Intraday Market Thoughts Archives

The are growth and inflation arguments favouring the case for bond yields. Here are the fundamental abnd technical arguments as well as the YEN implications. http://www.cityindex.co.uk/market-analysis/market-news/5040732013/bond-yields-will-it-work-this-time/

Click To Enlarge

Markets consolidate large moves; British industrial and manufacturing production disappointed; Chinese CPI soared; Swiss deflation steady. Focus turns to trade deficit from US and Canada.

The common currency consolidates yesterday's gains and continues to trade near session highs. Other majors declined slightly against the buck. European equity indices are trading little changed and JPY leads while NZD lags.

GBP weakened after British industrial production disappointed as it grew only 0.3% in November while the market expected 0.8% growth. October's result was revised lower to -0.9%. Manufacturing production fell 0.3% from previous -1.3%. MNI reports that IP was driven by reopening of key oilfields and oil and gas extraction rose full 11.3%. GBPUSD trades around 1.6115 and EURGBP around 0.8125.

In other news, Chinese annual CPI soared in December to a seven month high at 2.5% from prior 2.0%; Swiss annual CPI remained at -0.4% and German finance minister said he saw a marked GDP drop in Q4 2012 but expects a significant improvement over 2013.

Italy reached a full take up as it sold 2015 and 2017 bonds totaling EUR 5 bln. The 2015 bond sold with markedly lower yield and higher bid to cover.

The US session begins at 8:30 am ET with trade deficit that is expected to narrow slightly in November to USD 41.1 bln from prior deficit USD 42.2 bln. Import prices are anticipated to grow 0.1% after declining 0.9%.

GBP volatility could heighten at 10:00 am when NIESR releases its December GDP estimate. Estimates are not available and November's result was 0.1%.

Canadian trade deficit that is due at 8:30 am ET is seen inching wider to CAD 0.3 bln from prior CAD -0.2 bln.

US trading on Thursday feature major moves in most currency pairs after Draghi said the ECB decision to hold rates was unanimous. The euro was the best performer and the yen the laggard. Chinese CPI and Japanese trade balance are the top upcoming releases. All 4 EURUSD and GBPUSD Premium trades have hit al targets. Other insights remain in progress.

Market participants looking for action found it on Thursday. The euro climbed more than 200 pips on a number of crosses after Draghi swamped euro shorts by saying that there was no serious discussion about cutting rates at the monthly ECB meeting.

The euro busted through 1.3150 to as high as 1.3175. EUR/JPY also climbed to an 18 month high.

The pound was dragged along with the euro strength while the USD dollar fell broadly except for the yen. The Japanese government continues to hammer away at the yen with Nikkei reporting the BOJ will specify a 2% target, may target employment and that the government will unveil a huge stimulus package aiming to create 600,000 jobs.

Late in the session, USD/JPY broke above 89.00 for the first time since June 2010.

Upbeat risk sentiment added to gains for risk trade as the S&P 500 closed at a five-year high. US economic data was light with jobless claims at 371K compared to 365K as the only notable release. The Fed's Bullard also added to upbeat sentiment by forecasting 3.2% US growth this year.

Asia-Pacific traders will have a great deal to digest with all the price swings while they were sleeping. In addition,  the Japanese current account and trade balance will be released at 2350 GMT. The trade deficit is expected at 832B yen

The attention will then shift to Chinese CPI at 0130. It is expected up 2.3% y/y. The Fed's Kocherlakota may also deliver remarks during the session.

The greatest trick the devil has ever pulled was to convince the world he didn't exist” – The Usual Suspects. But Draghi convinced the markets the OMT did exist in September without activating it. What ensued thereafter was a virtual easing, with peripheral bonds, equity indices and euro currency moving from strength to strength. Euro is powered up (highest daily percentage gain since September 7, 2012) after the ECB press conference revealed that none of the governing council members called for a rate cut at today's meeting, which added to the currency's earlier gains triggered by a strong Spanish bond auction. FULL CHARTS & ANALYSIS HERE

Click To Enlarge

Aussie jumped on soaring Chinese exports ; MPC keeps rates and QE steady; strong auctions from Spain and Italy. Market awaits ECB rate decision and press conference; jobless claims and two FED speakers. 3 charts were added to the existing Premium Insights (2 on EURUSD & 1 on AUDUSD). Both of the new USDJPY Premium longs used to replace Tuesday's unfilled trades are in progress.

