Intraday Market Thoughts Archives

EUR BROADENING LOSSES, with USD accumulating the bulk of FX gains as JPY takes a backseat. ALL LEVELS IN THESE FOUR CHARTS http://chart.ly/n5k5k7 have been breached, with EURUSD vulnerable to a weekly close below 1.2770 (also 100-day MA) and GOLD vs. EUR further building on its WEEKLY GAPUP, which is a bullish sign for the metal across all other currencies. Equity markets may show modest moves in and out of positive territory but, but FX markets are strengthening the case against EUR. EURGBP FINALLY breaks 0.82, confirming my medium term target of 0.8120, with upside capped at 0.8260.

US RETAIL JUL SALES +0.4% as gains were concentrated in Autos and rising gasoline prices, but when exluding autos/gas/building materials, we get a 0.1% decline, which is the first since April. Equities will likely hover in and out of positive territory until the preliminary (14:55 GMT) release of Univ of Michigan consumer sentiment exp 70 from 66.5. EURUSD faces STerm resistance at 1.2830s, while AUDUSD capped at 0.9010, while EURJPY sees little upside above 110.30s. The PREFERRED SCENARIO for EUR in todays trading would be a robust consumer sentiment reading (above 71-72), which will likely improved risk appetite and especially EUR on the back of those Ezone GDP figures. Nonetheless, the technical break in this weeks equity indices has been significant that the bulls are unlikely to put up a fight. The bearish signal on S&P500 would be confirmed on a weekly close below the 55-week MA of 1,093. (Due to server issues, NOT ALL IMTS are being emailed)

REMEMBER TO EXCLUDE AUTOS & GASOLINE in today's US July retail sales report. === July retail sales are expected +0.5% from -0.5%, with ex-autos seen +0.3% from -0.1%. But when removing autos and gasoline, we could get a flat reading, following +0.1% in June and -1.0% in May. The need to remove gasoline prices stems from lofty energy prices in July, which are expected to have boosted sticker prices at gasoline stations. If we do get a reading of no more than 0.1%, then markets will resume their sell-mode as they are already doing so at the moment after briefly cheering those Ezone GDP figures.

DUBIOUS BOUNCE IN SENTIMENT following strong Q2 GDP figures in Eurozone (1.7% q/q) and Germany (2.2%) has weighed on USD and JPY but both currencies are now off their lows as markets remain cautious ahead of US Jul retail sales and consumer sentiment. S&P500 yesterday closed below its 55-day MA after closing below its 100 and 200 MAs on Wed & Tues respectively. EURUSD faces resistance at $1.2930s, while GBPUSD and GBPJPY remain well in their downtrend, facing and $1.5560 and 133.20s. USDJPY 3-hr shows a consistent resistance at 86.30, now eyeing 85.20s. FTSE-100 lost 70 pts from earlier gains. Dow-30 futures +17 pts.

GOLD RALLIES after EUR sell-off intensified in early European trade following concerns with Irish debt and talk that Spain would not may not implement full austerity package. Gold was muted at the early stages of yesterdays USD rally before gaining $15 ounces. Gold remains propped by any sign of recurring worries on Eurozone debt, therefore, any fresh selling wave in EUR will provide fresh momentum. The best scenario for gold would be market expectations of QE by BOTH the Fed and the ECB. We already know Fed will buy treasuries torpevent balance sheet from contracting. Any signs that ECB has returned to buying Ezone bonds, will be especially positive for Gold. XAUUSD looks to close above the 55-day MA for 1st time since July 2. Daily stochastics may seem a little overbought but the WEEKLY oscillators suggest fresh upside towards $1,2470.

YEN EXTENDS PULLBACK as markets stabilize, while CHF takes over from the Japanese currency, reminding us the Swiss safehaven is here to stay. The latest comments from Japanese officials about excessive yen moves have not been sufficiently potent as markets widely believed intervention will not be carried out. Thus, any temporary selloff in JPY and USD sees more conviction buying in CHF. Hence, despite the 70-ptrally in EURUSD, EURCHF has deepened its losses by 150 pts after breaking below the 1.36 trend line support. AUDJPY, EURJPY and GBPY faces resistance at 77, 110.90 and 134.20, while downside remains intact. EURUSD bottomed at the 100-day MA for today but will be crucial for the pair to close the week above its June trendline support of $1.2770 to avoid immediate damage below $1.2580.

HOW WILL USD FARE DURING DEFLATION? It depends on what is the reason to deflation and whether it is accompanied by substantial deleveraging in the markets as was the case in 2008-9. The last time we had GROWTH-DRIVEN deflationary fears (2002-3), the US dollar was under severe pressure. But that was mainly due to the fact that the Fed preceded most central banks in slashing rates. The 2008 decline in inflation was partly related to global growth but it was accompanied by aggressive market deleveraging, which did boost the US dollar. IN TODAY's EVNVMT, a persistent slowdown in G10 price growth would prove negative for the USD as markets anticipate reflationary policies that are led by the Fed. Only when the global economy (including China) descends in a true deflationary spiral, would the US currency benefit from the resulting decline in commodities. In this case, deteriorating plummet in global bond yields will prove positive for the Japanese yen. $EURUSD will need to clsoe teh week above 1.2770 to void prolonged damage below $1.2550.

