Daily Market Outlook, December 7, 2023
Munnelly’s Market Commentary…
Asia - Stocks in the region experienced a decline due to negative sentiment in the wake of weak labour data from Wall Street. Mixed trade figures from China, which showed an expansion in exports but a contraction in imports, also contributed to the subdued market. The Nikkei 255 was hit the hardest due to a stronger currency and higher yields trading below the 33K handle. The Hang Seng and Shanghai Comp. were somewhat varied, with the latter experiencing choppy trading due to mixed Chinese trade data. Moody's revision of its credit outlook for the special administrative region to negative caused the Hong Kong benchmark to suffer. The second reading of Japan's Q3 GDP data, which is set to be released tonight, is not expected to be revised. The initial data showed a surprise 0.5% contraction, leading to expectations that the Bank of Japan (BoJ) will continue to be cautious about raising interest rates. The BoJ's policy decisions are strongly influenced by economic data, and a contraction in GDP indicates that the central bank will likely focus on supporting economic recovery rather than tightening monetary policy in the near future.
Europe - The Q4 GDP figure that is due to be released in the Eurozone will be an update to previously released data. It is not expected to change the overall economic picture, as GDP is still predicted to show a small decline of 0.1% for the quarter. However, the release will offer more information and insights into the various components of economic activity. The recent October German industrial production data showed a decrease of 0.4%, marking the fifth consecutive monthly fall. This follows yesterday's unexpected signal of a significant decline in German factory orders, indicating ongoing pressure on the industrial sector. The Italian October industrial production data is also expected to reveal a decline. These indicators collectively suggest that the Eurozone economy is at best stagnant in Q4. Nonetheless, survey data provides some hope for a potential improvement in economic conditions in 2024.
US - Stateside, one noteworthy release that may draw attention in the markets is the US weekly unemployment claims. Although tomorrow's monthly labour market report will provide a more comprehensive update, the weekly claims serve as a timely indicator. Thus far, these claims have remained low, signalling that employment conditions continue to be robust. However, any indications of an upswing in unemployment claims will likely be closely monitored by markets, especially in the current bullish environment.
FX Positioning & Sentiment
The implied volatility of G10 FX options suggests an expected increase in FX realised volatility. Factors contributing to this include the recovery of the US dollar and the anticipation of potential volatility from upcoming data releases and central bank meetings. The one-week expiry implied volatility is elevated across major currency pairs, particularly in anticipation of the US jobs data scheduled for Friday. This volatility is expected to rise further on Thursday, reflecting additional risk premium ahead of next week's policy decisions from the US, UK, and eurozone. For example, the EUR/USD benchmark 1-month expiry implied volatility reached a new 6-week high of 7.0 on Wednesday, while one-month risk reversals indicate increased downside premium over upside strike premium at 0.4. In the case of AUD/USD, traders may consider FX hedging strategies, especially if AUD/USD is close to significant strike levels expiring on Thursday at 0.6545 and 0.6650. The USD/JPY one-month expiry implied volatility remains near recent highs, around 9.0, with trade flows favouring downside strikes. These indicators highlight the market's expectation of increased currency market volatility in the near term.
CFTC Data
The net speculative long position for EUR has increased, while the short position for GBP has been significantly reduced. On Tuesday, the net speculative long position for EUR rose to 143,165 from the previous week's 129,654. The net speculative short position for JPY also increased to 109,237 from 105,454. Additionally, the net speculative short position for AUD decreased to 71,219 from 77,970. However, the short position for GBP decreased significantly to 7,895 from 26,098. Furthermore, there has been an increase in short positions for CHF and NZD.
FX Options Expiries For 10am New York Cut
(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)
EUR/USD: 1.0750-55 (1.1BLN), 1.0765-75 (1.4BLN), 1.0800-05 (1BLN),
1.0825-30 (1.3BLN), 1.0840-50 (1.4BLN)
USD/CHF: 0.8720-35 (408M). EUR/GBP: 0.8665 (380M)
GBP/USD: 1.2475-85 (790M), 1.2525 (292M). EUR/GBP: 0.8565 (200M)
AUD/USD: 0.6545-50 (3.3BLN), 0.6600 (410M), 0.6650 (2.3BLN)...
NZD/USD: 0.6100 (284M), 0.6150 (814M)
USD/CAD: 1.3550 (614M), 1.3600-15 (1BLN)
USD/JPY: 146.00 (325M), 146.50 (645M), 147.00-10 (1BLN)
Overnight Newswire Updates of Note
China Exports Edge Up For First Time In 7 Months In Nov, But Imports Decline
China Analysts See Room For China To Cut RRR And Interest Rates
BoJ's Ueda Flags Options On Policy Target Upon Ending Negative Rates
BoJ Appears To Be Laying Groundwork For End Of Japan's Negative Rates
Australia’s Trade Surplus Widens On Improved Iron-Ore Exports
ECB May Consider Rate Cuts In 2024, Not Now, According To Villeroy
EU Countries, Lawmakers Reach Deal On Rules For ChatGPT, Other Systems
JGB Yields Rose On Terrible 30 Year Bond Auction Demand
Apple Readies New iPads And M3 MacBook Air To Combat Sales Slump
AMD CEO Debuts Nvidia Chip Rival, Gives Eye-Popping Forecast
Meta, Microsoft Say They Will Buy AMD’s AI Chip As An Alts To Nvidia
AbbVie Nears Roughly $8 Billion Deal For Drug Developer Cereve
(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
Technical & Trade Views
SP500 Bias: Bullish Above Bearish Below 4540
Below 4527 opens 4512
Primary support 4420
Primary objective is 4600
20 Day VWAP bullish, 5 Day VWAP bearish
EURUSD Bias: Bullish Above Bearish Below 1.0740
Below 1.0740 opens 1.0650
Primary support 1.0650
Primary objective is 1.1050
20 Day VWAP bullish, 5 Day VWAP bearish
GBPUSD Bias: Bullish Above Bearish Below 1.2540
Below 1.2530 opens 1.25
Primary support is 1.2185
Primary objective 1.28
20 Day VWAP bullish , 5 Day VWAP bearish
USDJPY Bias: Bullish Above Bearish Below 148
Above 148.10 opens 149
Primary resistance 149.70
Primary objective is 145
20 Day VWAP bearish, 5 Day VWAP bearish
AUDUSD Bias: Bullish Above Bearish Below .6590
Below .6560 opens .6520
Primary support .6330
Primary objective is .6740
20 Day VWAP bullish, 5 Day VWAP bearish
BTCUSD Bias: Bullish Above Bearish below 42400
Below 41000 opens 40000
Primary support is 36800
Primary objective is 46000
20 Day VWAP bullish, 5 Day VWAP bullish
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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!