Intraday Market Thoughts Archives

Market participants completed the task of erasing the final two weeks of September on Friday on newfound optimism about US growth. The commodity currencies soared and JPY floundered in a classic risk-off fashion. Despite the swelling sentiment, USD longs expanded for the fifth week in the Commitment of Traders report. The 1.3940-90s stand as the next objective, as the 55 & 200 MA loom.

September US retail sales grew 1.1% -- the most in 7 months and the August report was revised to +0.3% from unchanged. The consensus estimate was for a 0.7% rise. Ex-autos climbed 0.6% versus the +0.2% consensus.

The data, combined with the earlier benign Chinese inflation report, sparked another round of risk appetite. The S&P 500 climbed 1.7% to 1224 to cap the largest weekly gain (6%) in more than two years.

In most markets its as if the market has done a complete re-think of the late-September trade. Optimism about a solution in Europe has been the driving force but unexpected stability in the US and China has underpinned sentiment.

Despite the turnaround, markets remain well under mid-July levels. A reminder of the apprehension came in the U Mich consumer sentiment survey as it fell to 57.5 from 59.4 and missed the 61.0 consensus. The sub-index measure expectations for six months from now fell to the lowest since 1980.

The divergence between hard data and sentiment along with the volatility in markets cannot persist. Markets appear to be pricing in an outcome close to the best-case scenario in Europe and the US while underestimating risks in the developing world.

Weekly Chats

Its an exciting time to look at the weekly charts.

EUR/USD climbed nearly 500 pips in the week and generated a bullish morning star pattern. Although this points to gains we caution that the market was extremely short EURs and that may have exaggerated the recent upside. Key hurdles in the week ahead include 1.3936 and the 200dma.

GBP/USD also made strong strides, closing the week above the July lows. Congested resistance lies in the 1.59-1.60 range with clear sailing afterwards.

AUD/USD has posted a convincing four-candle reversal on the weekly chart but it also closed directly below the downtrend from the July and Sept highs. The direction of the trade on Monday is highly likely to continue for the rest of the week.

The other key levels to watch on the weekly chart are 1230 on the S&P 500, 1691 in gold and 33.51 in gold.

CFTC Commitment of Traders

Futures position showed the net dollar value of longs expanded to $14.24B from $13.77 at the CME as yen bets were scaled back. We warn, as always, that the data is calculated at the close on Tuesday. The euro remains in a deeply net short position at -74K contracts but that was pared back from -83K. Similarly GBP shorts declined to -62K from -69K.

JPY remains the favoured currency but the net yen long was scaled back to 35K from 43K. Commodity currencies were mixed as CAD fell to -25K from -16K and AUD to +11K from +13K. The NZD position expanded to +7K from +6K.

Eurozone annual CPI at three years highs; Eurozone Trade deficit narrows. G20 meeting may consider boosting IMF lending capacity; PM Berlusconi faces a confidence vote. Market turns to Retail sales, UoM Consumer confidence and Canadian Manufacturing sales. Ashraf's Premium Trades are in progress.

USD trades on the defense as risk currencies consolidate near yesterday's highs. European equity markets are in the positive territory.

Eurozone annual CPI surged in September to 3% from 2.5% in August which is the highest print in three years. Core CPI rose to 1.6% from 1.2%. Accelerating housing and transport costs are blamed for the increase.

Eurozone trade deficit narrowed to EUR -1 bln from previous EUR -3.7 bln as exports rose sharply.

G20 meeting in France starts today and continues till tomorrow. DJ reports that a boost to the IMF's lending capacity is being considered as a way to help dealing with the Eurozone crisis. However, officials note that credible and workable plan for dealing with the crisis must be presented before any agreement is possible.

DIRECT LINK TO LATEST PREMIUM TRADES (initially released at 3 am GMT) is here: Trades http://ashraflaidi.com/products/sub01/access/?a=521 Non subscribers can go here: http://ashraflaidi.com/products/sub01/

In Italy, PM Berlusconi faces a confidence vote after 7:30 am ET. If his government does not survive, the common currency could be hit as uncertainty is one of the things that markets do not take well.

The NY session kicks off at 8:30 am ET with September Retail sales are expected to jump 0.5% from an unchanged print in August. Core sales are also seen higher at 0.2% from 0.1%.

Canada's National Statistical Agency releases August Manufacturing sales at the same time and a steep decline to 0.5% from previous 2.7% is anticipated. However, this indicator often shows high volatility so such large changes are not uncommon.

October UoM Consumer confidence is due at 9:55 am ET and is seen slightly higher at 60.2 from previous 59.4. Over the past two months consumer confidence has been revised higher so an improvement is more likely to some degree.

