Intraday Market Thoughts Archives

Mark Carney put a few more pounds in the pockets Britons traveling to Brazil for the World Cup as he boosted GBP saying rates could rise sooner than markets expect. The pound still trailed the kiwi as the top performer of the day while the US dollar lagged. The BOJ meeting is next.

It was one of the better trading days in recent memory as sharp & often sustained moved hit most charts. The late-day wasn't Croatia scoring the first goal of the World Cup, it was Carney saying the BOE could raise rates sooner than markets expect.

The headline came as Brits were settling in for the opening kickoff and the pound shot a cent higher to 1.6938 in a hurry. That puts it squarely within range of 1.7000, a level that held in early May.

Cable had been higher for most of the day as the US dollar was roundly trounced. Risk aversion is growing more country-focused and that was on display as a retail sales and jobless claims data hurt the US dollar. The buck fell further as an ultra-strong bond auction sapped yields and stocks slumped.

USD/JPY broke below Wednesday's low of 101.86 and slipped to 101.61 but, importantly, didn't break below the 200-day moving average.

The other moves were in commodities. We warned yesterday about the shocking turn of events in Iraq and the consequences for oil. It played out Friday as leaders scramble to diffuse a volatile situation. WTI crude ripped through the March high of $105.25 and all the way to $106.90. Brent hit $113.34.

The focus now shifts to Japan. The final April Japanese industrial production report is at 0430 GMT but the highlight is the BOJ meeting decision at some time between 0330 GMT and 0530 GMT. Little is expected and hopes for more stimulus this year are beginning to fade. Local newswires reported that officials will upgrade their view of overseas economies and US employment. That kind of optimism would further dent the chances of more QE.

9 of the last 13 World Cup tournaments elapsed during a period of falling stocks, with an average decline of 6% from the first to the final match. But see what happens in post-WorldCup Octobers. Full analysis of the last 13 WorldCups

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The market is suddenly grappling with new political and geopolitical risks. CAD was the best performer Wednesday while the euro lagged. NZD gained on the New Zealand's 25-bp hike to 3.25% in a well-anticipated move in early Asia-Pacific trading. The Australian jobs report is next.

Aside from the drama surrounding the ECB markets had settled into a groove over the last month. The major stories of the year were trouble in the Ukraine and emerging markets, US weather and economic malaise. Those risks have begun to fade and there were no genuine worries to step up in their place.

In a heartbeat, that's changed. Iraq is suddenly a major political story as rebels sweep to power in key oil producing areas of the country. In the US, the mainstream story was a loss of momentum from the Tea Party but the fringe surprised everyone by defeating Republican #2 Eric Cantor in a primary.

As the market grapples with the new stories the market could pare risk trades, especially after the recent run-up in stock markets.

Those risks helped send EUR/JPY to the lowest levels since early in the year on Wednesday. The close below the 200dma yesterday signaled weakness but the move has been swift and the lack of follow through on the break of the May low could cap the losses for now.

In early Asian trading, the New Zealand dollar surged more than a half-cent after the 25 bps rate hike to 3.25%. The hike was telegraphed but it was accompanied by a statement that rates need to move to a more neutral level. That outweighed the regular anti-NZD jawboning and a cut in growth forecasts.Coming into the statement the market had priced in 75 bps in additional hikes in the coming 12 months but the risks are now to the upside.

The focus now shifts to Australia with the May employment report on the schedule at 0130 GMT. The consensus is for a 10K rise but the full-time/part-time breakdown is just as important. In May the 14.2K job rise was entirely in full-time positions. The unemployment rate is expected to stay steady at 5.8%.

The euro was soft Tuesday as yield differentials continue to weigh but the story was a break of several technical levels. On the day NZD was the top performer ahead of tomorrow's central bank decision while EUR lagged. Japanese business sentiment is due later.

Rising Treasury yields helped to underpin the US dollar as 10-year yields rose to 2.64%. Dollar buying accelerated after April JOLTS surged to a seven-year high of 4455K compared to 4050K expected. The jump in job ads will embolden the Fed bulls and helps to confirm the positive pace of the labor market.

Technicals were in focus as the euro continued to give back the post-ECB gains. The major development was in EUR/JPY as it closed below the 200-day moving average for the first time since late 2012. The pair remains above the late May low of 137.98 but the downside is coming into focus.

One headline that weighed on the euro was the ECB's Mersch saying several banks will need considerable write offs.

A similar technical break came in USD/CHF as I closed above the 200-dma for the first time this year. Ashraf writes more about this pair in the Premium Section.

