Intraday Market Thoughts Archives

ANOTHER WAY OF illustrating euro's inability to close the week above the important channel top of $1.38 is to show the USD index daily chart http://chart.ly/y4dxkq and the similarity of the current consolidation with that of mid-Dec to mid Jan. USDX hovers around 79.80, well above the 79.20 support, Why would equities continue to rally ahead of an FOMC decision that is widely anticipated to upgrade its hawkishness (via upgrading its economic outlook and more dissent with the law rates extended period mantra? Keep an eye on the latest S&P500-VIX Ratio, which remains below 65, hence, maintaining the case for downward outlook (bearish for stocks). PBOC did not raise this week but could well do so next week as inflation remains excessively high relative to lending deposit interest rates.

Stronger than expected US Feb retail sales would normally have been negative for the US dollar via the channel of rising equities but a more-forward looking view argues for a USD-supportive stance as it maintains growing hawkishness from the Fed. Todays stronger than exp figures will not only maintain Kansas Feds Hoenig to dissent against the FOMC mantra of exceptionally low federal funds rate for an extended period, but will trigger further upgrade in the FOMC economic outlook, which will be negative for Fed funds futures. EURUSD fails to break the $1.3810-20 resistance that is required to eliminate the euro's downward channel.

Chatter attributing the latest USD selling to the appointment of the dovish San Francisco Fed president Janet Yellen to the Feds Vice chairmanship, but evidence has shown that Fed vice chairmen were hardly instrumental in swaying FOMC opinion, which was the case under Donald Kohn and his predecessor Roger Ferguson.

Better than expected Eurozone Indus production figures and lack of any Chinese rate hike fuels the risk trade and weighs against USD and JPY. Key EURUSD resistance stands at $1.3780-90, thus a close above $1.38 is required to extend the 5-week upleg and eliminate the downward channel. GBPUSD resistance stands at $1.5220 US Feb retail sales would have to disappoint markets for the USD to obtain any boost. Upside surprise in US retail sales may be negative for USD from risk perspective, but they may prove positive for USD next week in the event that FOMC further upgrades its outlook. Decline in Canada unemp rate to 8.2% braodens CAD rally; USDCAD support stands at 1.012.

USDCAD testing the Oct 2009 lows of 1.0220 as CAD soars against all major currencies, with the exception of AUD and JPY. Multi-decade highs in CAD vs. NOK and GBP. Tomorrows CAN Feb jobs report expected at 15K from 43K and the unemployment rate seen at 8.2% from 8.3%. Winter Olympics-related hiring may have helped in propping the Jan figures and could well again do so in Feb. In the event that the PBOC does raise interest rates (I see a 70% chance of a hike in the lending and deposit rates), risk appetite could be dealt a blow and USDCAD may be propped. PBOC decisions have usually been announced around 10:00-10:30 GMT. The combination of a PBOC hike and a disappointing CAN jobs report could fuel USDCAD to as high as 1.0370 and 1.0440. Another upside jobs surprise and no China hike risk driving USDCAD down to 1.0180. Once again the Dow and S&P500 unable to close at their 2010 highs, but NASDAQ faces no difficulties in breaking to new post-correction high at 2367. 35 hours remaining to my 1-day COURSE IN LONDON http://bit.ly/bSHPbb

Revisiting the S&P500 and VIX charts in Monday's article showing how the S&P500 / VIX ratio is unable to break above the 65 resistance. 65 = the ratio. A higher ratio corresponds to higher S&P relative to VIX, hence bullish for markets and vice versa. Today, the S&P500 / VIX Ratio is at 60, down 5 points from Monday, which supports my anticipation for underperformance in S&P500 relative to the VIX. My forecast for a Chinese rate hike tomorrow (see previous note) and possible disappointment in US retail sales could well drag down the ratio further down. Note how that 65 level also coincided with the 200-weel moving average. http://bit.ly/b3SlDw