The Aussie pushed higher across the board after December Chinese trade surplus rose sharply to USD 31.62 bln from previous USD 19.63 bln. Export skyrocketed 14.1% and imports rose 6.0%. AUDUSD trades near session highs around 1.0575.

As expected, the MPC kept the official bank rate unchanged at 0.5% and the asset purchase facility at GBP 375 bln. GBPUSD trades around 1.6060 and EURGBP around 0.8155.

Spain had another strong auction today. It sold 2015, 2018 and 2026 bonds totaling EUR 5.817 bln, above EUR 4-5 bln target. Yields were lower and cover solid. Italy sold 1 year BOT worth EUR 8.5 bln with the average yield at the lowest level since 1/2010.

The ECB will announce its minimum bid rate decision at 7:45 am ET. In a Bloomberg survey, 50 out of 55 economists expect the key rate to remain at 0.75%. The market is awaiting the ECB press conference that begins at 8:30 am ET.

Analysts will be watching mainly whether the ECB president Draghi mentions a discussion about a potential cut of the benchmark rate or the possibility of pushing the deposit rate below the current 0.0%. Jobless claims that are due at the same time are seen lower at 361K from previous 372K.

Later in the session, the market will watch two FOMC members' speeches. Kansas FED president George speaks at 1:10 pm on economic outlook and St. Louis FED president Bullard delivers a speech on monetary policy at 2:00 pm.

Many of you have ask about the difference between the Intermarket Insights and MNI Foreign Exchange Bullet Points in our Premium service. The Intermarket Insights are trade recommendations with charts and analusis issued by Ashraf Laidi. The MNI bullets are issued by Market News International's staff- here is a SAMPLE OF MNI's bullets below:

COMMENTARY: Cable continues to push lower following the failed test of the former Nov 16 support line. Initial resistance now seen at $1.6060/63/67, the 100-DMA, 55-DMA and Dec 27 low. Daily studies remain in a slight downtrend and initial support seen at $1.5991/93/95, the 50.0% of $1.6747-1.5235, Jan 10 low and lower daily Bollinger band. A break below here will bring bears to the Jun 2012 support line at $1.5954 alongside the 76.4% and 100-week MA at $1.5959/61. Jan 10, 1:03

NEWS: JAPAN NIKKEI 225 INDEX ENDS UP 0.70% AT 10652.64 Jan 10, 1:02

EURO-DOLLAR TECHS: Daily Studies Stretched As Bears Eye Jul 24 Supp Line RES 4: $1.3487/91 High Feb 2012, 50.0% of $1.4940 to $1.2043 RES 3: $1.3388 100-week MA RES 2: $1.3292/3308 Upper Bollinger Band, High Dec 19 RES 1: $1.3150/56/59 38.2% of $1.4940-1.2043, 23.6% of $1.2662-1.3308, 21-DMA LATEST PRICE: $1.3045 SUP 1: $1.3026 Lower daily Bollinger band SUP 2: $1.2985/87/94 50.0% $1.2662-1.3308, Jul 24 supp, 55-DMA SUP 3: $1.2909/38/39 61.8% of $1.2662 to $1.3308, 21-week MA, 100-DMA SUP 4: $1.2814 76.4% of $1.2662 to $1.3308

COMMENTARY: Euro-dollar moves lower again to test our initial support level, the daily Bollinger band base at $1.3026. Daily studies are bearish while weekly studies are flat. Further support seen around $1.2985/87/94, the 50.0% of $1.2662-1.3308, a Jul 24 support line and the 55-DMA. Bulls will try to test the former May 1 trendline as resistance, seen at $1.3078. A break above here will likely encourage bulls to challenge further resistance around $1.3150/56/59. Jan 10, 1:01

