, AUDNZD, EURUSD and oil, as well as charting FX and commodity performance since the Dec 20 LTRO.

The euro rebounded in early North American trading, shrugging off losses precipitated on the lack of a deal in Greece. Papademos met with the Troika and has scheduled meetings with coalition partners on Tuesday in hopes of passing the austerity measures required for another round of bailout funds. Some measures already appear to have support, including 15,000 public sector layoffs. EUR rebounded from a rumor that Portugal has sought out advice on how to handle a potential debt restructuring. Officials denied the report.

Economic data was light with Canadas Ivey PMI as the lone indicator. It climbed to 64.1 from 59.7, the highest since last May.

Questions about quantitative easing continued as the Feds Bullard (non-voter) indicated he would not support another round unless there was the threat of deflation and a significant economic deterioration.

RBA Preview

A busy week of tough central bank decisions begins in Australia where the RBA will announce rates at 0330 GMT. The OIS market is pricing in an 82% chance of a cut to 4.00% from 4.25%. The market is also seeing the chance of a dovish statement with another cut on March 7 priced in at 25%. Mondays retail sales data underlined a slowing economy and jobs reports have deteriorated but if there is a risk it is that the RBS isnt as dovish as expected.

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The negative Greece factor on the euro increasingly reflects on the single currencys modest rebounds during aggressive equity rallies and its sharp declines during risk aversion phases. This is a far cry from the days when EUR was among the top FX performers during risk-on days.

This trend began in December, when the euros correlation with equity indices fell to its lowest in over a year, adding credence to the notion that the euro is acting as a funding currency to commodity currencies.

The chart attached shows the percentage appreciation in currencies, SP500, gold and US crude since the ECBs LTRO started in December 20. LATEST PREMIUM TRADES are here: http://ashraflaidi.com/products/sub01/access/?a=601

AL

Greek disagreement on austerity; Portugal coming to focus again; UK Halifax HPI rose; Eurozone sentix improved; German factory orders strong; ECB deposits over half a trillion again. Canadian Ivey PMI is next; 2 speeches by Fed presidents. A new Monday Premium Intermarket Insight will be issued at the London Close.

The greenback is stronger against other majors but it is losing a part of its earlier gains. Major European equities are losing between -0.3% and 1%.

Sentiment worsened as disagreement on Greek austerity measures and the delay on Greek swap deal increased uncertainty. In addition, rumors that Portugal will have to restructure its debt are circulating again. Surprisingly, Portuguese 10 year yield is lower at 13.47% from 14.05% high, significantly lower compared to last week's high above 18%.

On the data front, UK Halifax HPI rose in January 0.6% from previous -1% contraction and Eurozone sentix investor confidence improved for February to -11.1 from previous -21.1. German factory orders in December surprised to the upside as they grew 1.7% from previous contraction -4.9% m/m. Annual orders were unchanged.

ECB deposits increased again on Friday to EUR 511.43 bln from Thursday's EUR 488.8 bln.

The only fundamental report that is due during the NY session today is Canadian Ivey PMI that is expected considerably lower in January at 58.6 from previous 63.5. The report is due at 10:00 am ET. USDCAD is trading around 0.9970 which is about 50 points above Friday's low.

Market volatility could also increase at 8:55 am and at 12:15 pm when St. Louis Fed president James Bullard delivers a speech on inflation targeting in Chicago and Dallas Fed president Richard Fisher speaks in Washington on economic and policy outlook. Fed President Fisher said last Thursday that QE3 is not needed so his speech has a potential to underpin the greenback.