UPCOMING AUSSIE JULY JOBS REPORT (1:30 am GMT) may show further FUNDAMENTAL reason for the ensuing technical damage vs. USD and JPY. JUST LIKE LAST FRIDAY's CANADA JOBS data finally showed an unexpected jobs joss following series of robust employment figures, Australias July jobs figures could show the same kind of reversal after a spectacular +49K rise in employment & a plunge in unemp rate top 5.1%. ====== MARKET EXPECTS employment to slow to 10K & Unemp rate holding at 5.1%. Here is the TUESDAY & WEDNESDAY CHARTS together, with Tuesday warning on BearishStochasticDivergence & Wednesday price breakdown. http://chart.ly/7485nm AUDUSD eyes 0.8830 AUDJPY eyes 75.70 & 74.40

WHAT A DIFFRENCE 24-Hrs MAKES. Recapping why the stocks are down and both USD and JPY are up; MORE CHINESE DATA DISAPPOINTMENT sent Asian & European equities lower after a brief reprieve to risk appetite in late Tuesday US following the Feds announcement to buy more treasuries. US dollar was fired up as commodity currencies extend sell-off on concerns with a slowing China. Jul Indus production slowed to 13.4% y/y from 13.7%, retail sales slowed to 17.9% y/y from 18.3%, CPI rose to 3.3% from 2.9% mainly on floods impact. Combining the Feds prolonged downgrade of the US economy with further signs of a slowing China weighed significantly on the risk trade to the benefit of the safe haven USD & JPY (especially JPY). *** This is particularly the case when stocks undergo a sharp decline from 3-month highs. This is another case of unwinding of the carry trade.*** FOUR CHARTS IN ONE*** http://chart.ly/s8qbhr

S&P500 BEARISH SIGNALS ON THE ALERT http://chart.ly/nkvmd9 as the inability to break above the 100-day quickly gave way to a plunge below the 200-day MA, a pattern that was last seen in mid June, before the 10% decline. The bearish signal would especially remain if we end the WEEK below 1,100. 5,250 in the FTSE-100 and 10,400 in the Dow-30 are also key support levels to watch for the week. 82.30 is the important 2-month trendline resistance meriting attention for the week.

GOLD is down $15, but the real action is the spike in GOLD/OI ratio,which hit 3-week highs. As Ive said in chapter 6 of my book, an extended rebound in the GOLD/OI RATIO Ratio is usually consistent w/ heavy selling in stocks and deterioration in the economy.

EURUSD BACK BELOW $1.30. NOW YOU KNOW WHY I said it was UNUSUAL for the USDX to break below its 200-day MA without for EURUSD to break ABOVE its own 200-day MA. (read last week's artcile for more detail). THREE DAYS INTO THE WEEK, and EURUSD is already on posting its biggest weekly loss since the 1st week of June. Absent any Eurozone data robustness, the pair faces minor foundation at $1.2980. A daily close below $1.2960-70 could spell further downside towards the next key support of $1.2790-00. Eurozone Q2 GDP later on Friday will be key in gauging sentiment regarding growth differentials. But the July US retail sales report will be of crucial importance in determining whether risk aversion justifies the concerns about a slowdown in the US and China. A break above $1.3120 this week will be needed to maintain the 5-weel uptrend. =========ALSO Talk of ECB buying of Irish bonds and possible Spanish backtracking on austerity measures.

Why "Bearish Stochastic Divergences" are rare but effective? Here's Tuesday's AUDJPY chart alerting the divergence, and here's Wednesday's http://bit.ly/c5P153 A disappointing jobs report froom Australia on Thursday would accelerate those losses towards 75.50s

USDX DROPS As Feds message was not lost in translation as it announced a fresh dose of treasury purchases from the principal payments of Agency securities. The resulting selloff in the US dollar and bounce in equities reflected the markets clear understanding that QE2 has been unveiled.

======= THE Yin Yang relation of the YEN-YIELDS IS ON A TEAR as the low yielding Japanese currency benefits from the ongoing damage in yields on a full-fledged purchase of US government securities. This is a clear departure from the unusual relationship, whereby the yen decreases during improved equities ====================Although equities have improved on the Feds willingness to adopt fresh liquidity injections, it remains to be seen whether the market has gone too far in shrugging the Feds clear economic downgrade. ===========15 months after its initial announcement to purchase US treasuries, the Fed recycles Agencies principal payments into new treasury securities. Such outright purchases of treasuries could extend the yen's WIN-WIN scenario, whereby falling yields as well as falling stocks are both boosting the currency.=====SP500 has yet to close above its 100-day MA, currently at 1125. Watch Ashraf on CNBC-Europe Wednesday at 5:10 am GMT, 6:10 BST.