G20 finance ministers meeting start in wake of further bank and sovereign downgrades, Berlusconi confidence vote, Euro zone CPI set to remain unchanged, China PPI and CPI slips back, US retail sales. Premium Trades are below (initially posted at 3 am GMT).

The latest G20 finance meeting gets under way in Paris today in the wake of the last piece of the jigsaw in Slovakia ratifying the EFSF changes. This now paves the way for leaders to look to at ways to try and address the next stage of the crisis, namely how to go about recapitalising Europes banks, in the wake of the recent assault by the ratings agencies with Fitch the latest to get in on the act and put the main German and French banks on ratings watch for a one or two notch downgrade. Standard and Poors not to be outdone downgraded Spain last night to Aa-with a negative outlook. The agency cited weak growth, tightening fiscal conditions and high private sector debt.

DIRECT LINK TO LATEST PREMIUM TRADES (initially released at 3 am GMT) is here: Trades http://ashraflaidi.com/products/sub01/access/?a=521 Non subscribers can go here: http://ashraflaidi.com/products/sub01/

There remain a number of obstacles to overcome with the ECB remaining opposed to changing the PSI while France pushes for a large scale expansion of the EFSF with Germany opposed. France wants to turn the EFSF into a bank, but both the ECB and Germany are opposed on the basis that the buck will ultimately stop with them.

In Italy the Primer Minister Silvio Berlusconi will be subject to a confidence vote which could bring down his government and throw more uncertainty with respect to Italys fiscal situation than is already the case. At around the same time the latest CPI figures are set to be announced for September with expectations that they remain unchanged at 3.5%.

Eurozone CPI for September is also due and is expected to rise from 1.2% to 1.5%, with the year on year figure jumping to 3%, which could well make it less likely that the ECB would be minded to reduce rates at next months rate meeting. Even so given the language at the last ECB press conference there remains an even chance that rates could get cut at the November meeting and ex Bank of Italy governor Mario Draghis first as ECB President.

Chinese inflation data for September shows little signs of abating despite the recent slowdown in the Chinese economy, which presents the Peoples Bank of China with a dilemma.

Chinese PPI came in at 6.5% slightly down on last months 7% while Chinese consumer prices rose 6.1%, down from 6.2%, thus limiting any scope for imminent fiscal easing.

US retail sales for September are due out later this afternoon with hopes high that they will improve on last months figures.

China's Sep CPI came in line with expectations at 6.1% y/y from 6.2%, while PPI slowed markedly to 6.5% from 7.3%. It should be of no surprise that China issues softer inflation figures at a time when it is pressured by the US to revalue its currency. WIth these figures, Beijing can argue that the economy has began to cool off and any FX appreciation is not warranted. DIRECT LINK to Latest Trades http://ashraflaidi.com/products/sub01/access/?a=521 Non subscribers can go here: http://ashraflaidi.com/products/sub01/

Sovereign and banking downgrades capped the recent risk rally on Thursday. This time it was Spain. JPY was the top performer while CAD lagged; the risk aversion trade is continuing in Asia. The Chinese CPI report is the highlight of the upcoming session. Ashraf's Premium trades have been delayed and will be on release shortly.

Positive sentiment abated for the first time this week after Fitch took aim at banks around the world. UBS, Lloyds and RBS were downgraded one or two notches and 7 other global banking giants were also placed on creditwatch negative. Fitch was also forced to quash a widespread rumour of a UK downgrade.

Not to be outdone, S&P later cut Spain to AA- from AA and said the outlook remains negative. This brings S&P in line with Fitch, who downgraded Spain last week. Moodys remains one notch higher at Aa2 but placed Spain on review for a downgrade in July, which points to a cut by the end of the month.

Disappointing earnings at JPMorgan also weighed on sentiment.

The negative news was balanced by the ratification of the EFSF by Slovakias caretaker government -- they were the final nation in the union to do so. In the US, initial jobless claims were 404K compared to the 045K expected

The S&P 500 fell 0.3% to 1203.

The early focus of the Asian session was a survey from Nikkei saying Japanese firms have a combined exposure of $37.3B to the PIIGS nations, including sovereign and private debt. The number is certainly manageable and none of the debt is from Greece. Japans corporate goods price index slid to 2.5% from 2.6% as expected.

China Inflation Preview

Analysts are divided about the likelihood of further Chinese rate hikes but the picture will become clearer after the 21:30 EST (1:30 GMT) release of the September CPI. Expectations are for a decline to 6.1% y/y from 6.2% in Aug and 6.5% in July.

Yesterday, both imports and exports were soft in Chinas trade balance report. This report weighed on sentiment throughout the day and foreshadows soft industrial production (and perhaps GDP) next week.

