Intraday Market Thoughts Archives

CHINA RAISES RESERVE REQUIREMENT RATIO by 50-bps to a record high 19.5%, but is hardly impacting risk appetite or supporting USD. The floods-damaged Aussie could not recover above parity against parity despite the broadening damage in the US currency. This means that Aussie weakness is best played against the stronger currencies, such as GBP and CAD. I reiterate my medium term bullishness in GBPAUD targeting 1.6130, followed by 1.6350. AUDCAD expected to retest 0.97 support, which can be considered as a prelim target (pref 0.9720). EURUSD rocketed to $1.3450s before retreating to $1.3370s. The much talked-about US-GE 10 year spread shrank to +0.27 from +0.53 earlier in the year. The spread is now resting above its 100-day MA of 0.25. A EURUSD close above $1.3420 would practically seal the deal for the case in favour of $1.3750.

Watch todays 30-year bond auction, which could exacerbate USD selling in the event of repeating last months strong showing, when the bid/cover ratio came in 2.74 (highest in four months), with a yield of 4.41%. Watch the participation rate of indirect beidders if it emerges above 30%-40%. So far, the impact on USDX from this acutions has been via the yield. Considering the USD's damage, it will take a notably sharp rally in yields for USD to benefit from any sort of stability. GBPUSD faces more upside, targetting $1.5930-40. with downside remaining intact for EURGBP/

WHY THE EURO DOWNTREND IS NOT OVER? EURUSD SHATTERS $1.33 figure, weakening the case for EUR bears on a combination of The combination of Germanys backing new powers to the European Financial Stability Facility and robust auctions (despite higher yields in Spain and Italy) is enabling traders to test the upper limits of the euro's trading ranges--$1.33s, which stand around the 55-week MA. I was CLEARLY WRONG for having focused on the $1.3280-00 as the breaking point for euro shorts. My error was with the actual level rather than with the trend. If you do recall, EURUSD broke above its 55-week MA during the last 2 weeks of December as well as during the 1st week of Jan But DID NOT END the WEEK above those levels. ANOTHER CLASSIC EXAMPLE of the euro making FALSE BREAKS was the break above its 200-WEEK MA between early Oct and mid Nov. Those comprised daily breaks above the 200-WEEK MA, BUT WHICH NEVER BROKE ON A FRIDAY. My cyclical trend analysis suggests that $1.3380 will be the required level of a weekly close. This may sound like moving the goal posts but my reasons for this level are tested and proven. This explanation is mainly technical in nature, albeit there are fundamental reasons but will not go thru them now. Markets have proven notorious in showing false breaks, especially in the weeks of Dec 19 as well as the past 2 weeks. THERE IS A TIME WHEN DIRECTIONAL BIAS ought to be changed, but THIS IS NOT IT. I CONTINUE TO EXPECT $1.27 this quarter and $1.23 near MID Q2. To those who are in London on Jan 23, consider coming to my seminar so we can go through these situations, which teach us to draw the line between VOLATILITY & DIRECTION. REGISTER HERE FOR MY INTENSIVE WORKSHOP: http://www.ashraflaidi.com/products/workshop01/

EUR JOINS BROAD DAMAGE OF THE USD, gaining +200 pips to $1.3130s but the downtrend remains intact as long as we do not see a CLOSE above $1.3270. The road back to $1.28 and $1.27 remains intact. I warned on Monday that care must be paid to US debt auctions (and not to get distracted by Portuguese auctions) and that poorly subscribed auctions would be positive for the USD via rising US yields. Todays well subscribed US 10-yr note auction dragged yields lower, which helped weigh on the already weak USD. WATCH ASHRAFs INTERVIEW with CNBC's Erin Burnett today discussing China's decision to open trading in the US http://bit.ly/gRXCIe

Ashraf's interview with CNBC's Erin Burnett today discussing China's decision to open trading in the US http://bit.ly/gRXCIe

USD SOLD OFF AGGRESSIVELY GBPUSD as oil and equities extend rallies to the benefit of CAD, AUD and GBP. regains the $1.56 trendline resistance prevailing since November. A NY close above $1.5630, would extend the gains towards the 200-day MA of $1.5730s, which is the expected convergence point of the 55 and 100-day MAs. GBPUSD shatters the $1.56 trendline resistance to add nearly 200 pips and break through the 100 and 55-day MAs. $1.5750s appear to face intermittent selling for $1.57 objective. This GBP strength is likely to extend further against EUR and AUD, with 0.8150 and GBPAUD also appears to be a positive play based on Aussie's flood damage, the RBA's expected reluctance to tighten further and the stickiness of UK inflation shutting the door to any QE3 this year. GBPAUD eyes interim targets at 1.5990. Gold may extend gains towards $1400, but shorts see more downside at those levels with preliminary target at 1355, followed by 1310.

