Intraday Market Thoughts Archives

We've all heard of the old market adage: "Sell in May and Go Away", which indicates that the period between May and September has usually underperformed that of October and May. This validates the notion in my latest on stocks' 2-month cycle, which signals an uptrend from now until mid May, after which renewed selling is to emerge.

The improvement in risk appetite is lending further credence to the notion that equities have reached a bottom, but we first have to get over the 20-25% limit before any serious conclusions can be drawn. Today's Hot-Chart indicates the unfolding upside in AUDUSD and GBPUSD stemming from broadening declines in the greenback. AUD, NZD and NOK remain the preferred choices against the US currency, while GBP is underpinned by improved technicals based on superior reward-risk due to better upside potential.

CAD drops across the board after Canada's employment drops by 83K (vs. expected -80K) while the unemployment rate jumped to 7.7% from 7.2%, well above the expected 7.4%. I warned in yesterdays IMT against prolonged CAD declines based on worse than expected report, especially as the lag between the US slowdown and the economic damage in Canada continues. Although we could see prolonged declines in the USD vs EUR, GBP, AUD and NOK, the Canadian dollar may struggle ahead, thus, fuelling USDCAD towards 1.2950-1.3000. As long as global equities rally ahead for another 8-10%, this could help CAD offset any declines vs USD, until the next turnaround in equities accelerates USDCAD past the 1.30s. GBPUSD and EURUSD remain on uptrend targeting $1.4130 and $1.3070.

BROAD DOLLAR SELLING on the heals of prolonged gains in equities. Today's Hot-Chart on the USD Index cautioned against the peaking of the USDX after failing to break above 89.62, which is the 7-year trend line resistance and the 38% retracement from the 2002 highs. WHAT DOES THIS MEAN FOR USD pairs? GBPUSD eyes further gains towards the $1.4180 target from current $1.3933. AUDUSD seen extending gains towards 0.6620 and EURUSD eyes $1.3020.

Tomorrow's CANADIAN JOBS REPORT could be a fresh opportunity to sell CAD i.e. which coudl potentiall drive USDCAD towards 1.2990s. Consensus forecas expects Canadian Feb payrolls to fall by only 50K after a decline of 129, and a rise in the jobless rate to 7.4% from 7.2%. Risk for larger than expected decline in jobs and renewed CAD selling vs JPY, USD and AUD.

Today's gold bounce thrives on the latest interest rate cut, as the SNB slashes rates to 0.00%-0.75% from 0.00-1.00%. As I warned in my book in Chapter 1 (Gold & the Dollar) about situations of positive correlation between the two, the classic inverse relationship may no longer make sense as the metal exploits the collective secular devaluation of currencies and not just the dollar. Central banks race to further reduce the price of money via credit easing only further boosts the price of gold. FX Selling Intervention + Devaluation = Gold Appreciation. Today's moves support my analysis where I indicated a bottom in gold at 890 (periodic declines no more than 10% and 50-day MA not breached.

Swiss National Bank intervenes by selling francs against USD, EUR as it sees rising risks of negative inflation over next three years as well as GDP contraction of 2.5% to 3.0% . CHF is damaged across the board. AUDCHF shatters 77 adding more profits to the AUDCHF Hot-Chart after hitting the 76.25 target. Today's HotChart shows signs of a peak in the US Dollar Index as it fails to break its 7-year trend line.

Aussie dropped across the board in Asian trade after the jobless rate jumped to a 4-year high of 5.2% in Feb from 4.8% and payrolls dropped by 53.8K, fuelling expectations that this months rate pause by the RBA was only temporary. The central bank is expected to resume easing with a 50-bp rate cut next month as unemployment continues to spread. Nonetheless, today's retreat is seen as an entry opportunity in a currency whose fundamentals outweigh all G10 players. Aussie remains in favor against USD, CHF and GBP, but caution ahead of US retail sales.

Ashraf's Book is now ranked #2 on Amazon's Foreign Exchange and Finance sections. The first book to dedicate a full chapter on risk appetite in FX, and detail the cyclical interrelations across the various commodity, credit and equity indices. Also, models on intra-commodity and yield plays to predict turnaround in market cycles and economic growth. Many thanks for getting it ! If you have any questions or comments please don't hesitate to email Ashraf your enquiries.

USDJPY extends selling below 98 yen in line with today's Hot-Chart, thus nearing the 97 support as stocks head back into negative territory. Oil prices drop on unexpected builds in inventories, while bond yields hit 4-month high, adding to the probability for a break-out in long yields. Gold proves it can hold above the $890 TL support and above the 50-day MA. Tomorrow's US retail sales release is expected to show sales heading back into negative territory (after holiday discounting), which may hinder the gains in yields but the uptrend is looming large.

Watch Ashraf's Technical Analysis Presentation from 2 days ago on Cantos TV for EURGBP, GBPUSD, USDCAD and Dow/Gold.

http://www.youtube.com/profile_video_blog?sid=135D93F12E2210F6&id=9119A94B8CBF79FE

For a clearer resolution, please visit the following:

http://cache.cantos.com/webcast/static/4000/5242/5243/10647/Presentation/default.htm

Watch the US 10-year yield as it probes 3.06% resistance (highest since Nov), a break of which could call up the 3.30% target (March 2008 low) and 61.8% retracement of latest downleg. I reiterate that only supply concerns (excessive US borrowing) are behind rising bond yields (rather than inflation or growth). Todays 10-year auction may be well subscribed, which could only serve as a fresh selling opportunity, before prolonged losses (in price).

