Intraday Market Thoughts Archives

Our WARNING YESTERDAY about a Chinese tightening to possibly occur as EARLY AS today http://bit.ly/bIDfca following those stronger than expected new bank loasn figures. Most pundits spoke about softer than expected CPI dissuading PBOC from tightening but we focused on the Loans Data.

We also broke the Chinese tightening (and implications for markets) on Twitter 20 seconds after it broke on teh wires and about 2 minutes before the TV channels reported.

If you do not follow us on http://twitter.com/alaidi you may be losing an egde.

REGISTER FOR ASHRAF's 1-day COURSE in LONDON: http://bit.ly/bSHPbb

Ashraf' on CNBC discussing China's decision to hike reserve requirements http://bit.ly/ckOLxe And Ashraf's Video take on Cantos http://bit.ly/bDl97K

SEE ASHRAF at the NYC EXPO This Sunday-Tuesday http://bit.ly/7BUDCJ

PBOC RAISES RESERVE REQUIREMENTS by 0.5%; This is weighing on risk appetite and reversing some of the overnight losses seen in USD and JPY. 1 Day after those aggressively strong bank loan figures, the PBOC pulls a "hit&run", further tightening monetary policy before going away on holiday for the Chinese New Year. ALL RISK ASSETS DROPPING ACROSS THE BOARD TO THE BENEFIT OF THE USD AND JPY. WE BROKE THSI NEWS on twitter the SECOND IT HAPPENED warning of impact on FX & commodities. Failure for US retail sales to surprise on the upside (such as Snow-related)could weigh on markets and further boost USD--EURUSD eyes 1.3480, CADJPY double top at 86, paving the way for 84.55.

Weak German GDP data further drives up the US yield advantage over that of Germany to fresh 2.5 yr highs SEE CHART http://chart.ly/eqbf3x further dragging down EURUSD, which is now eyeing $1.3570. GBPUSD faces the $1.5770-80 barrier, while EURGBP eyes 0.8620 trend line support (from Aug 6). GOLD will have to break above 1105-07 to resurrect any chances of rebound. US retail sales & consumer sentiment due later today.

The spread between German and US 10-year yields fell to the lowest since July 2007 at -0.49% (representing GE-US spread). SEE CHART http://chart.ly/eqbf3x The latest jump in US yields to 3.72% following Bernankes exit strategy speech (see yesterdays IMT) combined w/ falling Eurozone yields is adding to euros downside from a yield spread perspective. Today's euro rebound despite no concrete plan for Greece out of the EU lacks the fundamental legs to continue beyond $1.3770s. The cyclical pattern of the GE-US spread suggests further declines ahead into the Spring.

Watch Ashraf's analysis on the Greek fiscal crisis http://watch.bnn.ca/#clip265880 (after 06:00) EU Leaders end press conference saying NO AGREEMENT reached regarding concrete measures . ERUSUD & GBPUSD rebound seen capped at 1.3680-90 and 1.5670 with downtrend remaining intact.

EURUSD fails to make decisive break above $1.38 as EU says will reach agreement on Greece but lacks in details. EURUSD interim support stands at $1.3630. EU TIMETABLE: Post-EU Summit conference is expected at approx 15:30 GMT (according to MNI) for main EU presidency briefing, followed by the individual EU Fin Mins about an 1hr later. More detailed discussions on Greece will take place on Feb 15. GBPUSD once again fails near $1.5650s looking to retest $1.5560-70. CADJPY supported at 84.30, while AUD & NZD remain the better performers against JPY. AUD remains capped at 0.8950s (previous support), with subsequent barrier at the 50-day MA of 0.9020.

READERS OF THESE IMTs and FOLLOWERS of Twitter.com/alaidi were given the heads-up immediately after the Bank of England's inflation report, alerting them of the negative implications for GBP following the report and the release of Mervyn King's speech. Yesterday's IMT warned that all of King's speeches had ended up being NEGATIVE FOR STERLING. GBPUSD ended 2 cents lower. If those insights were not enough, we issued an IMT 25 minutes prior to Bernanke's testimony warning readers how the speech on "Exit Strategy" could be positive for USD. TWO MINUTES after the speech hit the wires we confirmed on twitter the following: "Exit Strategy will be attained by increase interest paid on bank reserves.$USDX bullish/ NEGATIVE FOR STOCKS". We then told twitter followers: "dont get carried away in selling $GBPUSD below 15570. it fell 200pips alrdy so dont start chasing now". Cable did bottom at 1.5570 before rebounding later in the session & topping out at 1.5620s before falling back to 1.5580s. This is what AshrafLaidi.com is about.

Oil closes right at its 200-day MA of $74.34, propped by the EIAs bullish forecast, the US snow storm and reverberations from Iran telling the IAEA it will start making higher enriched uranium in earnest within days. But FX markets are locked in uncertainty as French & German diplomats say they're working on a declaration of "political" support for Greece. French officials said no agreement is reached but discussions were ongoing. Despite rising oil, USD is gaining vs. EUR, GBP and JPY but NOT against CAD, which is now eyeing 85.00 after breaching above its 61.8% retracment. USDCAD vulnerable to breaching 1.06 towards 1.0570 support.

