Intraday Market Thoughts Archives

EUR is the days highest performer (out of top traded 16 currencies) DESPITE falling equities; stabilizing yen and falling gold. Traders books nearing year-end are unwinding euro shorts vs. gold, which were accumulated in early May by Greek elections uncertainty. See full charts of XAUEUR & EURUSD.  http://www.cityindex.co.uk/market-analysis/market-news/3680792012/euro-hits-gold-the-rest/

German manufacturing PMI disappointed but service sector expanded; Eurozone PMIs slightly better and CPI slows; Japan's LDP could form a government. Focus turns to CPI, Markit PMI, capacity utilization and Industrial production. The latest on our Wednesday Premium Insights, 1 of 2 EURJPY longs hit all targets (other unfilled), 1 of 2 EURUSD longs hit all targets (other awaits final target).

The buck is stronger across the board in the ongoing session. European equity indices are trading nearly unchanged and USD leads while NZD lags.

The common currency weakened after German manufacturing PMI disappointed as it declined in December to 46.3 from previous 46.8 while analysts anticipated a rise to 47.1. However, the service sector expanded at the fastest pace in nine months as the PMI rose to 52.1 from previous, upwardly revised 49.7.

Eurozone data also showed that manufacturing PMI rose marginally to 46.3 from 46.2 and services PMI increased to 47.8 from 46.7. Meanwhile, retail inflation slowed in November to 1.4% from 1.5% but core inflation was steady at 2.2% y/y.

JPY is choppy ahead of Sunday's election. Current forecasts suggest that Abe's LDP could get enough votes to be able to form a government on their own. EURJPY rally stalled just shy of 110 barrier and USDJPY so far was unable to break above 84.00.

A busy US session kicks off at 8:30 am ET with November CPI that is expected to slow to 1.9% from 2.2% while the core figure is seen steady at 2.0% y/y.

Markit manufacturing PMI will flash on screens at 9:00 am and it is anticipated to slow slightly in December to 52.6 from 52.8. November capacity utilization and industrial production are due 15 minutes later and they are seen higher at 77.9% and 0.3% respectively. Capacity utilization chart shows a series of lower highs and constant failure to pull back off the 200-DMA.

1 of 2 EURJPY hit all targets (other unfilled), 1 of 2 EURUSD hit all targets (other awaits final target). 1 of 2 USDJPY longs hit all targets (awaits final target at 84.00) Both AUDUSD and both GBPUSD in progress. Silver stopped out, while US crude oil remain in progress. Full access to these trades is found here: http://ashraflaidi.com/products/sub01/access/?a=700 Non subscribers can join here http://ashraflaidi.com/products/sub01

The Swiss franc was the top performer while the yen lagged. The Japanese Tankan survey and China PMI are highlights of Asia-Pacific trading. Both of last nights EURUSD longs are in progress, alongside GBPUSD, AUDUSD, USDJPY, EURJPY and US crude oil. See below for detail.

The pound was a laggard in US trading after S&P lowered its outlook on the UKs AAA-rating to negative. All three major ratings agencies now say they could cut its rating within the next two years if finances deteriorate more than expected.

Cable immediately dropped a half-cent after the headlines crossed but it later recouped a large part of the losses in an impressive show of resilience even as risk trades deteriorated. The S&P 500 fell 0.6%.

Economic data was mixed. US retail sales were slightly lower than expected at +0.3% but were virtually inline with estimates excluding autos, gas and building materials. Initial jobless claims were much better than forecast at 343K compared to 372K expected.

The focus on Friday will be politics as fiscal cliff negotiations, Italian political drama and the Japanese election take centre stage. All other things equal, it would not be a surprise to see yen crosses pare recent gains ahead of the weekly close due to election uncertainty.

Asia-Pacific trading has some top tier indicators to close out the week beginning with the Japanese Tankan manufacturing survey at 2350 GMT. The large manufacturing index is expected to fall to -9 from -3 as the outlook deteriorates.

At 0145 GMT, the focus shifts to China with the December manufacturing PMI from HSBC. There is no consensus but this is an important index that stood at 50.50 in November.

The focus shifts back to Japan at 0430 GMT for industrial production. The consensus is for no change to the +1.8% m/m preliminary reading.