EUROSTOXX50 TECHS: Bulls Failing To Break Above Jan 7 High At 2714.2 RES 4: 2796.6/2807.9 High Jul 22 2011, 76.4% of 3077.2 to 1935.9 RES 3: 2774.2 Channel top from Nov 16 low RES 2: 2748.2 3.00% MA Envelope RES 1: 2714.2/2723.2 High Jan 7, Daily Bollinger top PREVIOUS CLOSE: 2706.4 SUP 1: 2653.9/2666.0 21-DMA, Channel lower from Nov 16 low SUP 2: 2567.2/70.7/84.6 Dec 10 low, 55-DMA, Lower daily Bollinger band SUP 3: 2540.6 100-day moving average SUP 4: 2520.5 Former Sep 14 support line

COMMENTARY: Eurostoxx still trades just below the Jan 7 high, initial resistance at 2714.2 alongside the daily Bollinger band top at 2723.2. Bulls are looking to break above here and challenge further resistance, seen at 2748.2, the 3.00% MA envelope. Daily studies remain flat and slow stochastic study is in overbought territory. Initial support seen at 2653.9/2666.0, the 21-DMA and Nov 16 Channel lower. Jan 10, 1:00

JAPAN STOCKS CLOSE: Japan's Nikkei 225 ended the session higher, again helped by the weaker yen. The Nikkei was higher by 74.07 points, or 0.7%, at 10652.64. Jan 10, 0:46

FOREX: The greenback is trading higher across the board in Asian trade Thursday, as the yen again weakens on fresh speculation of BOJ easing action at its next policy meeting. Dollar-yen rallied to a session high at Y88.22, as press commentary in Japan says the BOJ is set to ease. Offers at Y88.25/30 capped gains initially, but traders note solid upside pressure could soon help a spike higher as London trade gets underway. Euro-dollar was tied to a narrow $1.3040 to $1.30654 trading range, last at $1.3045, as the market largely marks time ahead of the ECB rate decision and Draghi press conference. Jan 10, 0:45

DATA REACT: BofA Merrill Lynch economist Lu Ting said following release of central bank data:" Robust system-wide credit growth lends support to our view that GDP growth could rebound to 7.8% yoy in 4Q12 and 8.3% in 1H13 from 7.4% in 3Q. We expect Beijing to sustain the current policy stance which could be featured as marginally pro-growth without big-bang stimulus in 1H13. Significant incremental easing is unlikely and we may see some unwinding of previous credit easing in 2H13 on concerns of economic overheating, rising inflation and insufficient regulations on shadow banking. It's even likely for Beijing to tighten credit supply on the margin in 2H13 to rein in investment boom of new local govt officials who tend to ramp up FAI after leadership transition. That's part of the reason why we expect a below-consensus GDP growth in 2H13 at 8.0%." Lu said they expect new loan of CNY9 trillion this year, up from CNY8.2 trillion in 2012, expecting no rate cuts or hikes but some chance for reserve requirement ratio (RRR) cuts depending on FX flows. Jan 10, 0:34

EUROPEAN STOCKS: Major European bourses are initially seen trading lower Monday. Spreadbetters Cantor Index are calling the FTSE down 8, the DAX down 8 and theCAC down 10.Jan 10, 0:32

GERMANY: The latest opinion polls show support for German Chancellor Merkel and her CDU/CSU party is currently at the highest level since becoming Chancellor in 2005, the FT reports. Jan 10, 0:25

UK PRESS: Another dark day for the UK's high street Wednesday, as photographic retailer Jessops collapsed into administration, the Telegraph notes.

For a TRIAL to the COMBO for both Premium Insights and MNI, please click here http://ashraflaidi.com/premium/subscribe

Yen sellers returned with a vengeance as USD/CAD surged through 88.00. The aussie and kiwi were the best performers on the day. Chinese trade balance and Australian building approvals are Asia-Pacific highlights. We replaced both of last night's new USDJPY Premium longs as those were unfilled (missed by 10 and 30 pips respectively before the pair hit the projected targets of 88.70).  Access to these Premium trades is below. 