BEARISH STOCHASTIC DIVERGENCE in AUDJPY as the cross stands vulnerable to prolonging losses on deepening risk aversion, especially after Chinas July imports were slower than expected. The daily AUDUSD chart shows a rare bearish divergence in slow stochastics, whereby the price action remains consolidative despite a decline in stochastics. In such cases, price have often turned into the direction of the oscillator (stochastic). With AUDJPY currently testing the July 6 trend line support (78.10), it risks retesting 77.30-35 support, a break of which would spell a retreat to 76.20s. Upside seen capped at 78.50s.

GBP & JPY are at opposite ends as sterling is the biggest loser in todays FX market flows following an unexpected decline in UK July RICS (House Price balance) to -8 from +9, the 1st negative index since July (and lowest since April 2009). JPY gains on slower than expected Chinese exports growth in Jul, which led to broad-profit taking in Asian and European bourses. I am leaning towards a disappointing market reaction to tonights FOMC decision, whereby only a REFERENCE to asset purchases would be made, instead of an actual IMPLEMENTATION of asset purchases. As Ive explained carefully in the YoutubeVideo (see previous IMT). TOO EARLY FOR QE2: My argument towards expecting the Fed to NOT announce a full implementation of QE today is based on the fact that FINANCIAL MARKET CONDITIONS ARE RELATIVELY STABLE, i.e. US-LIBOR and the VIX are both at 3-month lows and US macroeconomic data looking mixed after the May-June declines, the Fed CAN afford to wait. This will serve as a CONVENIENT EXCUSE for equities to take profit, especially with S&P500 testing its 100-day MA. Id expect YEN strength to overtake USD rebound, with AUD, GBP and CAD among the biggest losers. USDCAD extends gains above 1.0330s, a disappointing reaction to FOMC will be needed to break 1.0380 and onto 1.0430s. GBPUSD to remain defensive ahead of Wednesday BoE inflation report, losses possibly extending towards $1.5570, with resistance capped at $1.5840.

3-WAY FOMC SPLIT? How about a 3-way split at the FOMC tomorrow? Kansas Fed's Hoenig keeps his (hawkish) dissent against the "exceptionally low rates" lingo, St. Louis Fed's Bullard votes (dovish) for implementing bond buys on the spot-in line with his recent statements, and rest of the FOMC votes for the status quo. The Bank of England MPC had several 3-way splits before, regarding QE and rate moves. The Fed is not known for dissents involving more than 2 members. A 3-way split has never been seen at the FOMC, but in today's multi-measured central banking, the outcomes could be different. In the above scenario, a Bullard-vote in favour of QE to be implemented right away, would be the notable surprise and play against the USD. VIEW ASHRAF's VIDEO PREVIEWING TODAY's FED DECISION

http://bit.ly/bNickr

Ashraf's Video Market Analysis previewing Tuesday's FOMC decision (What to look for & what it means), Hoenig's dissent, FX impact and oil resistance:

http://bit.ly/bNickr

FOR MORE FREQUENT market updates & analysis, follow me on Twitter:

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CADJPY & USDCAD. CADJPY's LOWER HIGHS pattern continues since April. Each of the last 3 cycle peaks (mid May, mid June and mid July) failed to take out prior peaks. This suggests that a break of 83.80 is unlikely to be followed by subsequent gains beyond 85.00. This is a pair with relatively substantial upswings, albeit, respecting major trendlines. A market-friendly FOMC statement tomorrow (mentions asset purchases and removes Hoenigs hawkish dissent) would further boost CADJPY past 83.80 and onto 84.20s, while re-merging risk aversion (especially S&P retreat below 1115) should confirm the lower lows in CADJPY and prompt 82.70s. Considering low yields and doubts about Canadas jobs, the bias remains negative. USDCAD will require notable risk aversion and/or CAD-negative figures to regain 1.03, Only a close ABOVE 1.0280 (61.8% retracement) is consistent with further gains.

SP500 and USD TRENDS. Friday's late session buying in the US enabled the S&P500 to close ABOVE its 200-day MA of 1115 but has yet to close above its 100-day MA (last close was in May 13). Traders must keep on the lookout for the 1126-27 level, which currently represents that 100-day MA. As the gap between the 100 and 200 day MAs narrows, it increases chances of a price breakout from both averages. The USD INDEX closed Friday further below its 200-day MA, but on a WEEKLY basis, the price has yet to close below the 200-WEEK MA. Note that the USDX 200-week MA held well as a foundation in mid April and acted as a congestive support in Feb-Mar (80.05-10) . I expect the Fed to disappoint the markets tomorrow by NOT implementing any QE (only mention it as an option) which will help support USDX.