Intraday Market Thoughts Archives

WHETHER TODAYS US DATA WILL MATTER in impacting the already accelerating FX flows may be uncertain as deteriorating risk appetite is already testing/breaching key technical levels in EURUSD and GBPUSD. See link for todays US releases on retail sales, industrial production and consumer sentiment http://bit.ly/5pdFAN The ensuing 2-day recovery in EURGBP to 0.86 means that GBPUSD has underperformed EURUSD in recent days despite the breach to new 14 month lows in EURUSD. EURGBP 2-hr chart probes the trendline support of 0.8560, a break of which to call up 0.8520 on further stochastic deterioration. This could mean renewed declines in EURUSD towards $1.2455 and stabilizing GBPUSD towards $1.4620. Should retail sales decline from the prior month as is expected in the calendar, investors will have very little reason to build on risk and lift the S&P500 and Dow-30 past the lower highs pattern.

FROM STRESS TESTS TO RATING STRESS: Exactly One year after the major US banking institutions passed the stress tests on their debt paying ability with flying colors, they are no facing investigatory stress by the SEC over their handling of derivative sales (Goldman Sachs, Morgan Stanley & BoNY) and this week the preliminary probe by the NY Attorney General that into whether banks have misled credit rating agencies in order to secure high ratings for derivatives (MBS CDOs). And just when the US economy was beginning to show its MACRO superiority relative to the Eurozone in terms of GDP growth, recovering employment, rebounding consumer demand and stabilizing business investment, US financial shares are now facing a new source of risk, which could exasperate a rocky US equity market in the process of recovering from so-called trading errors. We warned on April 19 in this piece http://bit.ly/aXo4zn that US equities (S&P500 and Dow-30) had failed to rally beyond 2 important technical barriers; their 200-week moving average and the 61.8% retracement of their decline from the 2007 record highs to their 2009 lows. With the danger of the Eurozone sovereign crisis creeping into European banks and the threat of regulatory/legal action on US banks looming, investors are given more reasons to exit risk currencies to the favour of the USD and JPY. SELLING THE BOUNCE in the euro pair has become a favourite past-time in FX trading desks, while the sobering reality from the Bank of England has quashed all post-Tory/LibDem coalition rally. The confidence of our January forecast for a $1.30 EURUSD target in Q2 may now be matched by a our prediction for $1.17 before end of Q3.

The AUDUSD HotChart from May 4 in this link http://bit.ly/bsVQuY called for a 0.90 target followed by 0.87. 3 days later, AUDUSD did collapse to 0.87. Since then, AUDUSD has yet to regain 0.9080, which is the previous channel support, now acting as a solid resistance. Overnight, Australian figures showed the net creation of 33,700 jobs in April, with the unemployment rate holding steady at 5.4%. The RBA is expected to keep rates unchanged next month after raising rates 6 times since October. Improved risk appetite today could raise AUDUSD towards 0.9040-45, but any break beyond it seen capped at 0.9070 before a gradual retreat back below 0.89 in the medium term and onto 0.8780. GBPUSD awaits its trade data at 8:30 GMT. GBPUSD hourly eyeing $1.4930.

The latest record high in gold at $1,244 is being especially driven by bond-purchasing measures of the ECB aimed at capping sovereign bond yields, which are an explicit form of quantitative easing (despite ECB's insistence to claim sterilization at a later time). 2009 was a clear manifestation of how asset purchases from the Fed and the Bank of England drove down yields (the price of money) to extreme levels, leaving investors with little choice but to seek the safety of gold via ETFs and bullion purchases. XAUUSD oscillators are gradually stretching to overvalued territory. But as long as scepticism with the Eurozone plan remains synonymous with buying gold as a safe haven, we dont see any obstacle for $1,300/oz before quarters end. This would be especially the case as the Fed stands pat on interest rates.

STERLING LOSES all of yesterdays gains after the Bank of Englands inflation report reinforced expectations that any positive sterling impact from deficit-reduction plans may not survive the growth implications of these measures. The BoE reiterated that inflation will drop below the 2% target in 2010, which will maintain interest rates at 0.50% for some time. We warned in last nights IMT about the negative impact that could occur from the inflation report. GBPUSDs failure at the Apr 27 trend line resistance of $1.5050 could risk extending losses towards $1.4770. This also translates to a possible 0.8580 in EURGBP after the pair held at the 0.84 support. AUDUSD remains capped at 0.9050, targeting medium term objective of 0.8780 (before end fo quarter).

Sterling's Tuesday rally was the first daily gain after 7 days of losses, as financial markets applaud the combination of a market-friendly Conservatives victory and the LibDems contribution to achieving a majority government. Considering LibDems opposition to stringent spending cuts, this will help allay concerns of Conservatives usual aggressive stance on spending cuts. UK MAR CLAIMANT UNEMPLOYMENT due at 8:30 GMT expected at -20K from -32.9K, unemployment rate seen at 8%. GBPUSDs recovery to $1.4990s would have no issues in extending past the $1.5020 resistance and onto $1.5180 in the event of a market-friendly jobless figures. TRADERS MUST BE AWARE OF the Bank of Englands quarterly Inflation tomorrow, which could dampen sterling gains if it reiterates that inflation will return below target. News that Morgan Stanley is being investigated for abusing it sales of derivatives may also weigh on risk appetite. EURUSD struggles to regain $1.2750s, at which preliminary shorts seen eyeing $1.2650s, followed by $1.2580.

