Intraday Market Thoughts Archives

LOONIE EXTENDS FLIGHT after fresh round data strength, this time

from a 35.8K increase in Aug jobs. Although the unemp rate edged up to 8.1% from 8.1%, the rebound in job creation means that Jul was the only month of job losses so far this year. This weeks rate hike (3rd of the year) and the jump in the PMI, has extended USDCAD selloff from last weeks 1.0570s highs to 1.0280s. 1.0250 seen as the next target in focus. EURCAD adds to losses, breaking below 1.32, eyeing June trendline support at 1.3060. Strong import data from China lifted risk appetite in Asia, which means bolstering AUD and weakening JPY across the board. AUDJPY trendline resistance from the June high at 78, remains out of reach for the bulls. Only a close above 78.20-30 would signify a real probability to recapture the 79.30 and 80s.

ANOTHER REASON WHY JAPAN WONT INTERVENE. In addition to the several reasons why Japan is unlikely to engage in yen-selling intervention (I mentioned those in countless interviews and IMTs found on this website) is that the currency is NO LONGER MOVING RAPIDLY. Yes, the yen is strong, standing at 9-year highs in trade weighted terms, BUT IT IS NO LONGER MAKING ANY SHARP MOVEMENTS.,.and sharp movements are the main culprit for central banks to intervene. Yen holds steady in the midst of the cross fire involving PM Kan & DPJ rival Ozawa. The latter vows to be nominated by his party for the PMiership at the Sep 14 run-off. Meanwhile, not a day passes without Fin Min Noda making a statement on yen strength, They are trying to change the script by showing they have not thrown the towel in the face of excessive yen strength. Therefore, they say they might intervene. But every FX player as well as Japanese officials themselves are fully aware that any yen-selling will bear no fruits beyond 1 or 2 trading sessions. Why? Because the yen continues to rally against currencies whose central banks are on the verge of some form of quantitative easing (Fed's stepping up treasury purchases, ECB extending 3 & 6-month lending facilities into Q1 '2011 and BoE hawk-dove balance tipped towards the latter Martin Weale and sharp slowdown in core CPI). They also know neither the Fed nor ECB is willing to coordinate in any yen-selling intervention, thereby, further rendering any yen decline short-lived. So bottom line, yes, we may see a stepping up of verbal intervention in upcoming days, and even see some selling but any yen pullback is seen short-lived. Ill be travelling on holiday for rest of week so updates will be less frequent than normal.

The rebound in 10 yr spreads of the PIIGS, is being dominated by Ireland and Portugal both of which, saw their spreads relative to Germany hitting new highs at 451 bps and 360 bps respectively. Portuguese spreads hit new highs on a combination of sharply slower Q2 GDP (0.3% q/q from 1.1% in Q1) and disappointing bon auctions. We just had a disappointing 3-yr and 10-yr bond auction today, with the avg yield for 3-yr bonds rising to 4.09% from 3.6% in June auction and the 10yr bond seeing its avg yield rising to 5.97% from 4.17% in June. Greece 10 yr spreads stand at 960 bps, just below the 970 bps record reached in July. But with 10yr yields standing at 11.75%, debt servicing costs shall remain a burden, especially as debt is widely expected to hit 150% in 3 years from 133% in 2010. Ill be travelling on holiday for rest of week so updates will be less frequent than normal.

Ashraf's appearance on CNBC discussing the re-emerging debt concerns of the P-I-I-G-S. http://bit.ly/aYcG8k GBPUSD has yet to close above the $1.5520 trendline resistance, trading around the 55 and 200-day MAs. $EURUSD proved underpinned at $1.2660s, which is the Aug 24 trendline support. Immediate resistance stands at $1.277538% retracement of the rally from the $1.1878 low to the $1.331 high. The 55-day MA follows at $1.2790.

Ashrafs Video Analysis from on the relationship between copper, CRB and the AUDJPY, focusing on coppers performance relative to the CRB index and the implications for AUDJPY http://bit.ly/ajn577

EUROPEAN EQUITIES ATTEMPT to stabilize the risk aversion from Asia after fresh yen strength weighted on the Nikkei. The Hang Seng dropped 1.4% after Vodafone sold its stake in ChinaMobile, dumping fresh supply into the market. GBP extends rally on tech buying at the 55 and 200-day MAs, with rising July Indus production sustaining the rally. Yet immediate resistance stands at the 3-week trendline resistance of $1.5. EURGBP accelerates losses after Mondays failure to break above the 100-day MA of 0.84, now facing 0.8177 target, which is the trendline support from the Aug low. Daily stochastics pointing to further losses, towards a possible break of 0.8150.

Ashraf is featured in today's Financial Times' "View of the Day" (page 35) http://twitpic.com/2m3c60 disussing central bank easing, precious and base metals.

YEN STILL DOING IT as the mere sign of profit-taking in global bourses, sends yen crosses falling across the board. AUDJPY proved once again unable to break the trendline resistance of 77.70s, extending from the June 21 high. And with AUDJPY Daily stochastics showing a negative cross-over, prelim downside target stands at 75.80. EURJPY breaks well below its own trendline, takoing out prev IMT target now eyeing 106.30. GBPUSD breaks $1.5340, eyeing $1.5265. AUDCAD HotChart seen capped at 0.9525-30 w/ CAD downside limited ahead of tomorrows BoC decision.

BACK TO SCHOOL & RISK AVERSION as Asian stocks dip back into the red; Jullia Gillard keeps power for Australias Labour Party thanks to the backing of 2 independents. Though her tax on resource makers is a watered down version of her predecessors 40%, both Aussie equities and the currency are pullingback. YEN EDGES UP over CHF & USD, dragging EUR below the 107 trendline support (Aug low indicated in early morning tweet) now eyeing 106.50s. EURUSDs failure to close US above $1.2770s calls up 1.2690s. Reports that European banks stress tests were not tough enough as well as worries about PIIGS revisiting the bond markets this month is also causing broad EUR jitters. EURCHF eyes 1.2870s, while USDCHF makes another attempt towards parity.

SWISSIE TAKES OVER in thinning volumes as London winds down into a US/Canada market holiday. USDCHF eyes 1.0090s trendline support extending from the Mar 2008 low. Selling pressure remains significant at 1.0220s for a retest of 1.0090s. EURCHF remains capped at 1.3120s, drawing sell orders towards 1.2970. *** LATEST HOT CHART *** IS NOW UP http://bit.ly/czuGex

MORE USDCAD DOWNSIDE (SEE CHART http://chart.ly/d3xo7bs )

as the loonie cheers the rise in risk appetite, especially when it is propped by improved US dynamics such as the US jobs report. CAD also gaining ahead of Wednesdays BoC interest rate decision, which is expected to produce 25-bp rate hike to 1.00%. Ive repeatedly mentioned the 1.0660 resistance, which has no reason to break as long as equities remain supported at key levels of 1040 in SP500. There is a small risk that the BoC may NOT raise rates on, therefore it is best for USDCAD shorts to scale down ahead of Wednesday. GBPJPY has little reason to rally beyond 130, with downside calling 128. Public Holiday in the US means data plummeting FX liquidity after 15:30 GMT. Ashraf to speak on CNBC-Europe at 11:05 GMT