Daily Market Outlook, December 8, 2023
Munnelly’s Market Minute…
Asia - Most stocks traded higher, but gains were limited due to cautious sentiment ahead of the US NFP jobs report and recent BoJ speculation. The Nikkei 225 underperformed due to a firmer currency and downward revision in Japan's Q3 GDP. The Hang Seng and Shanghai Comp. shrugged off early indecision, with the downside cushioned by a net liquidity injection from the PBoC.
Europe - The inflation attitudes survey conducted by the Bank of England/Ipsos in the UK is expected to receive attention. This survey provides insights into short- and long-term inflation expectations, which policymakers closely monitor. These expectations can have an impact on actual inflation, particularly in terms of guiding it towards the 2% target. In the previous survey, inflation expectations for the next year stood at 3.6%, showing a decrease over the past year but still remaining higher than historical averages.
As for the Eurozone, there are no significant releases today, and noteworthy data may not be available until next week's European Central Bank (ECB) policy update. Germany's EU-harmonised inflation for November has been confirmed at 2.3%. According to a recent survey of economists by Bloomberg, the first interest rate cut by the ECB is predicted to occur in June of next year, which is slightly later than what the current market expectations suggest.
US - Stateside, Today's primary focus is on the US monthly labour data. In October, the US economy added 150,000 jobs, which was below expectations, partly due to strikes in the auto sector. The unemployment rate also increased to 3.9%, the highest since the beginning of 2022, while annual wage growth slowed to 4.1%. For November, an increase in nonfarm payrolls is expected, with a forecast of 200,000 jobs, stronger than the October figure, and a decrease in the jobless rate to 3.8%. As an indication that US Federal Reserve interest rates have likely peaked, there is an expectation for further moderation in wage growth, predicted to ease to 4.0%. The University of Michigan survey of US consumers is also set to be released today. An increase in consumer sentiment to 62.0 for December is anticipated, up from 61.3 in November, supported by lower gas prices. While this would mark the first increase since July, the sentiment level is expected to remain subdued, indicating a notable softening of spending outlays in Q4. Additionally, the survey's indicators of 1-year-ahead and longer-term inflation expectations will be closely monitored.
FX Positioning & Sentiment
Changes in FX option market implied volatility indicate changes in both realised volatility and expectations for future volatility. The recent shift in overnight expiry time suggests that the market is not anticipating any surprises in U.S. jobs data, or that it has underestimated the risk of volatility that the data could trigger. However, one-week expiry implied volatility has significantly increased due to upcoming central bank policy meetings in the U.S., UK, and Europe. This has led to new highs in implied volatility for major currency pairs. EUR/USD has experienced notable implied volatility gains, while USD/JPY has seen the largest gains in the past 24 hours. USD/JPY options had warned of a potential setback to 145.00, but were still surprised by the speed and extent of the drop. Holders of benchmark one-month expiry implied volatility profited from the rally on Thursday. Setbacks are expected to be limited as long as USD/JPY continues to decline, especially ahead of key data releases and central bank decisions.
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: 1.0700 (1BLN), 1.0750 (1.9BLN), 1.0785-90 (824M), 1.0800 (1.6BLN)
1.0815-25 (867M), 1.0845-50 (1.4BLN), 1.0900 (1.5BLN)
USD/CHF: 0.8730 (780M), 0.8800-10 (1.1BLN). EUR/CHF: 0.9500 (351M)
GBP/USD: 1.2450 (259M), 1.2610-20 (330M)
AUD/USD: 0.6520 (605M), 0.6550 (302M), 0.6595-0.6600 (743M)
0.6650 (256M), 0.6700 (811M)
NZD/USD: 0.6100 (285M), 0.6150 (325M), 0.6250 (250M)
USD/CAD: 1.3400 (1.3BLN), 1.3575 (2.1BLN), 1.3590 (859M), 1.3600-05 (776M)
USD/JPY: 143.00(300M), 144.00 (443M), 145.00 (1.2BLN), 145.45-50 (832M)
146.00 (1.2BLN)
Overnight Newswire Updates of Note
Two-Thirds Of BoJ Watchers Expect End Of Negative Rate By April
Japan’s Deepest Contraction Since Pandemic Clouds Path For BoJ
RBA Sticks To Inflation Target In Revised Pact With Government
US Unemployment Rate To Tick Up Amid Early Signs Of Recession
US Consumer Borrowing Rose By Less Than Forecast In October
US Government Shutdown Risk Rising On Stalled Spending Talks
EU Fails To Clinch Fiscal Deal As Year-End Deadline Looms
REC-KPMG: UK Starting Salaries Rise At Slowest Pace In Nearly 3 Years
Yen Extends Rally To Second Day As Traders Bet On Early BoJ Hike
Money-Market Fund Assets Rise To Fresh High Amid Fed Uncertainty
Oil In Worst Losing Run Since 2018 As OPEC+ Fails To Stem Rout
Broadcom Grows At Slowest Pace Since 2020 In Face Of Chip Slump
Micron Strikes Labour Deal For $15Bln Plant, Boosting Bid For US Funds
Apple Aims To Make A Quarter Of The World’s iPhones In India
India Central Bank Holds Key Rate As It Keeps Focus On Inflation
(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 bullish
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 146
Above 146.50 opens 147.10
Primary resistance 149.70
Primary objective is 140
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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Past performance is not indicative of future results.
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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!