Daily Market Outlook, February 16, 2021
Asian equity markets extended gains, as Japan’s Nikkei 225 closed up more than 1%, having surpassed 30,000 yesterday for the first time since 1990. Futures markets are pointing higher for Europe and the US. The positive risk tone reflects confidence about a global economic recovery supported by the vaccine rollout and monetary and fiscal policy support.
In the UK, PM Boris Johnson yesterday reiterated that he wants the current lockdown to be last, suggesting that the easing of restrictions will be gradual, starting with the potential reopening of schools in England from 8 March. He is scheduled to set out a roadmap out of lockdown for England next Monday 22 February. In Scotland, a phased reopening of schools next week may be announced today by First Minister Nicola Sturgeon.
Contraction in Eurozone Q4 GDP of 0.7%q/q is expected to be confirmed in this morning’s release. Although Germany and Spain recorded slightly positive growth, that was more than offset by declines elsewhere including in France and Italy. Latest consensus forecasts show a further decline of 0.9%q/q expected for Q1, with Covid restrictions having a disproportionately large impact on services activity.
Today’s German ZEW survey tallies responses of finance professionals rather than businesses, but it will provide a timelier update on sentiment regarding current and expected economic conditions. The survey for February is expected to confirm current challenges, but confidence in recovery later in the year. Look for moderate declines to ‑67 (from ‑66.4) for the current situation index and to +58 (from +61.8) for the expectations component.
In the US, the NY Fed Empire manufacturing will provide an early regional read of business conditions. Look for an improvement in the headline index to 7.0 in February from 3.5. The Philadelphia Fed survey and ‘flash’ PMIs are due later in the week. US GDP still seems on course for positive growth in Q1, although the extent to which consumer spending holds up will be closely watched. Tomorrow’s retail sales figures will garner particular attention.
UK January inflation data will be released at 7am tomorrow. Look for a slight increase in headline CPI to 0.7%y/y from 0.6%y/y in December. The near-term picture is consistent with CPI inflation holding below 1% before it is driven meaningfully higher in Q2 by energy price base effects and the unwinding of the temporary VAT reduction for the hospitality sector.
G10 FX Options Expiries for 10AM New York Cut
EUR/USD: $1.1940-50(E1.2bln), $1.2000(E1.25bln), $1.2100-10(E514mln), $1.2120-25(E532mln), $1.2150(E639mln), $1.2200(E1.5bln)
USD/JPY: Y103.00($725mln), Y104.00($620mln), Y104.40-50($621mln)
USD/CHF: Chf0.8880($445mln-USD puts)
AUD/USD: $0.7535(A$603mln)
USD/CAD: C$1.2650($660mln)
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Larger Option Pipeline
EUR/USD: Feb17 $1.2120-35(E1.5bln), $1.2155-70(E1.1bln); Feb18 $1.2000-10(E1.8bln), $1.2100(E1.2bln), $1.2200(E1.4bln)
USD/JPY: Feb18 Y107.75($1bln)
AUD/USD: Feb17 $0.7615-25(A$1.8bln); Feb18 $0.7400(A$1.2bln), $0.7555-75(A$1.3mln)
USD/CNY: Feb18 Cny6.35($1.8bln), Cny6.45($1.1bln), Cny6.50($1.2bln); Feb19 Cny6.37($1.3bln), Cny6.45($1.9bln)
Technical & Trade Views
EURUSD Bias: Bullish above 1.2050 targeting 1.2350
EURUSD From a technical and trading perspective, the closing breach of 1.21 and the descending trendline is a bullish development opening a retest of prior highs at 1.2350, only a move back through 1.2040 would suggest further consolidation
Flow reports suggest topside offers into the 1.2150 area and then after a brief weak period increasing into the 1.2180-1.2220 level with weak stops above the level and increasing on any push above the 1.2250 level with possible strong offers into the 1.2300 level Downside bids light through to the 1.2080 area and possible weak stops appearing through the level and opening the chance of a test to the 1.2000 level in the short term with stronger bids into the 1.1950.
GBPUSD Bias: Bullish above 1.3750 targeting 1.40
GBPUSD From a technical and trading perspective, look for profit taking pullback to test 1.3750 as support as this level attracts fresh demand bulls will target 1.40 next.
Flow reports suggest topside offers light through 1.3950 with stronger offers likely through the 1.4000 area and option related barriers to clear with weak stops on a strong break of the 1.4000 areas, light offers into the 1.4050 areas and increasing again into the 1.4100 level and offers then thinning out for further moves through the sentimental levels, downside bids light through to the 1.3850 area with weak bids continuing through to the 1.3800 level and weak stops appearing on a dip through the level to run into stronger bids through 1.375
USDJPY Bias: Bullish above 104.50 targeting 107
USDJPY From a technical and trading perspective, 105.50 target achieved anticipate a profit taking pullback to develop ahead of 106 to retest bids back to 104.50. As 104.50 supports there is potential for a further squeeze higher to test offers towards 107. A loss of 103.50 would negate further upside and suggest a resumption of trend
Flow reports suggest topside offers around the 105.80 area and strong offers likely to continue through to the 106.20 level with weak stops likely to be just above the level opening the market to the 106.50 area and stronger offers through to the 107.00 areas. Downside bids light through to the 105.00 level and weak stops light through the 104.80 area and then stronger bids likely to appear below the 104.50 areas and continuing into the 104.00 level.
AUDUSD Bias: Bullish above .7560 bullish targeting .8000
AUDUSD From a technical and trading perspective, as the major trendline support at .7560 now acts as support, look for target wave 5 upside objective towards .8000. A closing breach of .7730 of the internal descending trendline will encourage the bullish thesis.
Flow reports suggest offers through the 0.7800 area and then likely to see increasing offers through to the 0.7820 area before congestive offers then start kicking in on any move through the area into the 0.7850-60 areas. Downside bids light back through the 77 cents level and weak stops on a dip through the 0.7680 area and limited bids through to the 0.7620 level and increasing through to the 0.7580 level before stops appear
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.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% 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.
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.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
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!