Intraday Market Thoughts Archives

Yesterdays IMT on USDCAD made the case for prolonged gains as long as the 1.0790 support held up convincingly. And with 1.11 already seen last week, the market has the incentive to retest this high. The weekly 10-year chart http://twitpic.com/dvd83 spells further losses ahead, eyeing 3.30% and a possible 3.15% before an extended rebound in year-end. Meanwhile the USDJPY HotChart is DEEPENING IN THE MONEY.

We warned in our last IMT of 2 hrs ago to keep an eye on oil. Our $69.70 target has been breached and oil is now down $3.00 to $67.60, damaging CAD across the board and boosting USDCAD by 150 pts. More trades on http://twitter.com/alaidi We warned in yesterdays article how the 1,015 in the S&P500 was a key resistance (38% retracement from the Oct 2007 high to the Mar low). Cable looks to test 1.6470 and CADJPY eyes 85.70. We said on CNBC on Wednesday that stocks will do the "bringing down of yields for the Fed" and that's exactly what's happening today. http://www.cnbc.com/id/15840232?video=1212649235&play=1

The biggest decline in annual CPI since 1950 is sending 10-year bond yields to 3.56%, which are expected to extend losses towards 3.30% in next 2 weeks. The first increase in US industrial production since October (+0.5%) is not helping Dow futures, which are in fact deteriorating, partly because the capacity utilization remains rose to a modest 68.5%. KEEP EYES ON OIL as it struggles to regain $70.80s and is now nearing $70.00. Expect 69.70 to resurface as the next intermediate support. But CAD remains mainly boosted by better than expected Canadian factory orders. NZD strength partly explained by the fact that other commodity FX are capped by their own specific factors (China impacting Aussie, officials capping CAD).

Shanghai's 3% decline drags the index to 5 week lows, prompting fresh risk aversion into the Japanese currency. HK may have pulled itself out of recession with a positive Q2 GDP, but FX remains nervous vis--vis risk appetite. China's decision to impose a 3-year moratorium on new steel projects reflects the nations aversion to soaring prices being the worlds largest buyer. And despite hawkish comments from RBAs Stevens, the Aussie dropped off its highs on the China developments. Our HotChart on USDJPY Cyclical Peaks us now up http://www.ashraflaidi.com/hot-chart/?a=932

Thursdays uninspiring US stocks session follows a very tumultuous Wednesday driven by the post FOMC fluctuations. What could have been a gloomy stocks reaction to the dismal US retail sales was offset by the technical end of Germanys recession. This seemed to have helped oil stabilize above $70. Fridays release of US July CPI and July industrial production will be chiefly influenced by the latter, expected +0.2% from -0.4%.

Despite the emerging volatility in USDCAD, the pair remains well supported at the Aug 4 trend line support of 1.0795, while facing interim resistance at the TL resistance of 1.09. Appetite-friendly growth figures from France and Germany have underpinned any retreat in oil prices, lending indirect support for CAD. But with equities unable to regain earlier highs and USDX support firmly in place in 78.15-20, We stick with our bullish USDCAD call for a retest of 1.1120 and 1.130.

Risk appetite is abruptly cut after the unexpected decline in US July retail sales of 0.1% (exp 0.7%) and the 0.6% decline in sales ex autos. Dow futures down 50% from +110 pts, while USD and JPY build up gains vs most currencies. Weekly jobless claims rose to 558K from 554K. Any decline in oil prices below 71.30 and onto 70.90s would likely be accompanied by a sharper gains in USD. For now, EUR remains propped by the unexpected 0.3% q/q increase in Germanys Q2 GDP, which comprises a technical end to the recession and a wake-up call to the widely misguided forecasts suggesting the US recovery would precede that of Europe. Those FIFO claims (First-in-First-out). USDJPY eyes 95.20

THE MOST IMPORTANT PART OF THE FOMC statement was the assertion that it will gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.

The US dollar is already stabilizing from its intraday retreat after the FOMC revealed its plans for a slower pace of treasury purchases by delaying the conclusion of its purchases in October from the originally planned September. As we mentioned throughout the week, the stabilizing dollar will gain a fresh boost from the combination of prolonged retreat in commodities and equities (equities will ignore the Feds discreet upgrade of the economic conditions and instead grow more nervousness over the slower injection of liquidity into the system).

As was seen in previous payrolls reports, the case of positive dollar response is expected to be followed by a gradual retreat in equities. And only once equities display a more significant case of risk aversion will the JPY join the dollar in extending gains vs EUR, GBP, CAD, CHF, AUD and NZD.

With the Fed planning to slow its asset purchase program and the Bank of England expanding its own purchases, this will leave STERLING EXPOSED TO DEEPER LOSSES as the BoE remains the most generous provider of QE.

Samples of Ashraf's appearance on CNBC's World Wide Exchange earlier today, previewing the FOMC, risk appetite, USD, emerging market indices, CRB http://bit.ly/17Fq7f

What to look for in FOMC announcememt? http://twitpic.com/dm1dg Aussie resistance lifted to 0.8320 on the 4 hour chart, while cable ceiling lifted to $1.6580--also on the 4 hour chart.

Deteriorating Asian equities were sufficient in triggering a fresh wave of bids in USD and USD against all major currencies, while USDJPY tested 95.10. The usual pre-FOMC consolidation will see a partial retracement in risk aversion trades, but USD will likely retain its upward bias into the decision, unless new asset purchases are announced. Aussie remains the weakest performing currency with AUDUSD capped at 0.8250-55, suggesting a renewed pullback towards 0.8180 coming up. $GBPUSD remains capped at $1.6530s.