Markets taking a breather after the S&P500 staged a 14% increase in 7 sessions, peaking at the 1220 level, well above the 55 DMA but below the 100 DMA of 1238. The same applies for the Dow-30, which held at 11625, about 100 pts below its own 100 dma. The retreat in risk assets has been broad, with the euro losing a full cent after topping out at the 59% retracement of the decline from the Aug high. The technical dynamics of the 6% rally in EURUSD remain robust, with prelim support standing at 1.3680, followed by 1.3595. We have been unable to bring you the Premium trades as early as I we said we would due to travel constraints. We will bring those to you later this evening, around the NY close. Meanwhile, todays market action has triggered yesterdays Premium trades into action (after they had remained unfilled yesterday). These are the 2 longs in EURJPY and the one long in EURUSD. Watch out for a Fitch downgrade of UK banks. These rumours were first circulated by Sky News, but it appears that the action could be announced after the London close. The DIRECT link to those Premium trades is here: http://ashraflaidi.com/products/sub01/access/?a=519 To become a subscriber, click here: http://ashraflaidi.com/products/sub01/

Ashraf Laidi

Swiss deflationary pressures on the rise, German CPI confirmed at three year high; UK trade deficit narrows. Market turns to US and Canadian Trade balance, jobless claims and federal budget deficit. Premium Intermarket Insights are due at the US opening bell.

USD has had a bid tone since London open as risk aversion re-emerged, sending European equity indices into the red. JPY is also stronger across the board but far from erasing all of yesterday's losses.

Swiss Producer and Import prices fell -0.1% in September (-2% y/y) confirming SNB fears that strong franc could contribute to deflationary pressures. Lower price level gives credibility to the rumor that SNB plans to increase the price floor that is set for EURCHF from present 1.2 to 1.25 or maybe even 1.30. However, EURCHF trades lower as it is pulled back by falling EURUSD.

In the UK, August trade deficit narrowed to GBP -7.8 bln from GBP -8.2 bln as export reached record levels.

Also on the UK front, Sky News said Fitch rating agency planned to issue a statement on UK.banks, "warning of a sector-wide downgrade". There has been no such statement since.

Italy sold almost EUR 6.2 billion worth of bonds today in the first auction since last week's downgrade, somewhat lower compared to a target EUR 6.5 billion. Surprisingly, the yield on the 5 year bond was lower compared to a previous auction. Situation in Italy could become complicated as PM Berlusconi faces a confidence vote. The ECB is said to be buying Italian as well as Spanish bonds today.

In other news, the ECB October monthly bulletin described that economic outlook continues to be a subject to uncertainty and that downside risks have intensified. CPI should stay elevated above the ECB target 2% but is expected to fall. German September CPI was confirmed at 0.1% (2.6% y/y) which is unchanged from the initial estimate. Annual CPI continues to stay near three years high.

The NY session will start at 8:30 am ET with August Trade deficit that is seen wider at USD -46 bln from previous USD -44.8 bln. Jobless claims are expected to tick up to 406K from last week's 401K.

Canadian trade balance that is also due at 8:30 am is seen only slightly changed at CAD -0.9 bln in August from CAD -0.8 bln in July.

Federal budget deficit due at 2:00 pm ET is anticipated at USD -65 bln in September from USD -134.2 bln in August.

UK Trade balance seen edging lower, German CPI data to remain subdued, Aussie employment double expectations, gains in September, China trade surplus increases by less than expected, US Trade deficit expected to rise. Today's Premium Intermarket Insights are due before the US open.

Yesterdays sharp rise in UK unemployment to a 17 year high, continues to point towards a bumpy ride for the UK economy over the next few months. With the Bank of England chief economist Spencer Dale warning of lower than expected growth for some time to come due to the problems in Europe, this mornings publication of the August trade numbers are unlikely to offer much in the way of comfort. Expectations are for slight improvement to the visible -8.8bn from -8.9bn in July, while the total trade balance is set to improve to -4.25bn from -4.45bn.

The main focus in Europe this morning is likely to be German CPI data for September which is likely to show that inflationary pressures are overstated. With concerns about growth in Europes largest economy increasing the expectation is that CPI will remain at 2.6% year on year, equating to a 0.1% rise month on month. Such a low figure raises the prospects of an ECB rate cut before the end of this year.

The G20 finance meeting in Paris is due to start today with Slovakia set to ratify the EFSF in the next couple of days the European debt crisis looks set to have overcome one more obstacle as markets absorb Barrossos bank comments yesterday. The G20 meeting involving these nations leaders will take place in Cannes next month.

In Australia the September employment data showed that the Australian economy still appears to be ticking along nicely with the unemployment rate slipping back from 5.3% to 5.2% while the number of people in work rose by 10.8k, slightly above expectations despite the slight slowdown manifesting itself in China, as well as the rest of the global economy.

