Intraday Market Thoughts Archives

Oil prices fell more than 3% on Thursday and crude is down 31% since June. As weakness turns into a rout, here are the areas to watch.  

1. Russia is in trouble

Nevermind the fighting in Ukraine. The ruble is down 39% against the dollar since June and that's despite near-constant intervention from the central bank. Russia has been remarkably stable so far but if prices keep falling a genuine crisis is certain

2. Other emerging markets too

Colombia was begging for FX weakness for years but now the peso is down 16% in 5 months as its biggest export slides. In the Middle East, lower oil could bring instability and cause capital flight. Other emerging markets are winners but the speed of the oil move brings unwanted volatility.

3. Lower oil is good for the US…to a point

Lower gasoline prices are great news for consumers ahead of the holidays but there's a flipside. The shale boom has single-handedly revived US 'manufacturing' and has dramatically helped the trade balance but shale drilling has extremely high costs and wells deplete quickly. Below $75 the industry will begin to shut down.

4. If you think WTI is low…

Canadian oil may get some good news on the Keystone XL pipeline but it won't help right away. Canadian benchmark Western Canada Select is trading at just $58.70/barrel and the loonie is beginning to move tick-for-tick with crude.

5. Forget Inflation

Falling oil prices will cut the legs out of inflation. Even if wage growth begins to materialize, low oil will hurt inflation and lead to some second-round effects as it passes through the supply chain. On Thursday, even the ultra-dovish Plosser said inflation is not a concern in the near term. If the Fed hikes in Q2 2015, it will be purely to stem the risk of excess in the credit markets.

The simple equation for dollar gains continued to underpin the currency Wednesday as the low-level bid underscored solid gains. The commodity currencies also put in a strong performance while the pound lagged. A busy session awaits in Asia-Pacific trading.  Monday's Premium trades shorting GBPCAD were strictly  opened ahead of today's crucial UK jobs figures & BoE inflation report. The trades went as planned and 1 of the 2 dropped over 160 pips. The other trade missed the fill by 3 pips. Full trades & charts are in the Premium Insights.

Treasury yields edged up after a dip in early trading and although 2.35% sounds like a pittance it's now more than Germany, Japan, Italy, Spain, Canada and the UK. Combine that with developed-world leading growth and a central bank that's growing more hawkish and there is a compelling case to continue buying dollars.

For the second time this week, newsflow was rather quiet in US trading and once again the 'default' mode of the market was to slowly accumulate dollars. USD/JPY briefly broke 115.00 but rebounded to 115.61 while EUR/USD failed in three attempts at 1.25 and then sagged to 1.2425.

The pound was its own worst enemy following the BOE inflation report and it fell to a 14-month low of 1.5778. Curiously, the market wasn't overly excited about the break of last week's low of 1.5791. There is very little support on the chart.

The commodity complex was able to bounce despite lower commodity and stock prices in what could be interpreted as a good, albeit early sign. The loonie continues to benefit from Friday's excellent jobs report and a vote scheduled for Thursday could be more good news as Senators are likely to vote in favor of the Keystone XL pipeline. That won't force the President to approve it but it's a step in that direction in the six-year ordeal.

Looking ahead, a busy day awaits in Asia-Pacific trading with PPI, machine orders and industrial production on tap. They're unlikely to affect yen trading as the focus is on what Abe might do next. He's likely to win an election and strengthen his mandate but the uncertainty of the vote (if called) could help the yen (hurt USD/JPY) on the headlines.

The same US traders who took profits on dollar longs on Friday took a look at the market on Monday morning and decided the US dollar was the still the best bet. USD was the top performer as the underlying trend resumed while the loonie lagged on an oil price decline. Japan's current account/trade balance is out later.  We opened 2 new trades in GBPCAD with 3 charts ahead of this week's crucial UK jobs figures & BoE inflation report. Full trades & charts in the Premium Insights.

The US dollar rally restarted after a hiccup on Friday. The jobs report was hit and miss but if you want to sell the dollar, you have to buy something else and the alternatives were lacking Monday in a trend that was underscored as New York entered the fray.

USD/JPY steadily climbed to 114.90 from 114.10 in a gentle move. The largest intraday correction was just 15 pips high-to-low and it was the same sort of shape in other dollar pairs. The steady dollar bid on the day underscores the steady bid that seems to be there every day except when there's a distinct reason to sell dollars.

Newsflow was negligible and the dollar's ability to rally in a quiet market is a positive sign. It was confirmed by similar moves that erased the squeezes in gold and bonds on Friday.

EUR/USD briefly touched above 1.25 in European trading and then slid down to 1.2420. The ECB's Mersch was on the wires saying sovereign QE is an option if the outlook deteriorates but markets shrugged off the comment.

The focus now shifts to Japan where two separate reports on Monday highlighted the split at the BOJ on the effectiveness of QE in boosting inflation expectations. The headlines did little to stop the climb in USD/JPY strength which is a sign of the strength of the pair.

In terms of data, Japan's current balance is due at 2350 GMT and expected to show a 537B yen surplus. The trade deficit is expected at 782B.