PORTUGUESE bond auctions went successfully with strong demand (3.2 bid-and lower yields than the previous auctions but had no impact on EURUSD, which hit a session low of $1.2960. The pair did not even reach the $1.3070 resistance before shedding nearly a full cent. Hourly stochastics suggest a retest of $1.2930, with $1.2880 a logical continuation target. GBPUSD rose as high as $1.5672 before retreating to $1.5580s. the $1.5630s I mentioned is the price above which cable needs to CLOSE THE NY SESSION in order to break the Nov trendline. The EURGBP Death Cross mentioned yesterday continues to suggest 0.8290, followed by 0.8150. A break below 0.8150 would potentially entail a breakdown to as low as 0.78, which is the 61.8% retracement of the rise from the 2007 low to the Dec 2008 high. This point is made in Tuesdays Reuters Video on EURGBP and GBPUSD : http://link.reuters.com/raw85r

Wednesday's Reuters video on AUDCAD 200 pips in 6 days, now reaching the 0.9720 horiz support after breaching well below the June trendline

http://link.reuters.com/rup94r

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EURO CAT BOUNCE RUNNING OF LIVES as the highs get lower ahead of Portugals auction of 1.25 bln in 5 and 10 year bonds (Wednesday) and Spains auction of 3bln in 5-year bonds (Thursday) will be scrutinized in terms of subscription as well as resulting yield. The 200-day MA at $1.3070-80 stands as the immediate barrier for any recovery, but position traders who are short the pair ought to be comfortable with stops above $1.3280. Shorting GBPUSD and EURGBP is another viable way of going against EURUSD. The GBPUSD portion may have shown resiliency above the $1.54 support (200DMA) but considerable pressure remains at $1.5630s. AUDCAD breaks further below its trendline but the key test is found at 0.9720-00 a close below which should trigger 0.9330s. WATCH ASHRAF's BNN INTERVIEW ON PORTUGAL & EURUSD: http://bit.ly/eMoPzx

Ashraf's Arabic Interviews with Arabiya TV today (Nadine Hani)

http://youtu.be/L-g-kTgvHK8 and with CNBC Arabia (Naser El Tibi) yesterdauy, discussing euro technicals, Portuguese auctions and Chinese/Japanese support of Euro bonds http://www.youtube.com/watch?v=o2DqYX-Ayi4

Here is the LATEST CHART ON GE-US 10 year yield differentials. TAKE NOTICE: This is NOT the US-GE differentials but GE-US. The reason I reversed it so that it correlates with EURUSD http://chart.ly/nfnj8ib There is re-emerging talk of the ECB intervening in the market by buying Ezone bonds. Regardless of what the ECB says at Thursdays press conference, the central bank is in no position to exit out of its bond-purchasing program any time soon, which will be at the expense of the German benchmark yields and the single currency. Thus, Ger,an yields will FALL relative to US yields and hence the GE-US spread will fall further below its 200-day MA of about -0.47% (or US-GE spread will rise further ABOVE its 200-DMA of +0.47%). Now that liquidity has returned from holiday doldrums, clarity is improving in FX markets with respect to the highest traded currency pairEURUSD. The pair is now 1.60% below its 200-day MA, the farthest it has been since September. Notably, the last time EURUSD crossed below the 200-day MA to shed similar ground was January 2010. My long-held $1.27 target in EURUSD is now accompanied by a subsequent objective of $1.2350, which could be seen as early as March. As long as no close above $1.32 is seen, has little hope of stabilizing. **** MANY OF THE QUESTIONS YOU HAVE RAISED on Yields differentials & FX, Top-Down Approach to FX & Dissecting USDX Analysis) will be tackled for 8 hours in MY LONDON WORKSHOP on Jan 23. Regsitration details http://bit.ly/f0IsA4

DO NOT FORGET US BOND AUCTIONS; Much emphasis placed on this weeks bond auctions from Portugal, Spain and Italy, but dont forget the $66 billion in new supply issued in this weeks US Treasury auctions. $32 billion in 3-year note, $21 billion in 10 year notes and $13 billion in 30-year bonds will be issued on Tues, Wed and Thurs respectively. FX markets tend to boost the USD in the event of rising yields resulting from disappointing Treasury auctions. This explains the debt and growth-related reasons to the back-up in US bond yields and the resulting positive impact on the US currency. $GBPUSD resistacne intact at 1.5630 before fresh damage ensues. $EURUSD offers ascertained at 1.2950s for fresh retest of 1.2880s./

STERLING SHAKEN by the 1.3% decline in December Halifax house price index following a 0.2% decrease in November. Sterlings resilience late last week was partly boosted by indirect strength from the falling EURGBP. But as Eurozone debt re-merges in focus and the future of Portugals sustainability comes to the fore, we recall UK banks debt exposure to Ireland/Portugal/Spain (Barclays at GBP 94 bln). This does not alter my bearish outlook on EURGBP first mentioned in this http://bit.ly/bg1Cvj as the 2009 trendlline resistance remained intact at 0.8620s before failing & retreating below 0.83. A daily close below 0.8280 will pave the way for 0.8150, which I continue to expect in early February. GBPUSD never made it above $1.56, confirming the downside path towards $1.53. MANY OF THE QUESTIONS YOU HAVE RAISED (on Yields in FX, Top-Down Approach to FX & Dissecting USDX Analysis) will be tackled for 8 hours in my London workshop on Jan 23. Regsitration details http://bit.ly/f0IsA4