In China the trade balance for September came in at a surplus of $14.51bn in contrast to Augusts surplus of $17.76bn, and well over half of Julys figure of $31.7bn. This was below expectations of $16.7bn with exports down from a year earlier, up by 17.1%, while imports also only grew by 20.9%, down from analyst expectations of a 23.7% increase. These figures appear to reflect the economic turmoil in two of its key export markets in the US and Europe, as well as the recent tightening in monetary policy.

China also revealed for the first time ever the size of its copper inventories, which came in well above the estimates of most analysts in the market. This suggests that while Chinese demand is likely to remain high they may not need as much copper for import as people think they will, which could temper any gains going forward and weigh on the upside.

In the US the latest August trade balance data is due out and expected to come in higher, along with the latest weekly jobless claims figures.

Signs of progress in managing the European sovereign/bank crisis lifted risk appetite once again on Wednesday. AUD and NZD were the top performers while JPY and USD lagged. The upcoming session features Australian reports on employment and inflation expectations. 2 Premium trades hit all targets, 2 stopped out and 5 trades are activated and remain in progress.

The EUs Barrosso unveiled a plan to recapitalize banks, sending EUR/USD 200 pips higher to 1.3833. The euro gave back about 50 pips of gains after the FT reported some European banks will scale down operations via sales rather than raise new capital.

Separately, the AP reported from EU sources that the EFSF may be leveraged 5-to-1. Germanys finance minister said there is no way around Greek debt reduction and Reuters reported that the EU was discussing a 30-50% haircut.

USD/JPY finally arose from its comatose state, rising on rumours of an SNB-like peg. Given policymaker comments suggesting they prefer a long-term solution, we highly doubt this rumour. But the sharp run-up in global bond yields, particularly US 10 year yields played a major role in lifting yen crosses.

Ashrafs Premium trades saw all targets hit in EURUSD and ES, while being stopped out USDJPY and gold (by 2 pts). EURGBP, USDCAD, AUDCAD, silver and CL remain in progress. To have difect access to these trades and the key weekly EURUSD Chart, please click here http://ashraflaidi.com/products/ sub01/access/?a=519 Subscribers click here http://ashraflaidi.com/products/sub01/

The S&P 500 surged early but pared gains, closing up 1% to 1207. Oil slipped while gold ended up at $1676, but down from an intraday high of $1692.

Some headlines following the FOMC minutes pointed to a heightened possibility of QE3 but the more important message was that QE4 would require an further downturn and risks of deflation. The consensus at the Fed continues to indicate a high threshold.

Asia-Pacific Preview

At 2130 GMT, the BusinessNZ PMI for Sept will be released. A reading below the 52.9 prior would be the fifth consecutive decline.

At midnight GMT, the TD Australian consumer inflation expectations report is due. There is no market consensus but the RBA would be pleased to see a decline from the 2.8% August reading. A fall to 2.5% would re-ignite talk of rate cuts.

The more important for Australia comes 30 minutes later with September employment. The consensus is for no change in the 5.3% unemployment rate with 10.1K jobs added. Recent indicators suggest some downside here and given the recent 700 pip AUD rally, the risks are skewed toward a decline.

We are altering the today's previously issued USDCAD trade after it's gone unfilled. Please find the new entries/limits/stop

http://ashraflaidi.com/products/sub01/access/?a=520

Ashraf

We've added the weekly EURUSD chart to today's premium analysis (posted earlier in the morning) with bullet analysis. Yen is damaged across the board as bond yields punish the low yielding currency. US 10 year yields break above the 55 dma for the 1st time since July. Our longs in EURJPY were unfilled by 6 pips. The risk trade turns from solid to aggressive. DIRECT ACCESS: are the http://ashraflaidi.com/products/sub01/access/?a=519 Subscribers click here http://ashraflaidi.com/products/sub01/ UNLIKE IN THE PRE-QE DAYS when rising stocks were a reflection of falling bond yields, rising stocks are backed by higher bond yields (as used to be in Pre-QE days in the 1990s-2000s). The 0.95 daily correlation between US 10 year yields and S&P500 (highest since March 2008) is playing out prominently today.

Eurozone industrial production robust; UK Claimant count declined but unemployment highest since 1994. Market turns to Canadian new housing price index, FOMC minutes and speeches by ECB president Trichet and FOMC members Plosser and Fisher. New Premium Intermarket Insights are up. EURUSD, EURJPY, EURGBP, USDCAD, AUDCAD ESZ, CL and silver.

Improved global appetite leads emerges as markets expect Slovakia to pass EFSF within a few days. This notion is supported by Angela Merkel's comments that she is sure the EFSF will have a full approval by the EU summit at the end of next week

The common currency has also been supported by Eurozone Industrial production that rose 1.2% in August from 1.1% in July which translates to a solid annual print of 5.3%. This comes as a surprise as German industrial production, which heavily influences Eurozone results, declined 1% in August. Instead, the growth was largely driven by Portugal, Ireland and Italy.

