Intraday Market Thoughts Archives

Why did the US dollar rally against the euro and sterling these last 2 days despite aggressive rallies in equities and the gap down in the VIX to 7-month lows? Fitch downgrade of Ireland's credit rating helped destabilize the euro from its $1.33 perch, but the collapse in the US trade deficit to a 10-year low of $26 billion in February from $36 billion in January was instrumental in supporting the US currency despite the decline in US imports being the main catalyst to the decline in the deficit. The Canadian dollars resilience has been partially caused by the improvement in risk appetite (USDCADs rising positive correlation with equities) and the return in Canadian trade balance to surplus territory in February from a deficit over the past 3 months. Next weeks array of Chinese data and the IMFs report on global toxic debt will be key in shaping global sentiment.

VIX gaps down to 37.30 from yesterdays close of 38.85, reflecting a solid burst of optimism and eyeing 7-month lows. S&P500 approaching gradually nearing the 860-870 territory, which is the threshold of +29% gains from the March lows. The question remaisn whether the VIX gap down is a sign of stocks peak as was the "VIX gap up" on March 2 when stocks bottomed. USDJPY has yet to breah above 101.60.

The Aussie/Copper story communicated in previous charts strategy continues to hold as the metal surges to fresh 5-month highs at $4,370/ MT and the Aussie establishes footing above 70 US cents despite bouts of risk aversion and the latest worse than expected Aussie jobs figures (unemp at 5.7% vs exp 5.4% and payrolls -34.7K vs exp -25K). Such resilience attests to the superior fundamentals of the Aussie long communicated in this website. AUDCHF is up 20% from its October lows at 0.8244, while AUDJPY is up 32% from its Feb lows. See today's Hot-Chart on EURCHF.

HEADS UP! Coming up at the top of the hour Canadas unemp rate for March seen up to 7.9% from 7.7% with payrolls seen -50K following a decline of 83K. Canadian Fin Min Flaherty yesterday warned that employment will "continue to worsen". Past 4 Canadian numbers have proven negative for the loonie. USDCAD eyes 1.2440s, EURCAD rising in line with yesterdays IMT calling for 1.6480 and 1.6520 from yesterday's low of 1.6317.

Euro lost nearly a full cent to the $1.3225 target I warned about in the previous Intraday Market Thought right Fitch downgraded Ireland's credit rating. Those who are still long EUR could consider the previous IMT favouring EURCAD ahead of tomorrow's Canadian jobs report. Yen pairs remain pressured, USDJPY techs eye 99.00.

Irelands sovereign credit rating just got downgraded by Fitch from AAA to AA+. Euro coming off its $1.3309 high and could extend losses to as low as $1.3220. Earlier today, Irish Fin Min said the State it might take majority stakes in Irish banks if their property-related losses require injections. Tomorrows German Indus production for Feb expected to drop by more than 21% following a 19% decline could intensify euro selling in the event risk appetite is neutralized later in US and into Asian session. Foundation stands at 100-day MA of 1.3170.

EURCAD drops to 3 week lows at 1.6315, testing the 100-day MA for the first time in a month and nearing 1.6280, which is the 50% retracement of the move from the Feb low to the March 20 high. Considering the potential for disappointing Canadian job figures, we could see EURCAD stabilize before rebounding towards the 1.652. key foundation stands at the 50-day MA of 1.6260.

Better than expected Canadian housing starts are supporting CAD across the board, lifting it to 3rd best performing currency after JPY and JPY. CAD traders must be cautious of Thursdays release (not Friday) of the Canadian March jobs report, expected to show unemployment rate rising to 7.9% from 7.7% with payrolls seen falling by 50K following a decline of 83K in the prior month. Canadian economic data has clearly lagged behind that of the US and Canadian unemployment is a case in point. This means we could well see unemp rate surprising on the upside above 8.0%, with payrolls potentially losing twice as much. CAD trade figures tomorrow will also be key as these have shown an increase in the nations trade deficit due to plummeting demand from US. Support stands at 1.2270.

S&P500 eyes the 800 support, which is both the trend line from the March lows and the 23% retracement from the said level. A close below it would give way to 775-780. Interestingly, the Dow continues to fail in closing above its 100-day MA and risks being dragged towards the 7,688 and 7,550 targets. JPY remains best performer over past 2 days, followed by USD, while NOK and AUD are the broadest losers.