DAVID CAMERON IS THE NEW PRIME MINISTER as Gordon Brown stepped down and the Conservative Party takes over to form a coalition with the Liberal Democrats with the aim of attaining majority. GBP RALLIED right before London markets closed when Labour confirmed the breakdown in its talks with LibDems. GBPUSD POSTED ITS 1st DAILY GAIN in 7 days, eyeing the interim resistance at $1.5060, followed by $1.5120. ONLY WHEN THE NEW GOVT CONFIRMS a new majority in Parliament would sterling move onto towards the next leg of the rally and possibly retest $1.5150s. OTHERWISE TRADERS MUST BE AWARE OF the Bank of Englands quarterly Inflation tomorrow, which could dampen sterling gains if it reiterates that inflation will return below target. ALSO, Mervyn King's testimony after the report will be important for the GBP. Renewed downside towards $1.45 cannot be ruled out. medium term outlook suggests emerging resistance at $1.55As EURUSD slumps towards $1.2630s, EURGBP is expected to retest the June 2009 low of 0.84 after having broken below both the 55 and 100-week MAs 2 weeks ago. Only a weekly close below 0.8390 will be required to pave the way for 0.8280s.

GBP RALLIES on UNconfirmed news that talks between Labour Party and LibDems are temporarily over. GBPUSD eyes interim resistance at 1.4980, followed by 1.5020. We could hear a confirmations anytime now. FTSE-100 retraces 76% of day''s earlier losses.

WATCH THE LATEST DEVELOPMENT OVER UK PARTISAN NEGITIATIONS ON MY TWITTER PAGE

http://twitter.com/ alaidi

EURGBP and GBPUSD CLOSELY WATCHING THE LATEST behind-the-scenes negotiations between the British Conservative Party and Liberal Democrats, who are attempting to build a coalition and ultimately a majority in Parliament, an outcome whose impact will be an immediate positive for GBP and FTSE-100.IMFs chief economist Lipsky told Market News Intl that the E220 billion in potential IMF support is a "hypothetical" figure and allocated solely for the Eurozone. MNI also learned that Greece has already applied for the 1st tranche of IMF aid of E14.5 bln and will obtain a separate E5.5 bln as early as tomorrow. The E20 bln will be more than enough to cover the E10.4 bln in Greek debt payments due this month. Markets continue to doubt Greeks ability to implement the austerity policies required to trigger the latest IMF packages.

The 4% Monday rally in US equities resulted into a 4% Tuesday selloff in Shanghai and 1% selloff in the Nikkei, before European bourses sank in the red with 1.6% and 1.1% declines in the FTSE and the Dax. Despite better than expected UK manufacturing figures, UK markets remain jittery due to the potential of a Labour/LibDem deal following Gordon Browns resignation. The concept of selling the bounce remains extends from the euro into global equities. The 2.8% annual rise in Chinese CPI reminds markets of Chinas need to further tighten policy beyond the 75-bps in reserve requirement hikes. Considering that DOW FUTURES ARE DOWN 102 pts, we expect AUDUSD rallies to extend retreat towards 0.8920, with rebounds capped at 0.9010, while AUDJPY is vulnerable to 81.15-20.

Watch Ashraf's VIDEO REACTION to Gordown Brown's announcement and the market implications for a Labour/LibDem Coalition

http://www.cantos.com/company/CMC+Markets/project/6377/term/

VARIOUS INTERPRETATIONS to Gordon Browns speech, in which he announced that his Labour Party is ready to discuss a coalition with LibDems. Brown announced he will step down to allow for these negotiations to go on, which is a negative for GBP as it paves the way for the possibility of establishing a labour/LibDem. While markets have proven their clear preference to see Conservatives in power (via GBP rebound following Camerons Friday speech), any signs of the alternative are showing the opposite impact on the currency. And so, GBP is not falling on the mere announcement of Browns stepping down but on the implications for a possible arrangement between Labour and LibDems. EURGBP eyes 0.8680, GBPUSD is dragged by a bearish oscillator crossover towards $1.4780.

GBP is 3rd BIGGEST LOSER in FX today (after JPY and USD). David Camerons Conservatives have signalled a willingness to partner their way into a majority but have not succeeded in ridding markets from what could be a prolonged period of hung parliament. The ensuing rally in global equities could well see another bounce in GBPUSD extending towards $1.5, but the presence of the trend line resistance at $1.5110 (from the Apr 27 high), is unlikely to be breached without a successful Tories/LibDem coalition. EURUSD faces imeediate resistance at $1.3140.

Germany proposed a funding facility of E500 billion with the help of the IMF, E60 billion of which will be in an loans from the European Commission and E440 billion in the form of government-backed guarantees from Eurozone nations. The E500 bln is an addition to the E110 bln announced last week by the EU and IMF to help Greece into the next 3 years. Theres no news about the ECB role, whether in the form of buying bonds or providing long term loans. The lack of any ECB participation so far has not backfired on the euro as markets rallied on the scale of the E500 bln package. What about the ECB? Is the JC Trichet waiting for the next fire to erupt before stepping in? We have seen gap-ups in the EURUSD before on unprecedented announcements, and this is certainly one of them. But neither the daily/weekly technicals look positive for the euro nor does the outlook for Portugal and Spains ability to contain soaring bond yields and the years debt payments. And we havent mentioned the defeat of Angel Merkels coalition at the lower house of parliament after her CDU party lost majority in Germanys most populous state,