The optimism was also underpinned by the president of European Commission Jose Barroso who will present a comprehensive response to the crisis to the EU parliament later today.

Ashrafs latest Premium Intermarket Insights are now up. New trades on EURUSD, EURJPY, EURGBP, USDCAD, AUDCAD, ESZ, CL and silver. Existing trades on USDJPY and gold. Direct access click here http://ashraflaidi.com/products/sub01/access/?a=519 Non-members click here: http://ashraflaidi.com/products/sub01/

In the UK, Claimant Count declined to 17.5K in September from 19.1K in August and the Claimant rate rose to 5% from 4.9%. The most significant disappointment came when the unemployment rate that rose to 8.1% in August from 7.9% in July which is the highest unemployment since 1994. However, the Sterling has ignored this worrying data and rallied 200 points to a high of 1.5783.

The NY session will start at 8:30 am ET with Canadian New Housing Price index seen at 0.1% in August. There are no US data but markets could be volatile as we have NY afternoon filled with central bank speakers. At 1:20 FOMC member Richard Fisher delivers a speech about FED's operations, followed by FOMC member Charles Plosser at 1:30 pm ET.

FOMC minutes due at 2pm and are likely to be dovish and could provide insights into the possibility of further easing measures. However, keep in mind last week's payrolls number that was above expectations.

Volatility could also be stirred up during J. C. Trichet's speech in London at 2:30 pm.

Slovakia says No, but new vote may follow, Spanish and Italian bank ratings cut, UK unemployment data set to rise, Eurozone industrial production set to drop sharply, US Senate passes China currency bill, US FOMC minutes due. Today's Premium Intermarket insights are due at 10 GMT.

Euro looks beyond Slovakian parliaments rejection of the EFSF and rallies by a full cent to 1.3670s in early Europe. The likelihood remains that a second Slovakian vote will ratify the vote. Even if the vote is passed, it doesnt address the inadequate size of the EFSF required to cope with a spill over to Spain or Italy.

Spanish and Italian re-emerge in in the spotlight after a raft of downgrades from S&P and Fitch respectively. Standard and Poors cut counterparty ratings on Santander, BBVA and a raft of others as well as cutting Spain GDP forecast for 2012 by 0.5% to 1%. Fitch cut long term ratings on Intesa San Paolo and Monte di Paschi with a negative outlook.

The struggling British pound faces todays release of September unemployment, expected to increase to 8% from 7.9%, while jobless claims for September are seen at 24k, up from Augusts 20.6k rise. Yesterdays NIESR GDP figures for September came in at 0.5%, below the BoEs 0.7% forecast of the same.

Away from Slovakia and in the broader euro zone industrial production for August is expected to slide sharply by 0.8%, while the year on year number is expected to more than halve from 4.4% to 2.1%.

September French CPI this morning slowed to 0% m/m from 0.6% m/m, but was unchanged at 2.4% y/y.

The U.S. Senate voted last night to pass legislation aimed at pressing China to allow its currency to rise in value, sending the bill to the House of Representatives, where it could well be thrown out.

The Currency Exchange Rate Oversight Reform Act of 2011 allows the U.S. government to levy tariffs on products from countries found to be subsidizing their exports by undervaluing their currencies. This could be viewed badly in China and could be the opening shot in further exchanges between the two countries that could lead to a damaging trade war.

The main focus of the US session shall be publication of the latest FOMC minutes, which saw the Federal Reserve embark on the highly telegraphed operation twist.

Markets took a rare interest in Slovakia on Tuesday as politicians there play a game of brinksmanship in the effort to approve changes to the EFSF. Moves in the forex market were mild with EUR leading and GBP lagging. Data on Japanese machine orders, Australian home loans and the first US vote on the Obama jobs bill are upcoming.

As we have repeatedly predicted, Troika inspectors said Greece will get the upcoming aid tranche after the Eurogroup and IMF approve their review (a formality). This news competed with political wrangling in Slovakia regarding the EFSF. Late in the session, Slovakias governing coalition was defeated in a confidence vote. The government will now reorganize and there will be a second vote later in the week.

There is a high likelihood that Slovakia will ultimately approve the EFSF, but this demonstrates to the market that further bailouts and/or changes to the EU constitution face a mountain of obstacles.

Economic data was second tier but noteworthy. The UK Niesr GDP estimate was 0.5% compared to the 0.75% BOC August forecast and the firm said the nation is suffering from a depression. In the US, the IBD/TIPP economic optimism index was at 40.3 compared to the 44.2 consensus. In Canada, housing starts rose to 205.9K compared to the 186.0K expected.