Ashraf will be guest host on CNBC's World Wide Exchange Wednesday from 9:00 to 9:45 am GMT (10-10:45 BST, 5-5:45 EST) discussing the Bank of England's Quarterly Inflation Report, the Federal Open Market Committee's announcement, FX, bonds and more. Risk aversion trades are on a tear especially after the Shanghai Composite Index hits 4-week lows, probing below its 50-day MA. Aussie is the worst performing currency as of late Tues NY, followed closely by NZD and CAD.

PRE-BOE INFLATION REPORT & FOMC DECISION INSIGHTS. The FOMC is expected to remind markets that it has yet to complete its current asset purchase program, i.e. NO NEW batch of treasury purchases, which could be neutral-to-positive for the US dollar, and positive for the yen in the event that equities react negatively to the statement (no new purchases means no expanded QE, which tends to be more negative for risk appetite). This would be the OPPOSITE of last weeks Bank of England announcement, which surprised markets by expanding QE, boosting equities, HURTING STERLING and dragging down guilt yields. Tomorrows Bank of England quarterly inflation report (9:30 am GMT, 10:30 am BST) could add more GBP selling as it makes the economic case for the decision to expand QE, i.e, fragile GDP outlook, sub-target inflation and so on. While last Thursday was the BoE surprise, tomorrow could be the rationalization of that surprise in the form of a very detailed inflation report. We expect last week's gravestone doji in cable to unleash more losses for this week and broadening GBP losses. CAD losses are not finished yet either.

Here's Friday's GBPUSD weekly gravestone doji which helped us predict the $1.65 target from the then $1.6770 high. A great textbook case for beginners and experts http://twitpic.com/d1r81 And here's the current ste up for OIL and NZDUSD http://twitpic.com/dijtk

Watch ASHRAF's INTERVIEW on BLOOMBERG TV earlier today shedding light on the USD-Equity relationship and making the case against Sterling and the loonie http://bit.ly/12jCKD While tomorrow's FOMC statement is dominating the news, tomorrow's Bank of England inflation report (9:30 am GMT) could be the early market-mover, potentially shedding further losses on GBP below the $1.64 support. BoE has already made the case for additional Quant Easing. The report will comprise the negative assessment making the case for the new program. CADJPY eyes 86.20.

Intensifying risk aversion prolonging CAD damage, sending USDCAD towards our 1.1030 target (see USDCAD HotChart from 1.08) and USDJPY below 96.40 as oil finally gives in below $70, hitting 69.35. The chart http://twitpic.com/di11i shows that euro continues to lead turnarounds in oil prices. GBPUSD held up at 1.6435, but a decline the 50-day MA of 1.64 remains in the cards. As stocks broaden losses and Brazils Bovespa maks a much anticipated decline, expect more aggressive losses in JPY pairs. NZDJPY eyes 0.6380, CADJPY eyes 86.90 and AUDUSD eyes 0.8230.

It may be a quiet Tuesday session but USD is gradually gaining more ground, dragging GBPUSD back down near the key 55-day MA at $1.64, which is also the 5 month trend line support on the weekly chart. CAD is the worst performing currency among the majors since the NY, with USDCAD probing the 21-day MA at 1.0925, The pair has posted its 4 straight daily increases since January. USDJPY remains vulnerable to further pullbacks towards 96.40 and 95.80. Watch Ashraf on Bloomberg TV discussing FX and the FOMC this morning at 10:35 GMT, 11:35 BST.

All of our intraday targets for the day have been hit are as per our previous IMTs and twitter updates on http://twitter/alaidi.com as well as the latest USDCAC HotChart. A combination of risk aversion and JPY shortcovering dragged down USDJPY towards 96.80, while sending $GBPUSD by more than 2 cents towards 1.6430, right above the key 55-day MA, which has not been breached since March. GBPJPY shed more than 200 pips to 159.80, while USDCAD breached above 1.09. Falling stocks are boosting bonds at the expense of their yields, which are back down nearly 10 bps to 3.78%. the fact that the 10-year yield has retraced over 61..8% of Fridays rally could augur well for further USD gains. My interview earlier today on BNN view earlier today discussing forex -stock correlations from a very busy trading floor in London http://bit.ly/d24RZ

JPY recovers after Friday's aggressive sell-off. USDJPY failed to breach 97.90, now testing 97.00 and may be at risk of a gradual retreat into 96.60, as the Japanese currency is lifted by falling global equities, while the bulk of the USD gains emerge against non-JPY currencies, particularly GBP, AUD and CAD. GBPUSD has hit out 1.65 target, now eyeing the 55-day MA of $1.6440. Oil seen consolidating around 70.70-68.00. $USDCAD nears 1.0880 interim target before the key 1.0920 resistance later in the week.

My interview earlier today discussing, the US dollar, Aussie, Loonie, the Shanghai Composite Index, oil & the temporary gap in US unemployment http://bit.ly/d24RZ

Both sterling and Canadian dollar are sold across the board as warned on Friday, with GBPUSD at 1.6585, nearing our 1.6510 target before 1.6460. USDCAD regaining 1.0836, for an interim resistance at 1.0870. Oils failure to regain $73 is increasingly becoming apparent. With a break below $69 per barrel a strong likelihood today, we could see a retreat in equities that would intensify CAD losses. Gold seen at 935.