USD/JPY stormed more than a cent higher from 86.60 at the open on Wednesday. The trigger for the final portion of the rally was news of a meeting of Japan's Council on Economic and Fiscal Policy, which hasn't met in at least three years.

Headlines from the meeting were neutral and BOJ Gov Shirakawa said it was merely to exchange views but the market took it as a sign that new, dovish policies are coming.

The pound and euro were slightly weaker in New York trading but both resumed making gains against the yen. The Australian dollar wiped out the previous two days of losses and is threatening to make a multi-year high. The prices of AUD-driver iron ore continue to gain despite broad skepticism. The commodity has gained nearly 60% since the beginning of December.

The next factor for AUD is the release of Chinese trade data at 0200 GMT. Exports are forecast to rise 5% year over year and imports climb 3.5%. These numbers have been volatile in the past several months so a wide miss can't be ruled out.

The other release of the session is at 0030 GMT when Australian building approvals are expected to rise 5.0% after a 7.6% decline previously. The data could help break AUD/USD out of the recent 1.0470-1.0530 range.

Forget the 200-week moving average. USDJPY is now creeping up above its 55-month moving average for the 1^st time in 5 years as the yen sustains more damage across the board following the latest indications that BoJ will be forced to double its CPI target to 2.0% . The downward impact on the yen has already been prominent. But once JGB yields transition from making their usual short-lived into a full-fledged recovery, markets can talk about “this time is different” for Japanese equities and currency. Unfortunately, both of last night's new USDJPY Premium longs were unfilled missed by 10 and 30 pips respectively before the pair hit the projected targets of 88.70.  Access to these Premium trades is below. 

German IP disappointed; British trade deficit narrowed; aid for Cyprus likely delayed; daily studies on USDJPY to give sell signals; German auction. Canadian housing starts; crude inventories and 10 year auction are next. The 4 EURUSD GBPUSD trades from last night's Premium Insights considered high confidence trades the given positioning of stops. 1 EURGBP in progress. 1 of AUDUSD filled thanks to the overnight slide in Aussie. Both CADJPY remain unfilled, missing the 88.80 objective. Both Gold in progress/.

The greenback is stronger against most majors in the ongoing session. European equities are trading little changed.

The common currency came under pressure after German industrial production disappointed as it rose only 0.2% in November while analysts expected a 1.0% growth. October's result was revised up to -2.0% from -2.6%. Another factor behind the pressure on the euro is squaring of long positions ahead of tomorrow's ECB meeting. EURUSD trades below yesterday's low around 1.3050 and EURGBP fell to 0.8133.

In other news, British trade deficit narrowed in November to GBP 9.164 bln from previous deficit GBP 9.5 bln; Greek industrial production fell 2.9% y/y and Cyprus is likely to have to wait till early March before the financial aid is approved, German newspaper Handelsblatt reports inside sources.

USDJPY is consolidating yesterday's gains and trades around 87.50. Unless we see a push higher, daily studies on JPY pairs are likely to give sell signals shortly. Support is seen at 86.50, 85.60 and key support at 84.00. The next BOJ meeting is on 01/21.

Germany sold 5 year bonds totaling EUR 4.086 bln vs. EUR 5.0 bln target. The average yield rose to 0.53% from 0.41% and cover declined to 1.8 from 1.9.

The US data calendar is light again. It contains Canadian housing starts at 8:15 am ET that are expected to rise marginally in December to 198K from previous 196K. Crude oil inventories at 10:00 am are seen growing by 0.9M barrels last week after declining by 11.1M barrels the week before and the last risk event is the 10 year bond auction at 1:00 pm.

Ashraf and Boris Schlossberg on CNBC tackling the notion of a positive trifecta -- US dollar, US bond yields and US equities will rise in tandem. View video here  http://youtu.be/s_VI9myqDuI

Talk of a French downgrade was later denied as the euro traded close to 1.3080. The yen was the top performer while the pound sterling lagged. The Asia-Pacific session features Australian retail sales. 12 new trades in tonight's Premium Insights are added. Please see the Premium, Section for access.

The euro fell to the lows of the day at 1.3056 after a rumor that France had been notified of a downgrade swirled through markets. The rumor was quickly shot down by French officials but the kneejerk may have been in the wrong direction as Ashraf pointed out that euro has recently closed higher after downgrades.