Keep a close eye on WTI crude oil in the day ahead as it flirts with the $105 zone. That area has capped crude twice this year and inventory numbers are due.

Economic data in the hours ahead is generally second-tier but a spot to watch is the Japanese quarterly business sentiment index at 2350 GMT. The BSI large manufacturers index was 12.5 in Q1. At the same time the Corporate Goods Price Index is due and expected up 0.1% in May.

Whether the latest technical dynamics mark a general upturn in the US dollar or not, we approach USD pairs individually. Our last 3 Premium longs in EURUSD have hit their final targets, with 150-pips in each trade. But last Thursday (4 hours before the ECB decision), we issued 2 EURUSD shorts, each of which is 80 and 100 pips respectively. Today, we issue a 2^nd trade in USDCHF with 2 key charts identifying key moving average crossovers and a triple top in CHF futures commitments. The existing USDCHF trade is +90 pips in the black.  These latest USDCHF charts are shown on the right-hand side icon of the trades box. Meanwhile, Both EURAUD shorts hit their final targets with a total of 590 pips. All these trades ideas are in the latest Premium Insights.

The post-ECB bounce is looking more like a squeeze on shorts as better Treasury yields hurt EUR/USD. The pair fell 40 pips Monday as the US dollar gained broadly. China CPI is due up later after a surprise selective cut in the RRR.  Both Premium trades in EURUSD were filled and remain in progress, as is the long in USDCHF, with all details and 3 related charts found in the latest Premium Insights.

US 10-year Treasury yields rose to 2.62% on Monday as positive risk momentum continued in light trading. The main loser was the euro as a good portion of the post-ECB bounce faded. The yield on the T-note is nearly double the German equivalent and that will push anyone who has the option into much better paying Treasuries.

EUR/USD sank below 1.3600 but held in the 1.3585 zone that proved so sticky in the run-up to the ECB.

The data highlight was Canadian housing starts at a robust 198K compared to 185K expected. Better weather spurred  construction but Canadian housing bears are once again feeling discouraged. USD/CAD slipped down to 1.09 and the downside was pressed by a $1.86 jump in oil up to $104.38. The $105 zone for WTI crude has proved challenging and bears watching.

Looking ahead, several low key AUD and NZD indicators are on the schedule but they will be trumped by Chinese CPI at 0130 GMT. The consensus is for a 2.4% y/y rise which is a sharp step up from the 1.8% y/y rise last month.

In any event, the RRR cut to agriculture and small businesses shows that officials aren't overly concerned about inflation. 

CFTC Commitments of Traders

• EUR -33K vs -16K prior
• JPY -74K vs -59K prior
• GBP +35K vs +35K prior
• AUD +22K vs +16K prior
• CAD -23K vs -22K prior
• CHF -2K vs -4K prior
• NZD +18K vs +18K prior 

Non-farm payrolls gave the US dollar a small lift on Friday but the big story was the drop in European bond yields. 10-year yields fell 5 to 20 basis points across Europe as the fallout from the ECB decision continues. Both Premium trades in EURUSD were filled and remain in progress, as is the long in USDCHF, with all details and 3 related charts found in the latest Premium Insights.

By any measure, yields throughout the continent are low. French 10s hit a record 1.66% on Friday.

Italian 10s are now yielding barely more than US Treasuries at 2.76% versus 2.58%. Italian 10s are down 60 bps since May 21 and have fallen in 18 of the past 23 weeks.

There are three ways to look at the tumbling yields.

First is that the ECB hasn't done enough to prevent deflation. The only way accepting that kind of yield for French debt makes sense is in a world with zero or negative inflation.

There's another way-- The details of the new targeted LTRO are out and it's not as 'targeted' as billed. The money is supposed to go to new lending for 4 years but the terms are vague and so is the enforcement mechanism. Banks could still take the extremely low-priced money from the ECB and invest the 400 billion euros in sovereigns to earn the carry.

Third is that negative deposit rates are forcing banks out of cash and down the yield curve.

Some combination of all three factors is the correct answer but whatever the reason, Europe is suddenly a place where it doesn't make much sense to park money. It will eventually flow into more risky assets or to higher-yielding safe havens.

At the same time, the crisis in Ukraine appears to be stabilizing after Putin met Poroshenko on Friday and both expressed a desire for peace. That could reverse some of the European-directed safe haven flows from the height of the crisis.

The euro jumped after the ECB decision but with yields so low, the threat of deflation, less Ukraine risk and a slight improvement in US fortunes in the non-farm payrolls report, it's tough to make a positive case for the euro.