Intraday Market Thoughts Archives

GBPUSD rises 6% above its 200-week moving average, which is the highest positive cross-over since November 2007. The chart below shows that the highest cross-overs above the 200-WMA average were in November 2007 and December 2004 at 13% and 21% respectively.  Full charts & analysis

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Weak January retail sales raised fresh questions about the US economy just as another storm hit the Eastern seaboard. The Swiss franc was the top performer while the Australian dollar lagged. Chinese CPI is due later.

US retail sales fell 0.4% in Jan, missing the 0.0% consensus. Stripping out volatile items like autos, gasoline and building supplies resulted in an equally disappointing number and December sales were revised down substantially.

The US dollar slumped immediately after the data and stock futures sold off but, if anything, the market was surprisingly sanguine. USD/JPY fell 20 pips to 101.70 but slowly climbed back for the remainder of the day, hitting 102.30. The numbers gave a fresh boost to cable, pushing it to a multi-year high of 1.6673 but by late in the day, it retraced to a pre-retail sales level of 1.6655.

Economists were quick to blame poor weather once again but were also revising first quarter estimates below 2%. Many believed the economy would grow around 3% just a few weeks ago.

Deciphering exactly how the economy is performing will continued to be a challenge as another winter storm hit on Thursday stretching from Atlanta to Boston. The timing is especially tough because it's non-farm payrolls survey week.

Two market moves stood out 1) The S&P 500 proved the doubters wrong again, rising 10 points to 1829 after futures traded as low as 1802 after the data 2) Gold climbed above the $1300 for the first time since November but it stalled short of the 200-day moving average at $1304. The 200dma has held for more than year.

The focus now shifts to Asia and Chinese CPI numbers at 0130 GMT. Inflation is expected to slow to 2.4% from 2.5% but a deeper fall would give the PBOC or govt more room to stimulate the economy and that could boost risk trades.

The pound roared toward the cycle high even after Carney moved the goalposts on forward guidance. GBP was easily the top performer while the euro lagged. The Australian dollar stalled ahead of the January jobs report.

Carney struck a dovish tone in comments on Wednesday saying he won't take any risks with the recovery, a signal that he's not eager to hike rates. The market was focused on the BOE inflation report and its higher economic projections.

Cable jumped on the report in European trading but continued higher through US and Asian trading, hitting 1.6619, less than a half-cent from the January cycle high.

Otherwise, US trading was muted as the euro consolidated a fall after Coeure strongly hinted at negative deposit rates. Yen trading was lackluster as risk sentiment and the S&P 500 were flat.

One thing that's thankfully off the agenda for more than a year is the US debt ceiling after the Senate voted to lift it until March 2015. Yellen's scheduled testimony for Thursday has also been postponed due to a US winter storm.

The Australian dollar was on a roll heading into US trading as it rose to a one month high at 0.9067 but the gains disappeared with traders cautious ahead of the January employment report. Numerous jobs reports have disappointed in the past year and the market is looking for 15K jobs gains in this one, which is due at 0030 GMT. This report includes benchmark revisions so it could be especially messy.

Sterling's upward momentum will be tempered by the BoE's credible justification for standing pat on rates despite unemployment reaching its 7% unemployment. The introduction of spare capacity sub-guidance may stand in the way of private economists speeding their forecasts for the next rate hike, but sterling will find support as long as the BoE's policy accommodation greases the wheels of the ongoing recovery and maintains the UK's relative growth story. Full story

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Janet Yellen survived nearly 6 hours of grilling in her first Humphrey Hawkins testimony. Risk assets made strong gains with the Aussie on top and the yen lagged. Japanese machine orders are the top item on the upcoming agenda.

Yellen's testimony continued to emphasize that taper will continue unless the economy deviates significantly but, importantly, she navigated many challenging questions and the market gave her performance a vote of approval. The S&P 500 gained 1.1% and US dollar was broadly higher.

One thing that stood out was Yellen's lack of concern about disinflation. She pinned some of it on the falling cost of petroleum imports and was confident better growth would push inflation back to target. With unemployment close to 6.5% a dip in inflation was the best chance for a pause in the taper but Yellen's lack of concern means it's a very low percentage possibility.