Chatter about the yen was more lasting. Initial reports that the BOJ would consider easing and introducing a 2% inflation target later this month helped USD/JPY rebound from 87.00 to 87.35. A separate story said that if the BOJ introduces an inflation target it may not have a time attached, which would effectively water it down. A later round of USD/JPY selling knocked the pair as low as 86.91.

The yen crosses suffered worse with GBP/JPY particularly hard hit below 139.50 – more than 250 pips from yesterday's highs.

The top event on the Asia-Pacific calendar is the December Australian retail sales report. The consensus is for a 0.3% rise after a flat reading the month before.

The Australian dollar has struggled to hold gains above 1.05 in recent days, failing on six separate attempts to hold above the psychological barrier. The speculative market is long AUD but there is talk of sovereign demand below 1.0470 so the tight range could continue.

Japan to buy ESM bonds; German trade surplus lower and factory orders disappointed; Eurozone retail sales below expectations and unemployment rate hit a new record high. The sole item on the US data calendar is IBD/TIPP economic optimism. Our LATEST PREMIUM INSIGHTS cover 32 asset markets over the last 4 years tackling the following questions: 1)  What has EURUSD done in 2012 that it hasn’t in 10  years and what it means for the current cycle? 2)  Gold’s secular showing against 11 major currencies fared weaker than any of the prior 5 years but what it means for other commodities? 3) Commodities fared better in 2012 than their dismal 2011, but what it means for CAD and AUD? 4) Nikkei posts its biggest annual gain since 2005, but what has JPY done relative to 2009? More analysis on S&P500, FTSE-100, Dax, Copper, Coffee and oil See link below for Premium Insights.

The greenback is slightly weaker against all majors except JPY. European equities are gaining around 0.4% and the relative strength winner is CAD.

EUR is underpinned after Japan's finance minister Aso said that Japan plans use its FX reserves to buy ESM bonds to help stabilize JPY strength. The exact amount has not been decided yet. EURUSD trades around 1.3120 and EURGBP pushed to 0.8160.

On the data front, German trade surplus declined slightly in November to EUR 14.5 bln vs. October's upwardly revised EUR 14.9 bln and factory orders disappointed as they were below expectations at -1.8% after growing solid 3.9% in October.

Eurozone retail sales grew 0.1% in November after declining 0.7% in October and the unemployment rate hit another high yet again as it inched to 11.8% from previous 11.7%. The unemployment rate for people under 24 years is 24.4% which is the highest rate since record inception in 1995.

Gold continues to underperform as it trades little changed around 1654. WTI on the other hand trades in a solid uptrend that started nearly a month ago. It trades right below 94.00.

US reports are limited to a second tier IBD/TIPP economic optimism index at 10:00 am ET that is expected to improve to 46.3 from prior 45.1.

We added a 4-year comparative performance charting of 11 currencies, 7 equity indices, & 14 commodities for our Premium Insights members. This includes a new representation of cross-market performances, highlighting the existing and shifting relationships underpinning currencies, equities and commodities from 2009 to 2012.  Which was the best performing currency in 2012 out of a group of 11 currencies? How to figure that out without making several cross-FX comparisons? Can we draw a conclusion from Aussie’s performance relative to CAD and JPY? And how did copper fare against gold and crude? Coffee, cotton and corn are also included, as well as FTSE-100, S&P500 and the Nikkei-225. Click onto our latest PREMIUM INTERMARKET INSIGHTS for access.

The euro continues to rebound from the failed test of 1.30. The yen was the leader Monday in a day of consolidation while the US dollar rallied. Australian trade balance is the lone indicator in the Asia-Pacific region. Ashraf’s Premium Insights are due later this evening.

Two factors sparked the euro rebound in US trading. The first was chatter that the ECB will not cut rates on Thursday and could remain on the sidelines for the year. This was largely priced into markets already. The second was a report that Berlusconi has agreed not to run in the election.