For direct access to last nights post-FOMC Premium Insights, please click here: http://ashraflaidi.com/products/sub01/access/?a=700 Non subscribers can click here to get a free trial http://ashraflaidi.com/products/sub01/

Copper, known as the PhD in Economics for its track record in foretelling economic growth is up 7% so far this year, well below the 16%, 15% and 8% attained by silver, platinum and gold respectively. But it outperformed all grades of oil over the same perio. Interestingly, copper's YTD performance is almost equal to its 9% performance of the last 6 months. Full Analysis Here: http://www.cityindex.co.uk/market-analysis/market-news/3633602012/copper-raises-questions/

Eurozone Fins Mins move on Banking Union, USD recovers partially; SNB keeps rate target 0-0.25% but lowers outlook; EU summit begins; UK CBI orders rose; Italian and Spanish auctions. Focus turns to PPI; retail sales and jobless claims. Both of last nights EURUSD longs are in progress, alongside GBPUSD, AUDUSD, USDJPY, EURJPY and US crude oil. See below for detail.

The 1st step of European Banking Union has been agreed upon in the early hours of Thursday whereby ECB begins supervising banks with over EUR 30 bn in assets, effectively excluding most of Germanys saving banks. This will cover about 200 banks in Europe. ECB will have the power to intervene and set the day-to-day procedures for national supervisors, but no word on whether it will have ultimate responsibility.

A large part of gains that followed after the FOMC decision to buy USD 45 bln in treasuries per month was announced has been lost as USD recovers. Even gold and WTI are under pressure trading around 1695 and 86.20 respectively.

The SNB kept the libor target rate unchanged at below 0.25%. The growth for 2012 is seen at 1% and in 2013 should be 1.0%-1.5%. 2012 inflation is seen declining further to -0.7%, in 2013 should reach -0.1% and in 2014 +0.4%. The SNB is ready to take further measures as downside risks remain considerable. President Jordan did not exclude negative rates. EURCHF fell from 1.2124 to 1.2088.

A two day EU economic summit begins today and Eurozone finance ministers meet in Brussels to discuss Greece. The EU summit will deal with details of EU economic and monetary union. French press reported that new confrontation is on the cards, MNI reports.

UK CBI industrial order expectations rose in December to -12 from November's -21 substantially above analysts' expectations of -17. The expected output reached 0 from -9.

Spain reached a full take up at EUR 2 bln for its 2015, 2017 and 2040 bonds. Italy sold 2015 and 2026 BTPs totaling EUR 4.224 bln vs. 4.25 bln target.

The US session begins at 8:30 am with PPI that is expected to slow in November to 1.8% from 2.3% (core PPI is seen higher at 2.2% from 2.1%) on annual basis. Retail sales are anticipated to rise 0.5% from -0.3% while core sales are seen flat and finally jobless claims are expected to decline marginally to 368K from previous 370K.

For direct access to last nights post-FOMC Premium Insights, please click here: http://ashraflaidi.com/products/sub01/access/?a=700 Non subscribers can click here to get a free trial http://ashraflaidi.com/products/sub01/

The FOMC decided to buy $85 billion per month in Treasuries and MBS, as expected. The Swiss franc was the top performer while the yen lagged badly in a volatile day of trading. Markets will get a chance to digest the FOMC decision with Australian consumer sentiment and inflation expectations are the lone items on the Asia-Pacific calendar. Latest post-FOMC Premium Insights include 2 EURUSD trades and 2 EURJPY trades. See below for detail.

The Fed added $45 billion a month in Treasury purchases to the existing $40 billion MBS program in Wednesdays decision. The fresh funds will replace Operation Twist, which expires at year-end.

The Fed had largely telegraphed the decision but there was some speculation that purchases would be less than $45 billion.

After the announcement the US dollar fell broadly. The euro touched 1.3097 and the Australian dollar hit 1.0586. Despite the broad anti-dollar sentiment, USD/JPY continued to rise, hitting the highest since March. That could be a sign of willingness to buy yen crosses ahead of Sundays election.

Another interesting development was the inability of gold to rally despite a weak dollar and additional printing. Gold momentarily rose to $1723 shortly after the decision but has plunged back down to $1709.

Bernanke held a press conference after the decision and the Fed lowered its economic forecasts but there was nothing surprising. Late in the day, risk trades pares some of their losses.

