Intraday Market Thoughts Archives

Attend ASHRAF's LIVE WEBINAR SATURDAY on HamzeiAnalytics.net. Book your slot at https://www1.gotomeeting.com/register/825477897 Saturday, June 13, 2009 13:00 EST, 18:00 GMT, 19:00 BST. Currencies, equities, bond yields and gold will all be discussed.

After a week-long showing of intraday noise and closing sessions that were little changed, US stock indices head into the red to the favour of the US dollar. The weekly S&P500 chart shows little progress while the Dow weekly could post a doji star. The ensuing stabilization of the dollar could be given further leg up this weekend when G7 officials express concerns about excessive volatility in FX markets, which will be interpreted as a warning against excessive dollar weakness. We reiterate such statements are unlikely to break the dollars down trend but remain valuable trading opportunities.

European equities and US futures shrug overnight rallies in Asia, as their retreat send the dollar higher off its lows, with the yen closely following behind. Both AUD and NZD coming off against USD, while AUDNZD extending its decline below 1.2670s with NZD preserving strength following RBNZ comments against intervention. 1.2590 remains target for the day in the event of extended declines in equities. We could also see renewed losses in GBP vs NZD and USD. Univ of Michigan sentiment survey expected at 69.2 from 68.7.

Figuring out the extent of the Fed's next shopping spree may be the single most important dynamic in bond and currency markets today. Out of the $300 billion in planned treasury purchases, the Fed has bought $156.528 billion so far, and is likely to use the June FOMC meeting to signal the schedule of buying the remaining balance. With soaring bond yields shrugging the treasury purchases, there has been mixed reports as to whether the central bank will step up its purchases to a new target (dollar negative) or slow down the pace (less dollar positive). A year ago this year, Bernanke's dilemma was inflation vs. saving the financial system. He eventually realized he needed to opt for the latter. Today, the dilemma is between soaring yields in a recession vs. further liquidity flooding and a dollar crisis.

Watch Ashraf earlier discussing bond yields, the dollar, why he still like the Aussie as well as risk appetite. http://watch.bnn.ca/clip181938#clip181938

Bank of Canada Governor Carneys speech at 13:50 EST (18:50 GMT) will be important on what to be said on the strengthening CAD. The BoC has already described the CADs appreciation as unprecedented therefore any signs of Carney showing concern with the strength may weigh on CAD especially if stocks move lower today. The speech will be made available on the central banks web site at about 20 minutes prior to the speech.

Falling US jobless and strong May retail sales are positive for equities, which have been languishing these past 4 days. Stoccks-friendly news usually weigh on the US dollar, but CAREFUL from continued USD weakness as European officials are already expressing concern with excessive STRENGTH in their currencies vs. the dollar. French govt officials have just released a statement saying theyre keeping an eye on currency markets, which could become somewhat of a chorus in this weekends G7 meeting in Italy, when German, Canadian and UK officials chime in. Ashraf on BNN at 9:35 EST (13:30 GMT)

After dropping to as low as 0.6250s, Kiwi spiked back to 0.6330s when the RBNZ held rates unchanged and its Governor Bollard says there was no sense in currency intervention (selling the Kiwi). The RBNZ policy statement said "stronger dollar at a time of weak global growth risks delaying or even reversing the projected increase in exports, putting the sustainability of recovery at risk". As long as Bollard spoke against intervention traders did lift the currency vs USD and JPY, but sold against AUD.

DOLLAR DROPS ACROSS THE BOARD as Russia says CUTTING SHARE OF US TREASURIES IN ITS RESERVES. 10 YR YIELD SHOOTING UP TO 3.92%. Euro regains $1.4130s, cable at $1.6450s and Gold at $963. GBP gets best of EUR, while Yen weakens on rallying equities. Also watch how the LAST THREE TRADING DAYS of the DOW showed 5-8 pts difference between open and close, away from the highs and lows, which is a clear sign of indecision, known as Doji in Canddlestick analysis. 1 day of such pattern is important but 3 consecutive days of such patterns are rare.