The latest report from precious metals consultancy announcing a 10% decline in 2008 worldwide demand for gold items from 2007 confirming retail slump in jewelry, This has contrasted with the rise in demand for gold coins and investment accounts for the metal. There has also been reports of a major European major having sold short significant positions of gold, only to be bailed out by the ECB late last month through its announcement of gold sales. Golds 200-day MA held successfully yesterday, while silver is pushing higher after 3 straight daily declines. Yesterday, silver closed below the 200-day MA ($12.60, but remains above the 100-day MA of $11.90. TL resistance stands at $12.75.

Oil prices lose for the second straight day, testing the 100-day MA of $49.90 and nearing the 200-day MA of $78.78, which is just below the trend line support from the February low. Renewed data weakness on the UK front (Indus production) combined with falling stocks helps accelerate cables losses to as low as $1.4550 before a subsequent rebound towards $1.4780. UKs GDP estimate from the NIESR at 11 pm GMT will be key and so will the Mar PPI data on Thursday. A close below $1.4560 would be a notable negative as it is the 100-day MA, a break of which would extend losses towards $1.4347.

Risk aversion trades test the threshold in the various markets, with yen strength dragging USD below 100, USD strength, dragging EUR, GBP and AUD below 1.33, 1.46 and 0.71 cents respectively, while oil tests $50 per barrel. The RBA decision to cut rates by 25-bps was well received by the Aussie as the RBA allowed for the possibility for rates to bottom at 3.00%. Media pundits are blaming the sell-off in global stocks on various reports on toxic assets from the IMF and private banking analysts. The IMF report stated toxic assets in balance sheets worldwide could reach $4 trillion. This is over one year after the IMF was shunned by US policy makers when it estimated that total banking losses could reach $1.3 trillion. Losses from writedowns have now approached this level, and neither the latest equity rebound nor policy easing has worked in stabilizing these values. I still expect the S&P500 to fail in breaching above the 860-870 level and Dow to rise past the 8,300-8400 level. Base case remains for the March lows to be retested in June-July.

How Far Can Markets Go? Watch Ashraf om CNBC's Squawk Box earlier today discussing equity indices, risk appetite, magnitude and duration.

http://www.cnbc.com/id/15840232?video=1084233364&play=1

While sell-off in stocks is being attributed to a banking analysts highlighting of the ongoing dangers in the banking sector, markets needed little catalyst for a pullback after nearing key threshold (860-865 upside in S&P500). This was the equivalent of $1.50 in GBPUSD, 121.60 in USDJPY and 0.72 in the Aussie-- all key resistance levels. Watch for the RBA decision at 4.30 am GMT, which we expect to keep rates unchanged at 3.25%. Such a scenario would be a positive for the Aussie across the board but if Asian stocks are come under pressure following a negative US session, then Aussie losses may intensify. A 25-bp rate cut is delivered could magnify such selling.0.7020 target stands next.

USDJPY fails to break above the key 101.60 resistance as US stock futures are down across the board. USDCAD dod break below the 1.2270 support but has now rebounded over a full cent towards $1.2400. More gains ahead seen past 1.2430. Readers can check out the latest speculative flows the Chicago Mercantile Exchanges International Monetary Market at the FUTURES/ CHARTS SECTION of the website. Speculators (non-commercial interest) in were net short yen against the dollar for the third straight week, which is the longest yen-selling streak since September at with 9,463 contracts. Last week, euro long interest versus the dollar has turned net positive at 2,265 contracts, the first net positive balance since July.

Despite latest suggestions from the IMF calling for an accelerated Eurozone membership for Eastern/Central European nations, EURUSD still shows resilience, especcially after last week's hold above the 100-day MA. Latest CME speculators' committment report shows euro long interest versus the dollar has turned net positive at 2,265 contracts. The 200-day MA of $1.3770 remains the key target for the bulls

From This Weekend's FT: Beware of the Bear Market Bounce http://www.ft.com/cms/s/0/12240f14-20b0-11de-b930-00144feabdc0.html Next week's data calendar will be busy on the Canadian and Aussie end. Canada's building permits and PMI on Monday, housing starts on Wednesday and unemployment report on Thursday could climb to 8.0%. Aussie RBA decision on Tues could leave rates unchanged and unemployment on Thursday seen at 5.5%.