Continued consolidation has been the theme in early Asia-Pacific trading and that is likely to continue. Australia will be in focus with Westpac consumer confidence at 2330 GMT. The consensus estimate is for a 4.1% decline. A half hour later the Melbourne Institute releases inflation expectations; the prior reading was +2.2%.

Latest post-FOMC Premium Insights include 2 EURUSD trades and 2 EURJPY trades. Click here for Direct Access http://ashraflaidi.com/products/sub01/access/?a=700 Non subscribers can click here to get a free trial http://ashraflaidi.com/products/sub01/

-AB

The Feds decision to announce more QE with +45 bn in US Treasuries, while maintaining the $40 bn in MBS purchases but the statement carries a more aggressive expression that quantitative easing shall remain guided primarily by unemployment. The policy statement highlights the Feds implicit unemployment targeting by stating that rates would stay low for at least as long as the unemployment rate remains above 6.5%. See Chart of Fed Balance Sheet vs S&P500 http://www.cityindex.co.uk/market-analysis/market-news/3581352012/feds-unemployment-targeting/

Greek buyback above EUR 30 bln; UK jobless claims fell; EZ industrial production declined; Swiss ZEW improved; solid Italian auction. Key event is FOMC rate decision, the release of economic forecasts and the press conference. Both of Fridays EURUSD longs and the 2nd CADJPY hit all targets long trades hit all targets for 90 and 110 pips respectively and CADJPY for 120 pips.

Greece announced that it bought back EUR 31.9 bln of bonds. According to MNI, the weighted average purchase price paid across all series is 33.8%. The principle amount of EFSF notes to be delivered is EUR 11.29 bln.

UK jobless claims fell unexpectedly 3K in November after rising 6K in October. The claimant count rate remained steady at 4.8% and the ILO unemployment was unchanged in October at 7.8%. GBPUSD pushed to 1.6145.

In other news, Eurozone industrial production fell 1.4% in October from prior -2.5%, Swiss ZEW economic expectation improved in December to -15.5 from previous -27.9 and sources from Germany claim that today's Ecofin meeting could see a breakthrough in the banking supervision discussions. EURUSD trades firmly above 1.30.

Italy reached a full take up as it sold 12 month BOTs totaling EUR 6.5 bln. The average yield declined to 1.456% from 1.762% and cover rose to 1.94 from 1.76.

Markets are awaiting today's conclusion of the FOMC meeting. The statement along with the fed funds rate decision is due at 12:30 pm ET, the release of the economic projections is scheduled for 2:00 pm and the press conference starts at 2:15 pm.

As the Operation Twist comes to its end, the market anticipates a new round of bond buying around USD 40-45 bln a month. The FED already buys USD 40 bln per month in mortgage backed securities so the monthly purchases would reach astonishing USD 80-85 bln. The FED's balance sheet is already around USD 2.8 trillion. The interesting question is how the market would respond if the chairman Bernanke announced a new easing but the amount would be smaller than the market expects.

200 pips in both of Fridays EURUSD longs (Pre NFP) and 120 pips in the 2nd CADJPY trade, accumulating for 240 pips for the last 2 CAJPY trades.

Direct Access here: http://ashraflaidi.com/products/sub01/access/?a=699

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Risk trades edged higher in US trading on Tuesday but the market was relatively tame with the FOMC decision looming. The euro was the top performer while the yen lagged. Comment from RBA Governor Stevens are the highlight of the upcoming session. For non-Premium members, we attach the direct link to the 3 EURUSD charts helping to make the case for going long EURUSD 90 mins before Fridays release of the NFP, rather than shorting the pair. 1 of 2 trades hit all targets.

The euro climbed above 1.3000 and the Australian touched the highest since mid-September but overall trading was quiet. There was no clear catalyst for the moves.

The US trade deficit in October was at $42.2B, a fraction below estimates but not enough to spark any moves. The Swiss press reported on a rumor that the EUR/CHF peg would be lifted to 1.25 but there was no legitimate backing to the claim.

Periphery borrowing costs eased as the market comes to grips with Italian political uncertainty. Italian 10-year yields fell 10 basis points to 4.72% after hitting 4.90% on Monday. Spanish and Portuguese yields similarly declined.