DIRECT ACCESS to the updated charts and trades is here http://www.ashraflaidi.com/products/sub01/access/?a=518 Nonmembers click here: http://www.ashraflaidi.com/products/sub01/access/?a=518

Corporate profits will be in focus for the next month after Alcoa kicked off Q3 earnings season. The aluminum giants shares fell heavily after missing on profits but its worldwide demand forecast remained steady and it hike expectations for Chinese growth. Although the Chinese property market is a major risk, other worries about growth are appearing premature and this should support AUD.

Asia-Pacific Preview

The Senate is slated to vote on Obamas jobs bill Tuesday evening in the US. The result isnt likely to be market moving because the President said if it doesnt pass alone, it will be broken up into parts and re-introduced.

The top release of the session is Japanese core machinery orders for August. Expectations are for a 4.2% rebound after the 8.2% contraction in July. The data is stale but the risks are probably for a strong reading with other Aug indicators showing positive signs. The report is at 2350.

Two releases from Australia are upcoming. Westpacs consumer confidence at 2330 and home loans at 0030. Neither is likely to move AUD.

We are adding 6 charts to today's Premium Intermarket Insights posted earlier in the day. These include EURUSD daily, weekly, ES daily, weekly and S&P500 weekly. Slovakias parliament is expected to vote on the EFSF at Noon EST, 16:00 GMT, with 76 votes needed to pass. Chatter circulates that parliamentarians will vote it down in order to deliver a loss of confidence to the current Prime Minister, before voting FOR the EFSF at a later date. DIRECT ACCESS to the updated charts and trades is here http://www.ashraflaidi.com/products/sub01/access/?a=518 Nonmembers click here: http://www.ashraflaidi.com/products/sub01/access/?a=518

Here are the latest Premium Intermarket Insights ahead of this afternoon's Slovak vote on the EFSF. The vote is due at Noon EST, 16:00 GMT. New trades on EURUSD, EURJPY and gold. Existing trades on EURJPY, EURGBP and AUDCAD Direct access to the Premium insights: http://www.ashraflaidi.com/products/sub01/access/?a=518 Nonmebers click here: http://www.ashraflaidi.com/products/sub01/access/?a=518

Market consolidates ahead of crucial EFSF vote; UK data mixed. Focus turns to Canadian housing starts, IBD/TIPP Economic Optimism index/ The FOMC minutes from last month's Operation Twist decision. are due Wednesday (NOT Today). Tuesday's Premium Intermarket Insights are due at the US opening bell.

Risk assets are consolidating large moves experienced yesterday and trade near session lows. J.C. Trichet's testimony before the EU Parliament's Economic Committee dented market sentiment slightly but at the same time did not reveal any surprises. President Trichet said that the crisis has reached a systemic dimension with stress being evident in larger EU countries and that the risk of contagion is rapidly rising.

UK data from earlier today was mixed. Manufacturing Production fell -0.3% in August after -0.2% in July while Industrial production rose 0.2% from previous -0.4%. GBPUSD pulled back to 1.56 support and currently trades around 1.5650

A major risk event will be Slovakian vote to approve EFSF changes. The SAS party in the four party coalition government has reiterated that it will vote against the proposition. Slovakian PM Iveta Radicova said earlier that she would ask the opposition party to support the notion which is likely to cause problems within her government and maybe even its collapse. The political situation is already tense as the EFSF vote is now linked to a government confidence vote. Changes to the EFSF must be ratified by all members and the other 17 Eurozone countries have already ratified the agreement.The parliament will meet at 7 am ET and voting will follow thereafter.

The New York session will bring Canadian Housing Starts at 8:15 am ET that are seen only marginally changed in September at 187K from 185K in August.

The IBD/TIPP Economic Optimism index is due at 10:00 am ET and is expected to increase slightly in October to 43.2 from 39.9.

At 2:00 pm ET traders focus will turn to FOMC minutes from the Fed's 9/20 meeting that ended with the announcement of Operation Twist. The record of the discussions will be interesting as it could provide clues about the possibility of further easing.

UK manufacturing and industrial production data expected to disappoint, reinforcing MPC doves economy concerns, Malta ratifies EFSF, Slovakia up next, Japanese Trade balance and consumer confidence, FOMC minutes. Gold is the only trade in the Intermarket Insights hitting all targets, while all other 8 trades remain in progress.

Todays release of August Industrial and Manufacturing production data is expected to bear out Bank of England concerns about the tepid nature of the recovery of the UK economy and reinforce last weeks decision to resume the controversial asset purchase scheme by 75bn. The pound has had a pretty poor last 24 hours after previous hawk Martin Weale suggested that the current bout of QE could well be the first of several tranches. Expectations for manufacturing and industrial production are for declines of 0.2% on both measures with industrial production expected to slide by 1.2% year on year, much worse than the previous month of a decline of 0.7%.

