Intraday Market Thoughts Archives

Next week will be the last full trading week of the year but it won't be over for rampant market speculation--over the magnitude of the Fed's rate cut and the US Treasury's attempts to rescue Detroit. Tuesday's FOMC decision is expected to produce as much as a 75-bp rate cut to new low of 0.25%. The Bush administration may try to save face of the Republican party (largely blamed for rejecting the $14 bln rescue to US automakers) by tapping emergency funds of the TARP package and extend a shortlived lifeline. Eternal bulls may argue that an approved rescue and a 75-bp FOMC will help implant a bottom in stocks. But real impact of such measures is doubtful in a deepening recession.

Catch Ashraf's TV appearance on CNBC-TV's Squawk Box at 7.30 am EST (12.30 pm GMT).

The dollar's losses were particularly highlighted against the yen, as USDJPY broke to fresh 13-year lows at 88.31 yen due to the Japanese currencys continued outperformance in global FX markets and the dollars broadening woes. One distinct difference from yesterdays trading is that commodities and higher yielding currencies have come off their highs as the deepening losses in global equities prompt a fresh wave of risk aversion, thus dissipating the recent impact from the USD-driven losses. This is manifested in sharp sell-off in JPY crosses (yen gaining versus the rest) and a broad retreat in CAD, which continues to thoroughly show its inverse relation to risk appetite. WATCH OUT FOR US RETAIL SALES and UNIV of MICHIGAN later today.

INTERVENTION CHATTER? As USDJPY drops back towards 91, less than a yen away from its 15-year lows of last October, dealer desk chatter is once again mentioning the "I" word. We may get more awful data from Japan next week --Tankan survey, but if current risk climate has it, yen could end up dragging USD. END-OF-YEAR INTERVENTIONS are NOT UNUSUAL from japan, as has been seen in 2002. Japanese dealers do not take their vacations until first week of January so they could take advantage of thin trading vols in last 2 weeks of Dec and sell yen.

Forex traders further bid up the EUR, GBP and other higher yielding currencies against the USD, but the JPY remains stubbornly firm, especially against the broadly sold USD. USD weakness is displayed in golds breach of $810 but $850 remains a harder obstacle to pass. Short-term trades likely to favor GBPUSD towards $1.5000, followed by $1.5040, while EURUSD eyes $1.3250s, followed by $1.34 as seen in today's article. All these factors are further driving downward bias in USDCAD, which has been testing 1.2450- 2 1/2 month trend line support. Resistance remains staunch at 1.2780.

EURUSD DAILY. My mid-day note to CMC Clients stated "EURUSD is more than capable to have another attempt above and beyond the figure and onto $1.3040s. The trend line support of $1.280 remains increasingly underpinned". The $1.3040 was broken but not the key $1.3080, which is vulnerable to a breach towards $1.3250 (risk appetite) on better than expected US retail sales and a positive outcome from Capitol Hill. Meanwhile, 1.31 to remain considerable obstacle.

I warned CMC clients yesterday in the event of a 75-bp cut, CAD downside is expected to broaden, with USDCAD likely to overshoot to as high as 1.2720-40 before a retreat towards 1.2660s is guided by rallying equities. USDCAD topped out at 1.2740s before retreating below 1.26. Current decline in risk aversion and modest rally in commodities may extend losses in USDCAD towards 1.2520s, leaving resistance intact at 1.2720.

Markets are bracing for what is now a tentative $15 billion package for Detroit as a possible source of cushion before the US data schedule resurfaces (jobless claims Thursday and retail sales Friday). While the House may vote today, the Senate could take until next week and a filibuster is not impossible.

BoC surprises with a 75-bp to 1.50% cut (instead of expected 50-bps), sending USDCAD likely above 1.27. Further upside towards 1.2750 is seen limited, especially maintain their upward tone. Fresh selling in equities may further aid USDCAD towards $1.2770.

Todays Bank of Canada rate decision (9am EST) is widely expected to produce a 50-bps rate cut to 1.75%, which would bring the accumulated easing to an aggregate of 275 bps since Canadian rates were cut in December 2007. Canada also had a horrendous jobs report of its own on Friday, with the net loss of 70.6K jobs in November (biggest monthly decline since 1982) and a rise in the unemployment rate to 6.3% from 6.2%. At its last rate cut, the BoC highlighted US weakness, falling commodities and continued weakness in credit markets as the principal negatives for its prolonged dovishness. With no improvement any of these, the BoC is widely expected to deliver a 50-bps rate cut. In the event of a 75-bp cut, CAD downside is expected to broaden, with USDCAD likely to overshoot to as high as 1.2720-40 before a retreat towards 1.2660s is guided by rallying equities.

JPY crosses push back up as risk appetite curtails some of yesterday's gains in the aftermath of a gloomy report from the British Retail Council. All stock futures are down across the board. Germany's December ZEW survey is due at 10 am GMT expected to show renewed declines (-57.5 from -53.5) and (-60 from -50.4) after a surprising improvement in November. BANK OF CANADA interest rate decision (2 pm GMT) widely expected to produce a 50-bp rate cut to 1.75%.