The latest polls in Japan show the opposition LDP could win 320 seats in the lower house. The two-thirds majority would allow them to push through legislation opposed by the upper house and give Abe a mandate for radical change. The election is Sunday.

The Asia-Pacific calendar features Japanese core machinery orders at 2350 GMT. Expectations are for a 3.0% monthly rise. More focus will be on comments from RBA Governor Stevens at 0430 GMT. There was no hint of further rate cuts following last weeks decision.

The direct link to the 3 EURUSD charts helping to make the case for going long EURUSD 90 mins before Fridays release of the NFP, rather than shorting the pair. http://www.ashraflaidi.com/content/images/p_sub01/ EURUSD%20Pre%20NFP%20Dec%207%202012.JPG_640W.gif Non subscribers can click here to get a free trial http://ashraflaidi.com/products/sub01/

-AB

Down 53% in 2000/02, up 16% in 2003/07, down 49% in 2007/09 . . .

http://www.cityindex.co.uk/market-analysis/market-news/3526982012/ftses-turn-to-6000/

Italian yield declines; German and Eurozone ZEW indices improve; solid Spanish auction; UBS to charge negative interest on CHF accounts. Focus turns to trade deficits from US and Canada. For non-Premium members, here is the direct link to the 3 EURUSD charts helping to make the case for going long EURUSD 90 mins before Fridays release of the NFP, rather than shorting the pair. http://www.ashraflaidi.com/content/images/p_sub01/EURUSD%20Pre%20NFP%20Dec%207%202012.JPG_640W.gif

USD retained a soft tone throughout the Asian and London sessions. The exceptions were CAD and JPY that are weaker. European equities are gaining about 0.5% and the relative strength winner is NZD while CAD lags.

Italian politics was pushed aside as markets concentrate on the latest data. Italian 10 year yield opened at 4.80% and currently trades around 4.74%.

The common currency pushed higher after German ZEW economic sentiment bested expectations and rose to 6.9 in December from previous -15.7. This is the first increase after six months of negative readings. Current conditions improved to 5.7 from 5.4. Eurozone equivalent rose to 7.6 from -2.6. EURUSD trades around 1.2990.

Spain had a solid auction today as it sold 12 and 18 month bills totaling EUR 3.89 bln vs. EUR 2.5-3.5 bln target. Both average yields declined but bid to cover was mixed.

EURCHF rose from 1.2080 to 1.2125 on news that UBS will also begin charging negative interest rate on CHF holdings beginning 21st December. UBS will apply the charge on individual account basis.

Up ahead are trade deficits from both the US and Canada. During October the US deficit is expected to widen to USD 42.7 bln from previous 41.5 bln and the Canadian deficit is seen widening to CAD 1.2 bln from previous CAD 0.8 bln. The two day FOMC meeting gets underway.

The direct link to the 3 EURUSD charts helping to make the case for going long EURUSD 90 mins before Fridays release of the NFP, rather than shorting the pair. http://www.ashraflaidi.com/content/images/p_sub01/EURUSD%20Pre%20NFP%20Dec%207%202012.JPG_640W.gif Non subscribers can click here to get a free trial http://ashraflaidi.com/products/sub01/

The euro steadily recovered in US trading after some cryptic comments from Italian PM Monti. The kiwi rose for the sixth straight day and was the best performer while neighbouring AUD was the laggard. The calendar features Australian business confidence and Japanese machine orders. Both of the Pre-EURUSD trades remain in progress.

Italian 10-year yields climbed 30 basis points higher and stocks fell 2.2% as political wrangling continues and Berlusconi threatens to return. Technocrat PM Monti recently said he would step down as soon as February but today said he is not considering running at this time. The FT also reported he is being courted by centrists and considering running for election.

The euro dropped to 1.2886 at the weekly open but that was the low print of the day. The euro climbed steadily higher in US trading and finished the day at 1.2941.

Cable was also active in US trading as it charged up to 1.6097 before drifting back to 1.6078. Otherwise, market moves were relatively tame.

Asia-Pacific traders will be searching for a focus due to the light calendar. Up first, at 0030 GMT, NAB reports on business confidence. The prior reading was -1.

At 0600 GMT, the focus shifts to the struggling Japanese economy, which yesterdays GDP data showed has fallen into a technical recession. Preliminary machine tool orders are likely to continue contracting after a 6.7% y/y decline in October.

