Intraday Market Thoughts Archives

I was giving a course on Intermarket Cyclical Analysis for the past 5 hours for our London attendees so was unable to provide more frequent updates. While the mainstream media is increasingly focusing on the latest probing lobs in international currency diplomacy (China, France & Germany), FX traders are focusing more on the latest evidence of risk aversion (tumbling oil, falling yields and retreating equities). Yesterdays yield spike in UK gilts looked more of an aberration to a Bank of Englands decision (not to announce extra asset purchases scheme) that would almost inevitably be changed when the BoE is forced to renew the scheme next month. W'e're back to the risk aversion play as predicted throughout the past 3 days.

FX markets growing more nervous over risk aversion (Dow futures at worst levels of the day, oil retests 59.50s, bond yields down, gold eyes $900), as the high yielders show the most damage; AUD extending losses against NZD and CAD, while JPY accelerates gains to session highs. EURUSD breaks below $1.39, eyeing $1.3820, while cable eyes $1.6170s. USDCAD eyes 1.1655, a break of which to take us towards this weeks high of $1.1690.

Traders must think beyond justifying every 0.5% move in equities or 80-90pip move in currencies when choppiness and indecision are dominating the flow. Oil's slide below $59.30s and subsequent bounce towards $60.20 triggered 100-pip moves in USDCAD. But the positive correlation among stocks, CAD and oil remains alive..and so does the negative correlation with USDCAD. Among the key factors to successful FX trading is money management, which includes conservative margin utilisation. This is vital in overcoming choppiness and whipsaws, enabling traders to stick to their positions. Heightened indecision in equiyies around key support levels may not be a good sign.

What goes up must go down and what goes down keeps on falling. Oil extends its damage, falling below $60, while stock head back into negative territory, supporting JPY and USD anew. The BoEs announcement to maintain its quantitative easing intact at $125 billion did help GBP only temporarily before sending cable back to $1.6190s. S&P500 will once again attempt retesting the key 877 support. US bond yields remain weak at 3.35% despite the bigger than exp decline in US jobless claims, which proved to be more of a result of July 4th holiday (people less willing to file for unemployment during holiday). EURUSD fails at $1.40, while USDCAD regains 1.16, eyeing 1.1630.

HEADS UP: Australian June jobs report at 1:30 am GMT expected -20K from -1.7K in May, and the unemployment rate up to 5.9% from 5.7%. (risk seen for 6% unemp). Recall that yesterdays solid consumer confidence figures reaching 19-mth highs were easily overwhelmed by the sharp risk aversion trades weighing on AUD and other risk currencies vs USD and JPY. Chinas arrest of Rio Tinto executives and the potential for disrupting Australia-China economic relations is also said to have contributed to the negative reflex against the Aussie. AUDUSD resist at 0.7840s at which renewed selling is seen. AUDNZD extends damage and eyes 1.2380 target, followed by 1.2330. AUDJPY upside seen capped at 73.30s.

Just as markets attention was fixated on technical analysis on the way up (measuring magnitudes and durations of bear market rallies), attention today shifts back to the charts, with reference to bearish patterns such as head-&-shoulders and trend line support. Logical interporlations of classic of H&S formations suggest 7,500 in the Dow, and 810 in the S&P500. CRB already broke below its key trend line support from March as oil and gold extend sell-off.

Our sub-93 target in USDJPY has materialized amid the battering in JPY crosses as risk appetite is damaged globally with S&P500 falling below the key 877, oil breaks below 61.80, all to the benefit to the USD against all currencies with exception of JPY, which is the main winner. Gold tests 910,with next key support at 900, followed by 200-day MA at 870. GBPUSD eyes next support at 1.5940.

US equities attempt to stabilize risk appetite after the Asian equity selloff sent JPY to 6-week highs as oil and bond yield tumbled to 9-week lows. With Chinas president leaving the G8 meeting earlier than expected and Forex determined to not be a topic of this weeks meeting, traders may expect further robustness in the currency. Any accumulation in equities bounce is to boost AUDUSD and NZDUSD back towards 0.7920 and 0.6340, while USDJPY remains in its lose-lose cycle, facing resistance at 95.50. Markets await the US oil inventory data out at 14:30 GMT.