Euro gains mounted after breaking through 1.3050 and the momentum led to a nearly full cent rally to 1.3122. The late December lows in the 1.3060/70 range are now the dominant feature on the short-term chart. EURUSD held up successfully above tje 1.3030 trendline support, which was signalled by Ashraf in Thursday's Pre-NFP webinar. The pair is up 80 pips since.

The lone data point was the Canadian Ivey PMI with a reading of 52.8 compared to 49.5 expected. The Canadian dollar ticked higher after the release and continued to gain as risk appetite recovered late in the day.

The lone item on the upcoming calendar is Australian trade balance at 0030 GMT. The consensus estimate is for a 2.3B deficit for the November period. A miss is unlikely to affect the market.

Ashraf Laidi discusses with CNBCArabia (in Arabic w/ English synopsis below clip) the “surprising” release of the minutes from the December FOMC meeting indicating “Several” FOMC members  favoured stopping or slowing the pace of asset purchases well before end of 2013.  Ashraf clarifies the vast ocean between . . .  more in clip synopsis (English & Arabic) http://youtu.be/DGhCtQErFA4

Eurozone Sentix confidence improved and PPI eased; Halifax HPI rose; SNB foreign reserves marginally lower; German auction. The sole item for the NY session is Canadian Ivey PMI. Members to the Premium Insights will see the first batch of trades released this evening after the US close.  Arabic speakers tune in to CNBC Arabia 18:30 Dubai Time.

The greenback is slightly weaker in the ongoing session. European equity indices are losing around 0.5% and the relative strength winner is NZD.

European data showed that Eurozone Sentix Investor confidence improved to -7 in January after previous -16.8, which is the highest result since July 2011. PPI slowed considerably in November to 2.1% from previous 2.6%.

JPY pairs declined during Asia but recovered partially during the London session. USDJPY fell to 87.62 and currently trades around 87.90. MNI reported that USDJPY at 88.00, if maintained throughout the year, would raise Japan's real GDP growth by 0.19%.

In other news, Halifax HPI rose 1.3% in December from prior 1.6% and

Swiss foreign currency reserves declined marginally in December to CHF 427.2 bln from previous 427.4 bln.

Germany sold 6-month bills totaling EUR 3.515 bln and kept EUR 485 mln for secondary market operations. The average yield was -0.0091% from previous -0.0168% and cover was lower at 2.1 vs. 2.5. Eurozone t-bill issuance is expected to be significantly higher this week at around EUR 28.5 bln compared to EUR 6.98 bln issued last week.

The data calendar for the US session is limited to Canadian Ivey PMI at 10:00 am ET that is expected to rise to 51.3 in December after slipping to 47.5 in November. The PMI index declined five times in a row. There are no reports from the US today.

BOJ and RBA Chatter as Markets Open

Early trades to begin the week have pushed the euro and Australian dollar slightly higher. The economic calendar is light around the world on Monday which will give markets a chance to digest a volatile first week of 2013. Weekly positioning data showed the euro held in a net positive position for the first time since Aug 2011. The link to the recording for Ashraf’s Pre-NFP webinar last week is listed below.

Early week chatter suggests the recent improvements in risk appetite and the global economy make it less likely that the RBA will follow through with a rate cut in 2013. That sentiment may be premature but it is underscoring Australian dollar strength as the week begins.

The yen is also under pressure after a report that the incoming Japanese government will introduce a supplementary budget of 12-13 trillion yen, more than the 10 trillion yen expected. There is also talk that the BOJ could introduce unlimited bond buys and that the government may not insist on a formally higher inflation target. The final headline risks sparking a round of profit taking in yen shorts.

Commitments of Traders

The moves in the weekly CFTC futures positioning data were tame with traders reluctant to put on positions at year end but the euro shifted to net long for the first time in 1.5 years.

EUR +5K vs -2K prior

JPY -81K vs -86K prior

GBP +36K vs +37K prior

AUD +80K vs +75K prior

CAD +66K vs +63K prior

NZD +17K vs +15K prior

The link to the recording for Ashraf’s Pre-NFP webinar with Fari Hamzei and George Cavaligos last week is here: http://www.hamzeianalytics.com/Educational_Webinars.asp