Both of the 2 EURUSD Premium Trades added on Friday alongside 3 charts ahead of the US Jobs report remain in progress. Click here for Direct Access http://ashraflaidi.com/products/sub01/access/?a=699 Non subscribers can click here to get a free trial http://ashraflaidi.com/products/sub01/

-AB

Escalating yen shorts vs USD hit a 5-yr high but they remain low compared to the earlier high, which was a record. Back then, USDJPY was at a 5-year high of 124.14, global equities hit new records, private equity deals were raging with extreme leverage and even busts in US mortgage providers were still under the media radar. But the missing link remains in bonds. Unlike in 2007, when global yields were soaring in tandem on an overheating global economy and emerging inflation fears, today s yields are mired by margin suppression and financial repression. See more charts and analysis here: http://www.cityindex.co.uk/market-analysis/market-news/3480742012/yen-shorts-yield-lows-five-year-cycles/

Italian borrowing costs hit a 3-week high and are set to have their first rising month after 4 straight monthly declines on PM Montis resignation announcement; Greek buyback extended; Eurozone Sentix investor confidence improved and German trade surplus fell. Risk events include Canadian housing starts and BOE King speech. Both of the Pre-EURUSD trades remain in progress.

USD greenback is lower against GBP and JPY but trades only a little changed against the rest of the majors. European equities are losing nearly 1%.

Focus turned to Italy as ex-PM Silvio Berlusconi proclaimed his plans to return to politics and current PM Mario Monti announced that he would tender his resignation after the 2013 budget is passed. Italian 10 year yield soared over 7.5% today and reached 4.89%. BTP yields are set to have their first rising month after 4 straight monthly declines. Meanwhile, Italian industrial production fell in October 1.1% after declining 1.3% in September and Q3 GDP was confirmed at -0.2% q/q and -2.4% y/y.

Greece extended the buy-back offer until tomorrow after falling short of the EUR 30 bln target, Bloomberg reports. The aim is to reach the full face value as Greece was given EUR 10 bln to conduct the buyback.

On the data front we learned that Eurozone Sentix investor confidence improved in December to -16.8 from November's -18.8 and that German trade surplus fell in October to EUR 15.8 bln from prior 16.9 bln as exports grew only 0.3% while imports rose 2.5%.

Data reports during the US session are limited to Canadian housing starts that are expected to decline marginally in November to 202K from previous 204K. There are no US data due today.

GBP could react to the BOE governor Mervyn King's speech at the Economic club in NY that is scheduled to begin at 12:15 am ET.

Both of the 2 EURUSD Premium Trades added on Friday alongside 3 charts ahead of the US Jobs report remain in progress. Click here for Direct Access http://ashraflaidi.com/products/sub01/access/?a=699 Non subscribers can click here to get a free trial http://ashraflaidi.co/products/sub01/access/?a=699

The Chinese comeback continues with stronger-than-expected industrial production and tame inflation numbers.

NZD/CHF was the best performing trade last week as the old carry trade re-emerged, partly because Swiss banks began charging negative interest rates on deposits. The weekly CFTC data showed another increase in yen shorts while bets against the euro were cut in half.

The Chinese economy is showing more signs that it has turned the corner. November industrial production rose 10.1% y/y compared to 9.8% expected. Retail sales were also firm at 14.9% y/y compared to the 14.6% consensus. At the same time, CPI was fractionally lower than expected at 2.0%.

The resurgent Chinese economy may be a boost for the commodity currencies. The Canadian dollar is stronger to start the week after the government approved the Nexen and Progress Energy takeovers late on Friday.

The non-farm payrolls report on Friday was a positive sign for the North American recovery but risk trades are finding it difficult to gain traction with the uncertainty from the fiscal cliff.

The newest risk in the eurozone is a Berlusconi comeback. The disgraced former Prime Minister is mulling a return to politics even while facing a number of charges. A comeback could add an element of uncertainty to Italian politics and threaten Montis hard-fought austerity.

Commitments of Traders

The weekly speculative futures positioning data, as of the close on Tuesday:

JPY net shorts increased to 90K from 79K

EUR net shorts cut to 33K from 67K

GDP net long increased to 27K vs 10K

AUD net long increased to 92K from 77K

CAD net long cut to 57K from 62K

NZD net long 21K vs 19K prior

-AB