Daily Market Outlook, April 26, 2021
Most Asian equity indices are trading higher this morning, following on from the positive close for US stock markets on Friday driven by upbeat US economic data. Still, with Covid cases continuing to rise rapidly in some parts of the world, overall sentiment remains somewhat contained. The past three days have seen one million new Covid-19 cases added in India, while on Friday Japan’s PM Suga declared a new state of emergency and introduced tighter restrictions in Tokyo, Osaka, Kyoto and Hyogo in an effort to stem the spread of the virus during the Golden Week holiday. The measures will run through to 11th May, affecting around a quarter of Japan’s population.
The measures introduced by Japan highlight a growing concern that a further wave of Covid-19 infections could potentially pour cold water on the economic recovery, causing it to peter out just as it did last autumn. This is likely to keep the focus on new cases and the vaccine rollout. The impact of lockdown restrictions aimed at stemming the spread of the virus are expected to see Friday’s report on Eurozone Q1 GDP show a decline in activity, with the drop centred on those areas of the service sector most directly impacted by restrictions. That would be the second consecutive quarterly fall, meaning that the economy was in recession for the second time in 12 months.
More positively, the April PMIs suggest that GDP will rise in Q2 despite ongoing restrictions and the relatively slow vaccine rollout. This is especially true across Germany where, despite Covid restrictions being extended into April, a range of surveys have strengthened, pointing to firmer activity. This primarily reflects the improvement in global demand, with the manufacturing sector benefiting the most. Today’s German IFO survey for April is expected to provide further evidence of the improving situation and look for the ‘headline’ business climate index strengthening to 98.4 from 96.6 – which would be the highest since H1 2019.
Elsewhere, ECB members Lane and Panetta speak at separate events. At last week’s policy meeting, the ECB acknowledged the recent firming in activity trends but reiterated its commitment to keeping monetary policy extremely accommodative. Today’s comments will be closely watched to see how widely these views are shared by individual members of the Committee. Meanwhile, in the US, the durable goods orders report for March will be released this afternoon.
Overnight, the Bank of Japan is likely to deliver a similar message to the ECB when it announces its latest policy announcement. A confirmation that policy measures will remain in place for a long time is expected, though the consensus expectation is for no new measures to be announced.
CFTC Data
USD Short-Covering Steadies - Data up to Tuesday Apr 13 and were released on Friday Apr 16.
Position adjustment, which has seen speculative accounts and FX investors reducing aggregate short exposure to the USD consistently over the past seven weeks is showing signs of stabilizing. The USD short position, reflected in the aggregated exposures of the major currencies we cover in this report, did decline again this week but the change was very marginal, with the overall USD short edging down the USD5.97bn, from USD6bn in the prior week.
Net long EUR positioning continues to fall but this week’s long liquidation amounted to just USD39mn. Net EUR longs remain the largest single position in these data at USD9.9bn. Net CHF longs were cut a sizeable USD324mn in the week to leave net exposure more or less flat (just USD112mn). Speculative sentiment in the GBP continues to improve, meanwhile; net GBP longs rose USD475mn in the week—the biggest week-over-week change in this report— to USD2.2bn.
Net long positioning in the major commodity currencies—CAD, AUD and NZD—fell this week but in each case, the change was less than USD50mn and overall positioning remains flat. Strangely, speculative accounts continue to ignore the steady CAD appreciation that has extended significantly again so far this year. A modest net MXN short (USD298mn) was trimmed USD28mn.