Late last night Malta become the latest EU member to ratify the changes to the EFSF agreed on the 21st July, leaving Slovakia as the only country yet to ratify the changes to the fund. The EFSF is the subject of fierce division within Slovakian parliament. The bill will likely be passed, but it could be at the cost of the Slovakian PM calling a general election.

Italy is due to hold its first bond auction since being downgraded by Fitch on Friday

Ashraf's Interamarket Insights saw gold as the only trade to have hit all targets in the Intermarket Insights hitting all limits, while all other 6 trades remain in progress. EURUSD long trade was 11 pips away from hitting all targets. EURJPY, EURGBP, USDCAD, AUDCAD, ES and silver . For direct access here: http://ashraflaidi.com/products/sub01/access/?a=517 Non-subscribers click here: http://ashraflaidi.com/products/sub01/

In Japan the latest August trade balance showed that the current account surplus shrank 64% from a year ago to 407.5bn yen. The decline was mainly due to the country's trade balance swinging into a 694.7bn deficit, the third-biggest on record. This was largely down to a 22.4% gain in imports, mainly crude oil, and other fuels due to the damage to its nuclear capability.

The latest Bank of Japan monthly economic report painted an uncertain outlook for overseas economies, though it did see improvement in emerging economies and was optimistic that Japanese output will continue to rise in Q4, but at a slower pace than in July-September.

Japanese consumer confidence for September improved slightly from Augusts 37 to 38.6, above expectations of 37.4 reflecting the slow recovery from the uncertainty seen after the earthquake in March.

Later this evening the release of the latest FOMC minutes is expected to highlight the discussions with respect to operation twist

The Merkel-Sarkozy pledge to draft a plan sparked the largest euro rally in a year and a surge in risk appetite. EUR and AUD were the top performers while USD and JPY lagged. The Asia-Pacific calendar is busy but with second-tier indicators. Ashraf's Intermarket Insights remain in progress.

Its hard to believe that all it took to spark a 300-pip rally in EUR/USD was for Merkel and Sarkozy to promise a comprehensive package to stem the European crisis by the end of the month but thats exactly what happened. The euro and other risk assets made strong, steady climbs from the weekly open through the European close before fading just shy of 1.37 and consolidated with most of North American markets closed for holidays.

The pledge to deliver a plan overshadowed the breakup and nationalization of Belgian bank Dexia and dovish comments from the ECBs Nowotny, who said inflation has peaked and that slowing growth is alarming.

Monday's Premium Intermarket Insights have all been executed & remain in progress. For direct access here: http://ashraflaidi.com/products/sub01/access/?a=517 Non-subscribers click here: http://ashraflaidi.com/products/sub01/

The pound underperformed, in part due to comments from the BOEs Miles, who said Q4 growth could be close to flat.

Overall, it was a banner day for risk assets. The S&P 500 closed up 3.4% to 1194, which is slightly shy of the Sept. 26 high but above the 55-day moving average for the first time since July. Gold, silver and oil also climbed 2-3%.

Asia-Pacific Preview

At 2350 GMT, Japan releases current account data with a 0.51 trillion yen surplus expected, sliding from the month before. Perhaps the report most likely to move the market comes at 0030 GMT when Nationala Australian Bank delivers up-to-date business confidence data; there is no consensus but we may see a deterioration of the -8.0 prior reading.

The focus switches back to Japan at 0500 GMT with the release of the BOJ monthly report and household confidence data (exp: 37.2).

Dexia has been broken up, France & Belgium gave guarantees to divided entities and Merkozy vowed their determination over the weekend to issue a plan later this month to recapitalize the banks. Here are the latest Premium Intermarket Insights for today. Direct access here: http://ashraflaidi.com/products/sub01/access/?a=517 Non-subscribers click here: http://ashraflaidi.com/products/sub01/

Ashraf Laidi

EURUSD jumps to 1.3540s on Dexia bailout sees debt crisis reach Europes core, French industrial better than expected. EUR 90bn in state guarantees will be given to finance the group.

Concerns that the European crisis has spread beyond Greece this week is likely to keep investors nervous with the troika still not confirming the release of the next tranche of funds. Fridays downgrade of Italy by Fitch wasnt too much of a surprise given that it was merely following in the S&P and Moodys footsteps, however the downgrade of Spain was, promptly knocking the stuffing out of the rather misplaced positive sentiment that had started to prevail at the end of last week.

The failure of Franco Belgian lender Dexia, one of the banks that passed this summers so-called stress tests has seen the French, Belgian and Luxembourg governments come to an accord to step in to save the beleaguered bank. The agreement by the banks board will see the beleaguered banks assets covered 60.5% by Belgium, 36.5% by France, and the rest by Luxembourg.

