Daily Market Outlook, March 17, 2021

Asian equity markets are mostly lower this morning ahead of today’s monetary policy announcement from the US Federal Reserve. However, most moves have been small. Thursday’s planned ‘high-level’ talks between China and the US may also be weighing on sentiment. A White House official said that talks could be difficult as the US plans to raise issues such as technology and human rights.

Today’s key event will be the monetary policy update from the US Fed. Markets will be particularly focused on whether it has anything new to say about the recent sharp rise in government bond yields. So far, Fed policymakers - while making it clear that monetary policy will remain supportive and that they think that markets are wrong to worry about a pronounced rise in inflationary pressures - have been more reluctant to go further. Indeed, some have said that the rise may be a justified reaction to improving economic conditions. The Fed seems certain to maintain a ‘status quo’ policy stance today. It will reiterate that it is still too early to even start talking about cutting back its asset purchases and that a rise in policy interest rates is unlikely for a number of years. It appears unlikely, however, that there will be a consensus amongst Fed policymakers on whether to react to the unrest in the Treasury market. If they do so, any action will probably be limited to a statement that they are monitoring market developments and that they will act if they feel that those are inappropriate. Less likely is an actual policy change either to increase the near-term pace of asset purchases or to target those purchases more toward longer-term Treasuries. A key reason to stand pat is the improving growth outlook. Recent data releases suggest that, in contrast to the falls in Q1 GDP that are expected in the Eurozone and the UK, the US is on course to post a decent rise. And that is before the impact of the recently passed fiscal package starts to be felt. That means that there may be a sizeable upward revision to the Fed’s GDP forecast. That may mean that more Fed policymakers, and possibly a majority, will now be prepared to forecast an interest rate increase by the end of 2023.

Today’s data calendar is light and may get little attention as markets wait on the Fed. There is nothing of note in the UK, but US housing data will provide timely information on a part of the economy that seems to be rebounding sharply.

G10 FX Options Expiries for 10AM New York Cut

(Hedging effect can often draw spot toward strikes pre expiry if nearby)

EUR/USD: 1.1900 (1.7BLN), 1.2000 (1.2BLN) expire Wednesday

NB: A further 1.5BLN 1.1900, and 1BLN 1.2000 expire Thursday

GBP/USD: 1.3885-90 (613M). EUR/GBP: 0.8600 (1.2BLN) Wednesday

NB: Another 1.5bln EUR/GBP 0.8600 Thursday

AUD/USD: 0.7765 (550M) Wed, while Thursday sees 1.6bln 0.7750 strike

USD/CHF: 0.9200 (660M). USD/JPY: 108.50 (1.2BLN), 110.00 (470M) Wednesday

Larger Option Pipeline

EUR/USD:Mar18 $1.1900(E1.3bln-EUR puts)

USD/JPY: Mar23 Y107.95-108.00($2.3bln), Y108.12($1.8bln)

EUR/GBP:Mar18 Gbp0.8600(E1.3bln-EUR puts)

AUD/USD: Mar18 $0.7750(A$1.3bln), $0.7850(A$1.3bln)

AUD/NZD: Mar18 N$1.0770-75(A$1.4bln-AUD puts); Mar23 N$1.0785-90(A$1.7bln)

NZD/USD: Mar22 $0.7080(N$1.1bln), $0.7400(N$1.0bln)

USD/CAD: Mar18 C$1.2685-90($1.6bln)

USD/CNY: Mar18 Cny6.3450($1.2bln), Cny6.43($1.1bln)

Technical & Trade Views

EURUSD Bias: Bullish above 1.20 bearish below

EURUSD From a technical and trading perspective, the failure to recapture 1.20 on the upside leaves the 1.1830 lows exposed, through here bears will press for a test of the yearly pivot at 1.1720. Only a move back through 1.20 would reduce downside pressure opening a test of the monthly pivot from below at 1.2085

Flow reports suggest congestion through the 1.1820-1.1780 area with weak stops possibly being cleared up quickly through to the 1.1750 and again stronger congestion and likely to continue through the 1.1700 level, topside offers light back through the 1.1920 area and weak stops possibly setting up a small short squeeze through to the 1.1980 area before stronger offers start to appear into the 1.2000 level. Topside offers light through to the 1.1950 area with offers then starting to increase through to the 1.2000 level with weak stops above the 1.2020 level before the offers return increasing into the 1.2040-60 level.

GBPUSD Bias: Bullish above 1.3750 targeting 1.44

GBPUSD From a technical and trading perspective, a retest of 1.3750 pivotal trend support has seen fresh demand develop as this level continues to attract support bulls will target a retest of cycle highs en route to 1.44 upside objective.

Flow reports suggest topside offers around the 1.4000 level and slightly stronger stops appear for the market to open to a move through to the 1.4050-1.4100 with patchy resistance until closer to the topside of that range and stronger offers thereafter, downside bids into the 1.3800 level with weak stops likely on a dip through the 1.3780-40 levels with congestion likely to soak up much of the selling through to the 1.3700 level with possibly strong congestion then around the 1.3700 level increasing into the 1.3650 level before being able to make a move to the 1.3600 area and strong bids again.

USDJPY Bias: Bullish above 107.30 targeting 109.85

USDJPY From a technical and trading perspective, as 108.30 continues to attract demand bulls will target a test of pivotal 109.85 ahead of the yearly R1 pivot at 110.

Flow reports suggest topside congestion is likely to soak up some of the weak stops above through to the 109.50 area where strong congestion is likely to appear and increasing offers into the 110.00 and like the previous spikes at the beginning of last year any move is likely to find resistance above and continuing through the 110.00 with break out stops likely to be a little more nervous, downside bids light through to the 108.00 level with weak stops on any retrace through the 107.80 level and opening a dip to the 106.00 area possible over the coming week

AUDUSD Bias: Bullish above .7560 bullish targeting .8200

AUDUSD From a technical and trading perspective, as /7820 contains upside attempts there is potential for a head & shoulders pattern to develop, a loss of pivotal .7560 would open a move to test trend support at .7400 next

Flow reports suggest topside offers through the 0.7780-0.7820 area with weak stops through the possible strong offers to open a slow grind through to the 0.7840-60 area and then increasing offers onwards through 0.7900, , downside bids into the 76 cents level with strong bids likely through to the 0.7580 area, weak stops are likely to be few and far between with stronger bids likely into the 0.7550 level and likely stronger congestion through to the 0.7500 area.

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