Watch Ashafs Video Market Analysis on the BoE inflation report, sterling's outlook, Bernankes speech and the assessment for Thursday's anticipated EU Summit in rescuing Greece http://bit.ly/d6e5jz

Fed Chairman BERNANKE's SPEECH on exit strategy will be released to the media at 15:00 GMT, ahead of which the USD is strengthening. Any signs or hints towards more clarity of an exit strategy will boost the US dollar. Bernanke is expected to list the various ways the Fed may start to withdraw liquidity prior to raising rates such as (i) paying interest on reserves (ii) reverse repos (iii) asset sales. There could be some short term USD decline in the event Bernanke reiterates that rates will stay low for considerable period; but the mere fact that Fed is addressing exit strategy while ECB is expected to extend liquidity could be positive for the greenback.

Cable down a full cent after BoEs inflation reaffirms temporary nature of the recent inflation rise and confirming sub-2.0% inflation by the end of the usual 2-year forecast period. GBPUSD mayhave broken above $1.57 but FAILED the $1.5790 TREND LINE RESISTANCE, now calling for interim support $1.5570, followed by the key target of $1.5350. Any rebound (such as from EU break through) is seen limited at $1.5790s. EU Fin Mins will hold a TELEconference today at 1400GMT to discuss Greece but the main EU Summit is due tomorrow. USDCAD remains range bound between 1.0620 and 1.06 and 1.0730, while CADJPY and EURJPY are supported at 83.30 and 122.70 respectivelly.

KEY CHINESE DATA Due tomorrow (tonight GMT) (retail sales, new loans & fixed investment), will be examined from a monetary policy lens, pushing traders to bet on further PBOC tightening in the event of strong figures, especially on the loans front. But any signs of cooling loans could show the latest administrative measures on restricting loans are working . Watch the HANG SENG INDEX (which attempts to regain its 200-day MA at 20200). WATCH the BoE Inflation report and Gov King's subsequent testimony; FX traders will be reminded of the CONSISTENTLY GBP-NEGATIVE reactions in GBP to each and every appearance/speech by Governor Mervyn King since August. LATEST HOTCHART NOW UPDATED http://bit.ly/9oQWra

EURO TRIPLE DOWNGRADE ASSAULT. No, the US fiscal challenges have never disappeared. But it is the triple downgrading assault on Greece's credit rating from Fitch (Dec 8), S&P (Dec 17) and Moodys (Dec 22), which exacerbated the sell-off in Greek sovereign bonds and the euro currency as a whole. The US dollar, which was boosted on Dec 4th by that surprisingly positive Nov jobs report, added to those gains and spilled onto fresh selling momentum in the euro as well as the commodity currencies. Those events, coupled with questions about possible downgrades in Spain and Portugal were largely instrumental in triggering the risk-aversion play to the benefit of the US dollar. We stick w/ our $1.32 EURUSD outlook. BERNANKE POSTPONES tomorrow's Testimony due to snow. *** REGISTER FOR ASHRAFs FULL-DAY COURSE in LONDON http://bit.ly/bSHPbb ****

It is not at all far-fetched for markets to drag down the euro and Eurozone sovereign bonds due to non-EUR specific dynamics; such as prolonged tightening from China (tomorrows retail sales, CPI & loan figures), hawkish remarks from Chairman Bernanke on Wednesday and/or disappointing US retail sales (attributed to bad weather). Markets typically exacerbate the risk framework from dynamics that are unrelated to the target market. CADJPY consolidation remains in 83.00-83.90s, providing ample room for traders to play the range. Strong CAN jobs figures may not permit excessive CAD shorts below 83.70 unless significant event-risk emerges. GBPUSD attempts regaining yesterdays failed resistance of $1.5670 but fresh shorts seen at those levels ahead of Wednesdays BoE inflation report & King testimony.

Unlike EUR net shorts vs. USD which have reached new record high of 43,741 contracts SEE CHART http://chart.ly/8ec4fx GBP net shorts remain well off their October highs of 62,106 contracts, reflecting less GBP pessimism in the currency against USD. But rising expectations that BoE will be forced into fresh asset purchases ahead of an uncertain election year, coupled with outright longs being built in USD, may prompt speculators into expanding their shorts near the October highs. The BoE may not be in a hurry to inject fresh QE, but markets will grow especially vigilant in viewing upcoming data with a QE lens, especially as the impact of the VAT hike and oil recovery recedes into the remaining of the quarter. Technically. Sterling's decline against USD and JPY is prompting traders to probe $1.5350 and 138.20 respectively as early as this week.

Quiet trade in FX after the Thursday storm and Friday confusion of the US jobs report. The paring of long USD and JPY positions gives way to modest gains in EUR and GBP but that is not encouraging gold or oil traders to lift bids beyond 1070 or 72.50. GBPUSD's deteriorating technicals may allow for a recovery of no more than $1.57 before traders retrenchy ahead key UK data & BoE inflation report. EURGBP vulnerable to 0.8700.

The lack of key fundamental data has helped extend the pullback in the USD and JPY against major currencies, which remains no more than a corrective move w/in an impulsive rally in USD and JPY. Sterling is also among the underperformers of the day, dragged by expectations of renewed QE. Wednesdays BoE inflation report could show a GDP downgrade and reiterate the case for fresh asset purchases. Any rebound in GBP could see it capped at $1.5670. CADJPY is seen amid the few yen crosses likely to garner fresh gains ahead, eyeing resistance at 84.00, with USDCAD vulnerable to retesting 1.0550 CORRECTION (not 1.0650s)