AUDCHF reaped the 100-pip gain projected in yesterday's HotChart section, which predicted a jump towards 0.7522 from 0.7420. Those who do not have the means to trade AUDCHF could go long AUDUSD and long USDCHF. Gold's sub-$900 break yesterday was nothing to worry about for gold bulls as long as the $880-885 foundation remains intact. Readers of last week's gold Hot-Chart will recall my signalling about gold NOT falling by more than 10% since Nov. Finally i warned in the latest article that more GBP losses to emerge if it FAILS to close above $1.3850 in London trade. The failure led to sharp GBP losses in NY and Asia. More ahead.

The jump in risk appetite comes as no surprise to a market standing at 16 and 17 yr lows in the major US indices, lacking major US economic data and providing bottom pickers to mount what may be the first real signs of a bear-market raly since January. While pundits are discussing the importance of closing above 700 in the S&P, the next major resistance stands at 775, followed by 805 until we're likely to see renewed downside. As signalled in today's morning IMT, Aussie and Nokkie respond best to today's rally (see AUDCHF in today's HotChart), while GBPUSD sends a negative signal by failing to close above $1.3850 in London trade. Such a failure in NY close would cast prolonged negative dynamics on GBP.

Oil is extneds gains to +40% from its Feb lows, trading at $47.47, and $1.00 below its 100-day moving average, a trend that hasnt been broken since August 2008. The simultaneous advance in US bond yields along with oil prices is especially curious as the erosion in global economic growth deepens further. But increasing supply of US on the US debt front and mobilized stocks of US crude oil are the main forces behind the ensuing price dynamics in Treasuries and WTI. Further advances in AUD, NZD and EUR as well as WTI remain intact. WTI eyes $51.00 as the next key target.

Rising global and the absence of major US data is likely to present prolonged advances in AUD and NOK, especially as these have outperformed G10 FX since Monday. AUDJPY, AUDCAD and AUDUSD rest on a technically bullish foundation, calling up 64.00, 83.80 and 64.90. This week's Aussie jobs report may provide source of event-risk but the fact that the currency has shown limited losses during risk aversion offers significant upside during risk-neutral environment.

EQUITY SELLING continues as S&P500 hits 13-year lows and the Dow at 12-yr lows (see Hot-Chart from Feb 18 on MULTIYEAR EQUITY INDICES http://www.ashraflaidi.com/hot-chart/?a=382 ), drawing closer to my target of 5,500 in the Dow and 560 in the S&P ( see previous articles such as Equities/Gold ratio). Nonetheless, the VIX remains under the 50 level and well below its 100-day moving average of 53. This indicates that the persistent selling remains orderly and the depth of the bear market is only comparable to the 1930s. Gold drios by more than $30 but support is well cemented at $885. Friday's call favoring silver has yet to target $13.20, followed by $13.60.

JPY firms gradually as markets hesitate around neutral territory, while EURGBP extends rally to 7-week highs line with the March 2nd Hot-Chart. GBP is the day's weakest curency on a flurry of negative UK banking news. USDCAD retreats lower after hitting a fresh 5-year high of 1.3060. Support may drop to as low as 1.2550 before resuming the uptrend towards 1.33s. Friday's release of Canadian Feb unemployment is expected at 7.4% from 7.2%, while payrolls are seen falling by a mere 50K following a decline of 129K, which spells much room for surprise of a bigger than expected decline. Also keep an eye on the latest developments from US autos and their ability to meet their shor-term debt.

GBP DAMAGE unfolds across the board, further triggering the rally in EURGBP past the 91-pence level (now eyeing 91.70s), followed by 92.20s. Cable selling in line with todays published Hot-Chart (access via password not email). CAD selling also intensifies as USDCAD breaks above 1.3040 (see latest article about loonie targeting 1.34) and further gains seen amid this weeks flurry of potentially negative CAD figures (trade figures and employment).

The breaking news of the merger between Pharma giants Merck and Schering-Plough is a classic case of market-boosting M&A news that overwhelms the prevailing macro-economic and market dynamics, particularly during a calendar week light on economic data. Typically, such situations are positive for risk appetite, hence, the broadening declines in the Japanese yen already under way, accompanied by a rebound in US equity futures. EURGBP rallies by 100 pips, surpassing my Friday target of 90.40, now eyeing 90.70 as bad news on the UK banking front resurfaces anews. Equity bulls and yen bears to have a solid start of the week based on today's M&A news, which could be a fresh opportunity for renewed selling ahead.

FROM THIS WEEKEND's FINANCIAL TIMES: " However, analysts noted that the Vix volatility index - also known as Wall Street's fear gauge - remained well short of the elevated levels seen last autumn, highlighting the "new nature" of equity selling.

"Broadening selling without heightened fear suggests that shorting stocks has become more of a proactive strategy than a reflection of forced redemptions and margin calls," said Ashraf Laidi, strategist at CMC Markets." "