We see the rally in risk assets as more of a continuation of the upbeat sentiment from late last week than a result of Yellen. We warned not to ignore the sideways moves yesterday because it was a positive signal that the market could hang onto gains after the risk rally. If there is no correction in the day ahead, the same holds.

The lone release to watch in Asia is the 2350 GMT release of December machine orders. The consensus is for a 4.0% m/m rise. A comment that is giving the yen some life in early trading came from BOJ member Kiuchi who said more easing could do more harm than good.

Other comments to look out for are late speeches from Fed-members Lacker (0000 GMT) and Fisher (0010 GMT).

Yellen's testimony  signals that further tapering remains part and parcel of policy normalisation, but will not emerge at the risk of jeopardising a gradual but fragile US recovery at a time when China, the world's 2nd largest economy is revealing continued signs of weakness in manufacturing and services. Yields, yen crosses and equity indices follow up on last week's hammer candles. Full charts & analysis

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It would be easy to dismiss the lack of movement in markets on Monday but it's worth a closer look. The Swiss franc was the top performer while the commodity bloc lagged although overall moves were small. Australian housing data is the focus of Asian trading.  

The market had very little new information to digest on Monday and with Yellen testifying Tuesday, few were surprised by the lack of moves. The euro climbed to 1.3652 but stalled at the downtrend since the late-December high. USD/JPY traded in a 30 pip range.

In a way, the stability in the market was good news for risk trades. The S&P 500 climbed 2.6% on Thurs and Fri so a modest retracement would have been normal. Instead, the market shook off early gains and moved higher before it stalled at 1799.

Another metric to watch is NZD/JPY, which is a classic measure of market risk. The pair has been an early bellwether for sentiment and is challenging a confluence of resistance with the 21 and 55-day moving averages along with the 61.8% retracement of the recent selloff.

Early in Asia, one headline that grabbed attention was from the China Securities Journal which said the economy will be 'very difficult' this year. Markets are still skittish about emerging market hiccups and any headline could rekindle fear.

The calendar is focused on Australia later with fourth quarter home prices due out at 030 GMT and it's expected to show a hefty 8.6% y/y gain.

Does a currency's January performance serve as a reliable predictor for the rest of the year? According to our 20-year data (from 1994 to 2013), the best and worst performing currencies in January have generally replicated their performances for the rest of the year. In 16 of the last 20 years the pattern was notable. Click here for full analysis.

The yen is the early laggard as risk trades continue higher on the non-farm payrolls turnaround. CFTC positioning data showed fresh bets against the euro and a squeeze on yen shorts. USDJPY, equity indices and the 10-year yield have all shown hammer weekly formations lasy week and may be set for a rally in these upcming weeks. Latest Premium Insights include EURUSD held the 1.3650 stop, USDCAD long held the 1.0950 stop, GBPUSD held the 1.6230 stop and 2 gold trades. 

USD/JPY climbed 20 pips at the open and took out Friday's 102.58 high but the topside in the pair could be limited early in the week after the results of the Tokyo governor election. A former PM ran on an anti-nuclear campaign and turned the election into somewhat of a referendum on the planned restart of idled reactors.

Instead, a candidate supported by PM Abe was successful, paving the way for a restart later this year. The move will curb the vast quantities of coal imports from the Japanese a close the trade deficit, helping to boost the yen. The polls largely predicted the result of the election so the initial effect is likely to be minimal.

The Japanese current account data will be in focus early in the week with trade and current account balance numbers due at 2350 GMT. A trend deficit of 1.26T yen is expected and a current account deficit of 0.685T yen.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -13K vs +14K prior JPY -77K vs -86K prior GBP +10K vs +22K prior AUD -56K vs -66K prior CAD -60K vs -63K prior CHF +2K vs -1K prior

For the second week in a row, euro positioning flipped and once again the speculators were caught offside in a demonstration of the frustration of the trendless euro. A more solid trend is USD/JPY strength and with positioning moving toward neutral the stage could be set for renewed gains.