Both AUDJPY and NZDJPY break below their 5 1/2 mth trend line support, as the high yielders join other yen crosses in their risk-aversion damage. Watch Ashraf's interview on Bloomberg TV earlier today discussing China's currency rumblings, reserve currencies and the choppy stabilization of the US dollar http://www.bloomberg.com/avp/avp.asxx?clip=mms://media2.bloomberg.com/cache/vPVYj5ogul.0.asf&vCat=&RND=878225601&A=

Bond yields and oil prices are both tumbling, in line with our latest article of the week as economic concerns further reduce the appetite for risk. 10-year yields test the 3.45% support, while oil struggle to hold above $63. We still expect 3.20% to be the yield low in the current cycle. The 3-year US auction garnered sufficient interest from indirect dealers (proxy for foreign investors). USDCAD hit a session high of 1.1660, looking to regain yesterdays 6-week high of 1.1680. Aussie topped out at 0.8037 vs USD and 76.60 yen, eyeing 75 support. Cable remains vulnerable to a break towards $1.6070, with upside capped at 1.6330.

Current risk environment remains in corrective move, whereby equities and FX remain predominantly in a risk aversion mode. Thus, short term longs in AUD and EUR vs JPY remain favoured. Keep watching the interaction between oil and stocks as both struggle to regain positive territory. Since sterling weakness remains amid the weakest of currencies, consider shorts GBPAUD and GBPNZD as traders remain reluctant to build long term GBP positions ahead of Thursdays BoE announcement. Watch Ashraf on Bloomberg TV at 10:10 EST (14:10 GMT, 15:10 BST) discussing the G8 and Chinas demands for a new reserve currency.

Aussie remains robust after RBA issued a more upbeat policy statement, which dampened expectations for further rate cuts. AUDUSD and AUDJPY hit a session high of 0.7990 and 76.23, but more gains would have been seen had Japanese equities closed higher. Any rebound in risk appetite in Europe & stabilization in US equity futures is likely to fuel more gains in Aussie crosses--76.40s in AUDJJPY. Sterling remains among the big losers if the session, especially after unexpected decline May manufacturing data. US crude futures +0.58 at 64.59. USDAD support stands at 1.1550, followed by1.1505.

US stocks comeback into positive territory enabled minor risk-seeking trades to run into the Asian session, especially as Nikkei-futures edge closer into positive territory (currently -6 pts after Mondays -135 pts). The prior IMT favouring AUDUSD and AUDJY have been attained well before the NY close, and more upside is seen in Asia into and 76.30s and 0.8030s. No formal G8-rhetoric on FX is due out until July 9th. Cable recovery seen capped at $1.6360, while USDJPY capped at 95.80. Silver still supported at $13.00, with support extending from the Nov low of $8.40 and $13.20 being the 38% retrcmt from the 8.4 low to the 16.2 high. 55-day MA at 12.96 and 200- day MA at 12.87.

We could see a short-term pop in Aussie pairs (AUDUSD & AUDJPY) this evening if US equities extend their recovery into positive territory, especially if the June AIG construction index for Australia (due 23:30 GMT, 0:30 BST) improves from 46.9. Also pay attention from the RBA statement (4:30 GMT) when it is expected to announce inrterest rates unchanged at 3.00%. This could pave the way for AUDJPY gains towards high 75.70s and AUDUSD towards 0.7960s.

US Stocks attempt at paring earlier losses as the data calendar releases a better than expected June ISM at 47 from 44. Sterling remains amid the big losers ahead of the Bank of Englands expected addition of its asset-purchasing arsenal later this Thursday (see todays article and BNN interview). GBP resistance stands at $1.6330 and 155.50 yen. Oil appears ripe for further downside, with $62.00 seen as next target, in which case USDCAD and EURCAD seen bound towards $1.1720 and 1.65 (after temporary retreat towards 1.60). ETF investors may consider DUG, which is an ultra short oil & gas ETF, suggesting upside towards the $24.50s. Thanks for the tweets and retweets on our 1,155 updates on forex, equityes, commodities and more.. http://twitter.com/alaidi

Ashraf's interview earlier today discussing currency diplomacy & the G8 meeting, tumbling sterling & Bank of Ehgland, falling oil and the prospects for the Canadian dollar.

http://watch.bnn.ca/clip190451#clip190451

Concerted selling in Asia and Europe further accelerated oils decline below $64, prompting sharp declines in CAD vs USD (1.1679) and JPY (81.47). Sterling collapsing below the $1.6185 support to 1.6102 on expectations the Bank of England will expand its asset purchase program by an additional 25 billion. $1.6050 stands as next support, followed by $1.5770. The upcoming US services ISM (14:00 GMT) is exp at 46 from 44. Canadas jobs report on Friday could to keep USDCAD firmly in the upward channel, eyeing 1.1750 and 1.1830. Godl remains propped at 910. Dow futures -75 pts