Markets are increasingly tying last nights stronger than expected China inflation to rising chances of a tightening decision from the PBOC tomorrow (higher reserves requirements, rate hikes or more cutback in bank lending). Any further tightening action from China would crimp the risk trade to the benefit of the US dollar. This may help explain golds retreat towards 1100 despite the fact that the metal began falling in NY Wed afternoon trade. Readers of this website were warned 1 day before the Feb 12 increase in reserve requirements by the PBOC when the media was abuzz with Greece. Our rationale for alerting the RR hike was based on stronger than expected Jan banking loans data (and not on CPI which was softer than expected). Today, the media is more mature in these matters, expanding its coverage of a possible tightening as early as tomorrow (40% possible). GBPUSD fails at 1.5048, eyeing 1.4930, CAD broadens losses , eyeing 1.0345 and 87.20 in USDCAD and CADJPY respectively.

NZD weakness extends in European trading after the RBNZ decision to hold rates unchanged was accompanied by a dovish statement (no rate hike until before summer). NZDUSD hovers around 0.70, capped at 0.7050, with prelim downside target at 0.6930. NZDJPY consolidates at 63.30s territory, but 64.70 resistance holding since Feb 3. Chinas faster than expected CPI was accompanied with relatively cool Feb banking loan data (CNY 700 bln vs, exp CNY 675 bln). Remarks from Chinas stats bureau foreseeing mild inflation do will not prevent further tightening measures; especially as the Chinas Banking Regulatory Commission reiterated its calls for banks to limit credit expansion. This MAY help explain golds drifting near 1110 despite euros recent advances following JC Trcihets tacit approval for the EMF. EURUSD med term trend line resistance from Fen 9 high at $1.3670, a break of which calls up $1.3730.

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RBNZ RATE DECISION, AUSSIE EMPLOYMENT figures and SWISS NATIONAL BANK decision will be the source of potentially KEY MOVES IN FX as traders find clues for further improvement in the high yielders or a pullback off their 2 month highs. Seel Link for delatiled caledar of these events http://ashraflaidi.com/economic-calendar/ RBNZ decision expected to keep rates unchanged at 2.50% but watch for any dovish language considering the recent strengthening of the currency. Aussie employment have been stellar in terms of both falling unemployment rate and rising employment change, which means that any retreat in the figures could weigh on the Aussie especially if CHINESE data raise speculation of further PBOC TIGHTENING. Speculation that tomorrow's SNB policy decision may not sound the same urgency in capping the franc as in previous quarters, which could drag support CHF vs. AUD and EUR. REMAIN ALERT from the possible combination of any disppointment in US RETAIL SALES on Fri and faster tigthening signs from China. Meanwhile, nothing comes out from Greece, Washington, Germany except mixed statements about the EMF.

MORE POOR UK DATA as UK Jan manufacturing output fell 0.9% (vs exp +0.3%) but rose 0.2% y/y, while Indus production -1.5% m/m vs exp -0.8%. GBPUSD enters its 3rd daily decline, eyeing $1.4850 as the 2 and 3 hour stochastics point lower. EURGBP attempting to close above 0.91 for the first time since Nov 30--the 61.8 retracement of the 0.94-0.86 decline. Therefore, EURUSD weakness must emerge in order for EURGBP to retreat anew as we do not expect any marked rebound in cable above $1.5. JUST AS GOLD PEAKED OUT at 1140, SILVER topped out at 17.55 unable to close above the 61.8% retracement of the 18.85-14.62 decline. Daily silver stochastics also flattening. Updates and IMTs are updated less frequently as Im on a business trip in Milan. GOLD prelim resistance at 1126 -- 50% retracement of the decline on the 4-hour chart, now eyeing 1115.

