Daily Market Outlook, June 3, 2021

Overnight Headlines

  • Fed says will start unwinding its corporate bond holdings
  • Half of U.S. states to end Biden-backed pandemic unemployment benefits early
  • Biden to speak again with Republican Senator Capito on Friday on infrastructure
  • U.S. Treasury says G7 expected to endorse U.S. global minimum tax proposal
  • Fed's dovish inflation approach complicates BOJ's taper plans
  • Japan PM Suga seen calling snap election after Olympic, Paralympic Games – Asahi
  • Japan's service sector shrinks for 16th month as health crisis hits demand, May PMI 46.5, prev 49.5
  • China's services activity growth slows in May, Caixin PMI 55.1, 56.3 prev
  • AU May Retail Sales Final MM, 1.1%, 1.1% f’cast and prev; AU April Trade Balance SA, A$, 8.03 bln, 7.90 bln f’cast, 5.57 bln
  • UK's Sunak says U.S. plan to break global tax deadlock could work
  • ECB to keep policy loose this year despite high inflation risks
  • Israel's opposition declares new government, set to unseat Netanyahu

G10 FX Options Expiries for 10AM New York Cut

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

EUR/USD: 1.2100-15 (1.3BLN), 1.2125-35 (428M), 1.2155-70 (757M)

1.2200 (445M), 1.2215-20 (506M), 1.2250 (466M), 1.2300 (918M)

EUR/GBP: 0.8500 (217M), 0.8600-10 (430M)

GBP/USD: 1.3970 (544M), 1.3990-1.4000 (652M), 1.4100 (820M), 1.4250 (409M)

AUD/USD: 0.7715-30 (782M), 0.7765 (314M)

USD/CAD: 1.2050-65 (205M), 1.2200 (200M). EUR/CAD: 1.4700-05 (1BLN)

USD/JPY: 109.00 (1.3BLN), 109.15-25 (1.1BLN), 109.40-50 (850M)

109.75-80 (400M), 110.00 (1.4BLN), 110.25 (345M), 110.45-50 (1.1BLN)

AUD/JPY: 84.40-55 (440M), 86.00 (302M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.2150 bullish above

EURUSD From a technical perspective, the close through 1.2120 is constructive but bulls must defend 1.2140 to set up a test of 1.2270/80. A close through 1.2140 would suggest a corrective phase developing.

Overnight trade: Idles around 1.2200 in quiet Asian session • EUR/USD opened unchanged around 1.2210 after recovering from 1.2163 • Trading was quiet in Asia with the EUR/USD trading in a 1.2203/14 range • Support is at 1.2174 and break shifts pressure to the downside • Resistance is at the May 25 trend high at 1.2266 with sellers above 1.2250 • EUR/USD likely to range trade ahead of US payrolls on Friday • Sentiment remains bullish, but a break below 1.2160 would discourage bulls.

Flow reports suggest topside offers congested through to the 1.2300 level with weak stops limited through the 1.2320 area and long term trend line around the 1.2345 area likely to see strong offers before weak stops opening the topside to further gains through the 1.2400 level. Downside bids into the 1.2140-60 level likely to be light and then increasing through the 1.2120 level to 1.2080 before weak stops appear and open up a deeper move through to the 1.2000 level with very little congestion until that point.

GBPUSD Bias: Bullish above 1.41 bearish below

From a technical perspective, as 1.3960 now acts as support, bulls will target a test of 1.43. Only a close back below 1.41 would concern the bullish thesis opening the window for a corrective cycle.

Overnight trade: back in a range ahead of U.S. payrolls • Steady at the base of a very tight, quiet 1.4166-1.4178 Asian range • Markets appear in a holding pattern, awaiting Friday's U.S. payrolls • Charts; momentum studies coil • neutral setup at familiar levels • Break of tested 1.4126 would be bearish – l.4092 range low pivotal • Mixed signals suggests 1.4090-1.4250 consolidation since mid May can extend • 1.4126 and NY 1.4182 high are first support and resistance

Flow reports suggest topside offers light through the 1.4250 area with some congestion increasing on any move to the 1.4300 and stronger offers in the area, a break above the 1.4310 area will likely see weak stops and breakout stops coinciding and the topside open to a quick squeeze through the 1.4350 level and an attempt on the possibly weak 1.4400 area and stronger stops again through the level. Downside bids likely to increase on a move through the 1.4150 area and into the 1.4100 with a couple of weeks of congestion building up in the area with weak stops on a break through the 1.4090-80 area and opening to the 1.4000 level with very little support other than limited sentimental bids, however, the move through will then start to see stronger bids into the 1.3950-1.3900 area limiting any further loses

USDJPY Bias: Bullish above 108 targeting 112

USDJPY From a technical perspective, as 108.30 supports bulls will target 110.70’s, a closing breach of 108.30 would suggest a corrective move to test 106.30

Overnight trade: JPY crosses better bid in quiet trading • USD/JPY again saw some Tokyo fix demand, remains bid with JPY crosses • USD/JPY up small, from 109.57 to 109.69 EBS in quiet Tokyo trade • Offers back in from @109.70 however, trail up, help cap • Bids eyed from @109.50, trail down, low yesterday 109.45 • Massive option expiries below and above today to help contain action • 109.00-50 @$4 bln, above from 109.75-80, $401 mln, 110.00-50 3.7 bln • USD/JPY likely to remain in 109.33-93 range since Monday pre-US NFP • US yields soggy, Treasury 10s @1.588%

Flow reports suggest downside light through the 108.50 before opening the market to a new test of the 108.00 level, stronger bids into the 107.80 however, a break through the level is likely to see weak stops and breakout stops appearing and the market free to quickly 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 through to the 110.00 level with light congestion through the figure level and weak stops possibly limited and stronger offers likely increasing on a move higher towards the 111.00.

AUDUSD Bias: Bearish below .7790 bullish above

AUDUSD From a technical perspective, the breach of .7790 refocuses attention on the downside as .7820 contains upside attempts, look for a test of .7680.

Overnight trade: Offered tone after local data fails to excite • AUD/USD opened unchanged around 0.7750 after a whippy, outside trading day • It traded with an offered tone throughout the quiet Asian morning session • The low has been 0.7737 and it is around 0.7740 into the afternoon • Solid Aus retial sales and trade numbers – followed up strong GDP yesterday • AUD/USD failure to track higher on better data is discouraging longs • Buyers tipped ahead of 0.7700 with break targeting trend low at 0.7677 • Resistance is at the 50% retracement of the 0.7891/0.7677 move at 0.7784

Flow reports suggest topside offers into the 0.7800 area with weak stops through the 0.7820 before opening for a new run higher and strong offers likely through the 0.7840-60 area to build for the 79 cent level. Downside bids light through the 0.7750 area and stronger bids likely continue through to the 0.7700 area before weak stops appear below the 0.7680 and a stronger 0.7650 area then holds the downside

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