In doing so Moodys has stepped into the fray and put Belgiums credit rating on review for a downgrade, due to costs associated with the rescue. The fear is that Frances rating could well go the same way, which is why France wants to use the EFSF to help recapitalise European banks, a course of action Germany is opposed to given that the biggest burden will likely fall on them.

Yesterdays reiteration of a previous statement from Merkel and Sarkozy that they would ensure that all banks in Europe have sufficient capital, pledging they would have a solution by the G20 summit in November 3, merely serves up more delay and uncertainty.

The latest figures from Frances industrial and manufacturing sector for August are expected to show an economy continuing to struggle in the face of a slowing European economy, with French industrial production expected to slide 0.7%, while manufacturing production is expected to slip back from Julys 1.4%, to a positively anaemic 0.2% rise. With concerns about having to recapitalise banks at the forefront of markets thinking the last thing France needs is a slow down in two key sectors, especially with ratings agencies becoming trigger happy on downgrades.

In the wake of Fridays downgrade by Fitch Italian industrial production for August is expected to recover slightly, with a rise of 0.2%, from Julys 0.7% decline, but the year on year figure is still expected to slump further from a 1.6% decline to a 2.7% decline, thus reinforcing the concern cited by Fitch on Friday.

US stock market are open during Columbus Holiday, bond markets closed. Canada markets closed. China back from Holiday.

The optimism generated from strong jobs reports in the US and Canada failed to sustain positive market sentiment. CHF and EUR lagged while GBP and AUD led gainers on Friday. The weekly CFTC data showed a pullback in USD longs after several weeks of aggressive gains.

Non-farm payrolls gained 103K compared to the 60K expected and prior reports were revised higher, adding about 100K jobs. Despite the hiring, the unemployment rate remained at 9.1%. Risk trades jumped to session highs shortly after the data.

CAD surged after Canada added 60K jobs in September and the unemployment rate fell to 7.1% from 7.3%. USD/CAD fell as low as 1.0240 but rebounded to close nearly unchanged on the day at 1.04 in a demonstration of the markets strong appetite to sell commodity currencies.

EUR/USD surged to a session high of 1.3520 but slumped after the European close to 1.3380 on a wave of downgrades of sovereigns and banks. Fitch lowered its ratings on Italy to A+ from AA- and Spain to AA- from AA+. The outlooks for both remain negative. Fitch further said that Portugal remains on review for a downgrade. Not to be outdone, Moodys placed Belgiums Aa1 rating on review for a downgrade, while cutting 12 UK banks and 9 from Portugal.

The threat of downgrades will continue to be a chief EUR risk after Moodys said earlier this week that all but the highest-rating European sovereigns are vulnerable. Of course the top EUR risk would be a failure of Greece to receive the upcoming round of Troika aid. Some of the first signs of displeasure emerged from the IMF regarding Greeces efforts to lower their deficit when leader Borges said the fund is unhappy with the pace of privatization.

The S&P 500 fell 0.8% to 1155. Crude edged higher while gold gained $14 to $1637.

Weekend headlines are likely to focus on the China currency manipulation bill ahead of the Oct. 11 vote in the Senate. On Friday, House speaker John Boehner has said he wont allow the Republican-controlled chamber to vote on the bill, saying it could spark a trade war with China.

Weekly Levels

On the week, AUD was the top performer while CHF lagged but overall moves were relatively mild, especially in the context of recent weeks.

The EUR/USD weekly chart posted a doji star and this sometimes signals a rebound but we are hesitant because of repeated failures at higher levels and negative weekly reversals. The next tranche of Greek aid WILL BE DELIVERED and shorts will hesitate to be aggressive ahead of this risk event.

The GBP/USD chart displays a similar doji star pattern but given the BEARISH news from the BoE, there is a greater possibility of rebound that is sustained.

The EUR/GBP chart is particularly interesting given the juxtaposition between the BOE and the BULLISH surprise from the ECB. In light of this, the chart failed at higher levels and closed only slightly higher. This chart could break down in the week ahead and there is the possibility of large losses below 85.27.

Commodity currency charts point to consolidation in the week ahead while CHF appears posted for another leg lower. The USD/JPY points to more of the same.

Commitment of Traders

Fridays CFTC data showed the net USD long slip to $13.77B from $14.38B in the week ending Oct. 4. Euro (-82K), yen (+42K) and sterling (-64K) positions were virtually unchanged on the week. Specs appear to finally be abandoning the CHF as it slipped to a negative 1K from +2K a week earlier. The CAD net short fell 5K to -15K while AUD longs bounced to +12K from +5K and NZD longs slipped to 5K from 9K.