Greek PM Papandreou's trip to Washington did not stop credit agencies from issuing cautious notes over Greek banks. Greece's austerity package was mainly designed to win some time and fend off the credit rating agencies. But if the aim of the austerity package is to serve as a bargaining tool towards France and Germany and a potential qualifier for IMF assitance, then we could see more noise/criticsim/counterstatements about European solidarity instead of concrete aid. Papandreou's also didnt prevent the ECB from slamming the idea of a European Monetary Fund, which is based on bailouts and rescue package--against the practices of the Bundesbank model. And during this cacophony of formal speeches and declarations, the Federal Reserve gives more details about its exit strategy, via reverse repos. This explains the defensive stance of the euro below $1.36 and the loonie's retreat bak to 1.03.

CHINESE GOLD REMARKS overnight helped drag the metal lower when the head of State Administration of Foreign Exchange said China faced constraints in adding gold holdings, considering it already holds 3000 tons. SAFE said the long term yield of holding was not good, dampening speculation that Beijing would buy the remaining 191 tons of gold on offer by the IMF. Whether these methods are a way to lower the price of gold with the intention of buying it later at more attractive prices remain to be seen. Golds failure to break 1140 gives way to 1105 as the next target, followed by 1087 viable this week. GBPUSD resumes its post-data damage, hitting the $1.4930 target in last IMT, but support standing at $1.4860. As yen stabilizes, NZDJPY and CADJPY appear most vulnerable of the yen crosses to lose their recent gains, eyeing 61.80 and 86.60. *** 3 DAYS REMAINING TO REGISTER FOR ASHRAF'S 1-DAY COURSE in LONDON *** Register here http://bit.ly/bSHPbb

MOODYs UK BANK ALERT: Moodys says in special report on UK banks that their extraordinary support obtained during the crisis is being gradually phased outm but does not add anything on the implications of this transition. GBPUSD nears $1.4980 target after February RICS figures on house prices tumble to 17 from 31 (lowest since Aug 09). With no key UK data in sight, the combination of negative UK positioning and possible profit-taking in Asian equities will be needed to break below $1.4980 and onto $1.4930. JPY stabilizes after Monday weakness as Asian stocks get in the red. GOLD CONFIRMS FAILURE AT 1140. Next downside target at 1112-13.

US Markets adrift in neutral territory as the risk appetite cannot build on Friday's gains. GBPUSD loses +170 pts to $1.5030s on a combination of profit-taking and dovish comments from BoE's Kate Barker indicating a bumpy path to recovery while allowing for the possibility of further quantitative easing. S&P500 testing the trend line resistance from the Jan 11 high at 1140. GBPUSD hovers at the $1.5070s level indicated in the prior IMT, but any renewed selling in Asia could send cable back down to $1.4980. Watch out for UK Feb RIC housing figures at 0:01 (exp 35 from 32) and BRC retail sales. Euros failure was at $1.37 (lower than anticipated resistance of $1.3770) before retreating to $1.3630, now running the risk of calling $1.3570 as PM Papandreou's speech was countered by critical remarks from ECBs Stark regarding the notion of a European rescue fund (EMF).

European markets stall in Monday morning despite a 2% rally in Tokyo and Hong Kong, while Dow futures are unchanged. With equities have already rallied on Friday in response to US jobs data, the lack of US data today and tomorrow could allow the bulls to retest the mid Jan highs. AUDUSD breaks well above the 0.9080 resistance and could be set for further gains towards the 0.9230s, which coincides with the trend line resistance from the Nov high through the Jan high. GBPUSD stall below $1.52, with any deterioration in appetite likely to drag down cable back to $1.5090 (toppish oscillators in 3-hr chart). $1.5240 stands as the short-term obstacle in the event of fresh pick-up. markets await Greek PM Papandreou trip to Washington as speculation mounts about a possible IMF deal.

Its all about yen weakness in Asian trade as the combination of improved risk appetite after better than exp US jobs report and public statements from Japanese officials (adding to QE and allocating budget for FX intervention). CADJPY and NZDJPY among the best performing pairs, eyeing prelim targets at 88.50 and 63.90. Weekly candle in CADJPY was particularly bullish, suggesting the possibility for 89.40 especially amid the absence of key data in Mon and Tues. USDJPY eyes interim resistance at 91.35-0.