Much ink is spilled on todays $19 billion auction of 10-year US treasuries (17:00 GMT) 1 hour prior to Beige Book) and on whether the interest would be sufficient to avert fresh backup in yields. Recent US treasury auctions have drawn robust domestic and foreign subscription, which may not be a major surprise considering the scrutiny on the US debt rating. The Fed and China are said to be helping these auctions to avert triggering any rapid selling of treasuries and the US currency. Any notable signs of optimism in this afternoons Beige Book survey by the Fed (18:00 GMT) would re-ignite the yield flames of US treasuries. Therefore, expect benign signs of improvement reported by the Beige Book. US and Canadian trade figures are due at 12:30 GMT.

Markets edge into into positive territory after the US Treasury allows 10 major US banks to repay the TARP funds, setting them free from added oversight regarding lending practices, hiring and bonuses. 10 major banks will be able to buy back govt-owned shares. As markets moved out of the red, dollar-selling intensified, especially as oil prices closed above $70 for the first time in 7 months. In the absence of any event risk (data, negative developments), Forex markets continue to sell the dollar as the path of least resistance.

Sterling may have passed a political stress test by holding above $1.5770 during Labour Partys reshuffle and broad defeats in the European elections, with the worst especially averted as long as PM Brown remains in office. But the fundamental deficiencies of the British pound go beyond political uncertainty. EURGBP retests 0.86, eyeing 0.8560 support. Latest Hort-Chart shows the June seasonals of the last 10 years in the S&P500. http://www.ashraflaidi.com/hot-chart/?a=749

Aussie looks to enter the second rising week against the Kiwi above 1.2750, recovering from an 8-week low of 1.2377. With both currencies rallying vs the dollar and the yen and equities showing tentative signs of peaking out, the prospects of ensuing retreat in equities is seen USD-positive, more ideally against NZD is seen capped at 0.6270-75, for renewed pullback towards 0.26. Aussie employment report due on Thursday expected to show -30K decline after +27K with unemp rate at 5.7% from 5.4%.

Gold managed to hold above $940, prompting modest dollar selling but forex traders remain cautious ahead of fresh risk aversion and resulting dollar-strength (especially on rising short term yields which is negative for equities. The $1.3770-90 support in the euro is further validated by the trend line extending from the April low as well as the neckline of the neckline acting for the head-&-shoulder formation, whose right shoulder suggests an interim resistance at $1.4050-60.

We disagree with the Fed funds markets pricing for 30% chance of a rate hike in January, which we deem to be more as a result of sharp back up in short term yields rather than a reflection of economic fundamentals. Recall that the fed funds futures were spectacularly wrong last July/August when they priced as much as 80% chance of a 25-bp rate hike occurring in September 2008which we disagreed with without reserve.

Gold drops after its first weekly decline in 5 weeks. Although risk-based dollar gains are seen negative for gold, any prolonged losses in equities and banking stocks could stabilize the metals. Markets watch the 940 level, which is the trend line support holding since end of April. A breach below 940 sees the next source of support at $925. While stocks are their near lows of the day, dollar is off its highs after the NY Fed was purchasing 5 and 7 year treasury notes. So far the Fed has bought $153 billion out of the $300 billion it said it would buy in March.

Euro extends losses after S&P downgrades Republic of Ireland's credit rating to AA from AA+, which subject the $1.3785 support to the test (see latest HotChart). Sterling lost 1.5 cents from Fridays $1.5950 as further reshuffling is expected in PM Browns govt. A sterling bounce is seen limited at $1.5950, but any signs of deepening losses in equities below the 920 (200-day MA in S&P and 8,700 in the Dow. Rebound in AUDUSD, NZDUSD seen capped at 0.7930 and 0.6280.

SHOOTING STAR ALERT: GBP/USD weekly candle chart shows a typically bearish formation known as a shooting star, whereby an initial high early last week prove unsustainable, ultimately leading to a close that is substantially lower. UK Labour Partys crisis helped initiate last weeks sell-off, but any extended decline in equities would quickly punish the already shaky sterling. Cable could potentially test an initial target of $1.5750, followed by 1.5550, with declining resistance at 1.6150.