Speculative sentiment remains bearish on the JPY and investors added to net JPY shorts this week—albeit only by a marginal USD79mn. The overall net JPY short of USD6.7bn remains large, however, and is the second largest net short position among the major currencies. Outside of currencies, net gold longs were cut USD1.47bn, taking the net bull bet on gold back to USD31.6bn
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(E654mln)
USD/JPY: Y107.97-108.03($471mln), Y108.15-20($815mln)
USD/CHF: Chf0.9300($600mln)
AUD/USD: $0.7945-50(A$732mln)
AUD/JPY: Y81.50(A$753mln)
USD/CAD: C$1.2700-10($570mln)
USD/CNY: Cny6.45($500mln-USD puts)
USD/MXN: Mxn19.60($650mln)
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Larger FX Option Pipeline
EUR/USD: Apr27 $1.1935-50(E1.0bln), $1.2100-25(E1.6bln-EUR puts); Apr28 $1.1900(E2.0bln), $1.1980-85(E1.8bln-EUR puts), $1.2000(E2.6bln, E2.35bln of EUR puts), $1.2030-41(E1.1bln), $1.2100-05(E1.1bln), $1.2130-45(E1.0bln); Apr29 $1.1850(E1.5bln), $1.1875-85(E1.1bln), $1.1890-1.1905(E1.4bln-EUR puts)
USD/JPY: Apr27 Y108.74-75($1.5bln-USD puts), Y109.00-10($1.3bln-USD puts), Y109.70-85($1.8bln); Apr28 Y108.10-15($982mln-USD puts); Apr29 Y106.25($1.3bln), Y106.60-70($1.5bln-USD puts), Y106.85-107.00($1.5bln), Y108.45-50($1.1bln-USD puts), Y109.00($1.0bln-USD puts)
EUR/JPY: Apr29 Y129.85-95(E1.1bln-EUR puts)
GBP/USD: May03 $1.3700(Gbp1.3bln)
USD/CHF: Apr29 Chf0.9200($930mln-USD puts)
AUD/USD: Apr27 $0.7710-25(A$1.4bln-AUD puts), $0.7830-35(A$1.1bln-AUD puts); May04 $0.8000(A$1.1bln)
AUD/JPY: Apr29 Y81.00(A$1.1bln-AUD calls)
AUD/NZD: May04 N$1.0855-65(A$2.0bln-AUD puts)
USD/CAD: Apr28 C$1.2600($1.1bln-USD puts)
USD/MXN: Apr30 Mxn19.50($1.4bln)
USD/ZAR: Apr29 Zar14.20($930mln-USD puts)
Technical & Trade Views
EURUSD Bias: Bearish below 1.1950 bullish above
EURUSD From a technical and trading perspective, the breach of 1.20 resistance opens a test of 1.2090/1.21, as 1.1950 supports look for a test of trendline resistance at 1.2125.
Flow reports suggest stops appear around the 1.2120 level and given the perchance of some banks to call a move to fade the Euro above the 1.2000 possibly starting to cause pain as option hedges go could see a squeeze higher and into the Feb ranges before seeing offers coming in above the 1.2150 level and increasing. Downside bids light through to the 1.1980 level with weak stops on a breakthrough to the medium congestive 1.1950 and therefore exposing the stronger bids 1.1900 level through to the 1.1880 and strong stops.
GBPUSD Bias: Bullish above 1.39 bearish below
GBPUSD From a technical and trading perspective, as 1.3960 contains upside attempts look for a test of range support towards 1.37.
Flow reports suggest downside congestion into the 1.3800 level with that congestion lightening on a push through the 1.3780 area and then increasing through the 1.3760 area as the bids deepen from 1.3720-00 level weak stops likely on a move through the 1.3700 area however, late Mar and early Apr has shown that bids are likely to lurk just below the area with breakout stops likely to be below the 1.3650 level. Topside offers light through the 1.3900 level and open quickly for the moment to the 1.4000 level before stronger offers start to appear around the level, sentimental levels may have light offers however, they are still building having come off so quickly leaving the market filling gaps still.
USDJPY Bias: Bullish above 108 targeting 112
USDJPY From a technical and trading perspective, as 107.50 acts as support there is potential for a test of the pivotal 108.50, through here will open another look at 110. Failure below 107 would be a significant bearish development
Flow reports suggest downside bids test 107.50 and an old trendline then nothing until closer to the 107.00 area where stronger bids start to appear but the downside opening to Feb levels, Topside offers appearing through the 108.80 level and increasing into the 109.00 level light offers until the 109.40 area is likely to see strong congestion increasing through to the 110.00 level before stronger stops are likely to appear
AUDUSD Bias: Bearish below .7700 bullish above
AUDUSD From a technical and trading perspective, the closing breach of .7730 has relieved downside pressure opening a move to test offers towards .7820
Flow reports suggest topside offers continue through the 0.7800 area with a break through the 0.7820 area likely to see weak stops and a test towards the sentimental 0.7850 area however, while there maybe some offers in the area the market Looks to be fairly open through to the 79 cents level and ultimately ranges from the end of Feb, downside bids light through the 0.7700 level with weak stops likely on a move through the 0.7680 before stronger bids around the 0.7650 area and continuing through to the 0.7600 likely increasing in size, any further moves are likely to see strong support into the 0.7550 to calm the situation
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!