Intraday Market Thoughts Archives

AUDUSD & EURUSD DOUBLE CHARTS http://chart.ly/5btuthl AFTER A LONG WAIT. AUDUSD falls into the much anticipated Head & Shoulder formation, whose right shoulder (resistance) was repeatedly tested but failed at 1.0190s. Such formation is similar to the H&S formation of April-May 2010 before the RBA intervened at 0.80. EURUSD failed to near the 3-year trendline resistance at 1.41, while more recenty was unable to take out the 1.5750s right shoulder resistance. The 55-WEEK MA acts the next support on the medium term horizon.

WILL WE SEE BOTH OF THESE INSTRUMENTS MAKE A TURN IN THIS CHART? http://chart.ly/7js4xoc As Egyptian protests escalate to the point that the people have surrounded the Presidential Palace signals the surge in anger resulting from Mubaraks refusal to stand down. If the crowds anger transpires to a post-Friday Prayer resurgence and the Military engages with the crowds, then it is possible to see the safe haven USD-buying (which we saw 2 Fridays ago) boosting Treasuries (falling yields), oil, gold and weighing on equities. In such a situation, however, we may see the currencies of these commodities struggle against the USD. This is all the more possible since USD positive momentum is already on the rise. EURUSD never made it above $1.3720s right shoulder (see prev IMT) and has now hit the prelim target of $1.3580, yet requiring a close below the 100-day MA of $1.3520. AUSSIE REMAINS THE FOCUS OF bearish risk currencies, eyeing 0.9930s, followed by 0.9880 and 0.98 (61.8% retracement)

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BERNANKE TELLS CONGRESS rising bond yields are a result of improved growth expectations and not inflationary preoccupations. This is the CONVERSE OF THE GREENSPAN ERA when the former Fed Chairman used to explain the 2004-5 decline in bond yields (despite prevailing Fed rate hikes) via Asian buying (his explanation of the Greenspan Conundrum). It was also around the time when the YIELD CURVE began to FLATTEN, which led me and many other fixed income strategists to put the finger on an yield curve inversion, which would signal eventual rate cuts and a possible recession. Those signals eventually proved correct (as explained in Chapter 6 of my book http://www.ashraflaidi.com/book/

We also remember when Bernanke and the rest of the FOMC reiterated that inflation was the greater danger as late as Spring 2007. But they cut rates in August of that year. Each time the Feds repeated pronouncements grow at odds with the bond market, something got to give. In the England, the BoE is WIDELY expected to hold rates unchanged at 0.50% tomorrow despite the addition of one more hawkish dissenter at the January policy meeting (Weale joining Sentence to call for 0.25% hike). GBPUSD rallied to $1.61 on Bernankes dovish talk and falling US yields resulting from strong indirect participation. Anyone considering a short in cable into and after the BoE decision must be protected at $1.633- trendline from the 2007 highs. EURUSD STRUGGLING around the right shoulder near $1.3720s, part of the H&S formation whose LEFT shoulder stands around $1.3750s. Daily stochastics turning negative for a potential $1.3660s and $1.3580.

Ashraf's Arabiya Interview earlier today on the Egyptian pound, the latest intervention by the cenbank, foreign holdings of $25billion worth of Egyptian T-bills/bonds and the China rate hike http://youtu.be/69CpGRQqV7I

Ashraf's interview on BNN about China's rate hike, the FX reaction and the outlook for equity indices http://watch.bnn.ca/#clip414484

EURUSD seen capped at $1.3670s, with the $1.37 trendline resistance imposing--also just below the right shoulder for an interim target at $1.3590 & 1.3520--100 day MA. Also check out the clear right AUSSIE shoulder failure of 1.02, now looking at 1.0055.

Ashraf 's CNBC interview earlier on Egypt, China and the emerging hawks in the US dollar http://bit.ly/ifVeBb

Ashraf's Video Charts Analysis for Reuters Thomson charting Yields vs SP500 & revisiting gold resistance http://link.reuters.com/cyp87r

Ashraf 's interview on CNBC Aravia today discussing China's rate hike, the impact and outlook of bond yields & EUR, GBP levels

http://youtu.be/RqeCkKieVB8

The mailserver at AshrafLaidi.com is undergoing some changes and normal operations will resume later this week.

CHINA RAISES 1-year lending and deposit rates by 25 bps to 6.06% and 3% respectively, effective Feb 9. This is the 3rd interest rate hike (Oct 19, Dec 25 and today) from the PBOC in an effort to contain lending and temper inflation, currently at 4.6%. The rate hike announcement comes 1-day before Chinese markets return from the Chinese New year Holiday. Inflation slipped to 4.6% in December from 2 year high of 5.1% in November. Markets are taking the China hike in stride because as many 4 rate hikes are priced in this year. Only when Chinese economic data start to cool down further would markets show a real worry that the obligatory tightening aimed at containing inflation would upset the economy. Note the Jan manufacturing PMI slowed to 52.9 (lowest in 5 months). FX markets remain in tight ranges (EUR supported above 1.3520 whole facing resist at 1.3720, Aussie capped at 1.02 & GBPUSD shows lower highs on 4-hr chart, vulnerable to 1.6020s.

The ever volatile German factory orders fell 3.4% in the month ending in December, following a 5.2% surge in November. The December decline was the biggest since September, but the upward trend in capital goods orders remained intact. The data served as a convenient catalyst to extend the euros losses across the board after Thursdays ECB press conference dampened expectations of a looming ECB hike. Euro technicals poin to $1.3520 being the important 100-day MA. A breach of which risks $1.3280 as early as this week. We are seeing CLEAR DIVERGENCE between rising stocks and stabilizing/strengthening USD, whereby the latter emerges after the EU session. EURO YIELD SPREADS CONTIUE TO BE DAMAGED, with GE-UK 2-year yields at -0.19% (lowest since Jan 19) and GE-US 2-year yields at -0.58% (lowest since Jan 17). A relatively light economic calendar in the US will give way to further earnings and testing new 2.5-year highs in equities, but once again the inability for EUR, GBP, CAD and AUD to maintain their session highs and lose 0.5-0.6% thereafter attests to the impact of rising USD yields in favour of USD.

Ashraf's appearance on CNN International earlier today discussing UK growth, inflation, & Eurozone debt concerns http://bit.ly/dVtIQe

RISING US BOND YIELDS DESPITE WEAK see the CHART on Yields and EURUSD http://chart.ly/8nv3bjd 36K RISE IN JAN US payrolls. 10-year yields jumped 11 bps to 3.62%, the highest since May 2010. The level COINCIDES with the vital technical resistance at the 200-week MA and the 76.4% retracement of the decline from the April 2010 high to the Oct 2010 low. Bond traders remain preoccupied with unfolding inflationary pressures despite Bernankes insistence to the contrary. Aside from the 2-year lows in the unemployment rate, AVERAGE HOURLY EARNINGS rose 0.4% from 0.1%, the fastest increase since Nov 2008. Such figures will likely justify the bond vigilantes inflationary worries, especially after Dallas Fed pres Fisher said on Thursda he was unlikely to vote for more quantitative easing after QE2 expires in June. Mr Fisher and his Philadelphia Fed counterpart Plosser are expected to begin dissenting with the current easing as early as in the March meeting. The EURUSD CHART SHOWS $1.4130 multi-year trendline resistance remains out of reach and selling is likely to dominate near those levels. ASHRAF WILL BE ON CNN International on Monday at 9:00-9:30 GMT

Our email system at AshrafLaidi.com will be temporarily down as we are undergoing some testing. the IMTs will be posted on Twitter/alaidi each time they are released on the website. Operations should go to normal by mid week.

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