Daily Market Outlook, May 18, 2021
Asian equity markets mostly rebounded from the negative start to the week, led by strong gains in Taiwan. The Nikkei rose by more than 2%, shrugging off Japanese Q1 GDP coming in weaker than expected at -1.3%q/q (-5.1% annualised). President Biden announced the US would share 20 million more of its Covid vaccines by the end of June, signalling that it has sufficient supplies. Markets remain volatile following last week’s surprisingly big jump up in US inflation to 4.2%. US Federal Reserve Vice Chair Clarida yesterday said that policymakers need to be “attuned and attentive” to inflation data to ensure that it is transitory. He noted, however, that jobs growth has not progressed sufficiently for a tapering of the Fed’s bond purchases.
UK labour market statistics for the three months to March, released earlier this morning. As expected, the unemployment rate fell to 4.8% from 4.9% (consensus: no change at 4.9%), while employment increased by 84k, more than market expectations for a 50k rise. The extension of the furlough scheme is helping to keep unemployment much lower than it would otherwise be, while the opening-up of the economy means most of the currently furloughed employees should return to work. The Bank of England now predicts a much lower peak in unemployment of 5.4% in Q3.
The second estimate of Eurozone Q1 GDP growth is expected to be unrevised at -0.6%q/q. Timelier indicators support an expected return to positive growth in Q2, as markets look ahead to Friday’s flash PMIs for May (also due for the UK). In the afternoon, US housing starts are forecast to have eased back slightly in April, following the sharp rebound in March on the back of severe winter disruptions earlier in the year.
The UK focus later today will be on the testimony of BoE Governor Bailey and Deputy Governors Broadbent and Ramsden at the House of Lords on QE. After their latest monetary policy meeting, the MPC announced a reduced pace of asset purchases, but that did not constitute a tapering since the overall stock of QE to be completed this year was unchanged at £895bn. Yesterday, external MPC member Vlieghe said the economy still needs “a lot of stimulus”.
Early tomorrow (7am) sees the release of UK April inflation figures, which will receive attention particularly after the US data surprise last week. Look for a sizeable bounce in UK headline CPI to 1.6%y/y from 0.7%y/y, primarily because of higher energy prices. That would still leave inflation below the 2% target, while ‘core’ CPI is expected to rise to 1.5%y/y from 1.1%y/y. Further inflation rises are anticipated in the coming months, potentially exceeding the target in the second half of the year. However, the factors pushing inflation above target are anticipated to be temporary and are not expected to lead to a policy response from the Bank of England.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
USD/CHF: 0.9140 (740M). GBP/USD: 1.4000 (202M)
AUD/USD: 0.7750 (1.2BLN), 0.7800 (201M)
NZD/USD: 0.7225 (343M), 0.7260-70 (1.4BLN)
USD/CAD: 1.1950 (887M), 1.2025-30 (280M)
USD/JPY: 108.60-75 (400M), 109.50 (205M)
Technical & Trade Views
EURUSD Bias: Bearish below 1.2120 bullish above
EURUSD From a technical and trading perspective, the close through 1.2120 is constructive but bulls must defend 1.21 to set up a test of 1.2240/50. Failure to find sufficient support at 1.21 would suggest a false upside break opening a retest of 1.2050.
Another EUR 5-billion nearby between Wednesday and Friday. DTCC data shows 2.3-billion Euro's between 1.2150-75 Wednesday 1.7-billion between 1.2160-75 Thursday, 1-billion 1.2160-70 Friday. FX option prices retain a small EUR/USD bullish bias for now
Flow reports suggest topside offers increasing into the 1.2200 level with weak stops likely to be absent and congestion through to the 1.2220 level before hopping any possibility of testing the highs of the year through 1.2300 and stronger stops still likely to slow any further movement. Downside bids light through to the 1.2020 area and then stronger bids starting to form in the area, weak stops on a move through the 1.1980 area opening a chance of a quick break back to the 1.1900 level before stronger bids appear.
GBPUSD Bias: Bullish above 1.40 bearish below
GBPUSD From a technical and trading perspective, as 1.3960 now acts as support, bulls will target a retest of 1.4230’s. Only a close back below 1.40 would concern the bullish thesis.
Flow reports suggest downside bids through the 1.4000 level quickly run into weak stops and congestive bids competing through to the 1.3950 area and increasing bids from there to the 1.3900 level and stops then beyond the area opening a deeper move, topside offers through to the 1.4150 level and increasing into the 1.4200 level with weak stops likely on a push through Feb’s highs around the 1.4220 area. Opening the market to the next leg through to the 1.4400 area.
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.
Flow reports suggest downside light through the 109.00 level with weak stops below the 108.80 and 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 and trading perspective, as .7790 now acts as support bulls will target a retest of prior cycle highs above .80 cents. The breach of .7790 refocuses attention on the downside as .7820 contains upside attempts, look for a test of .7680.
Flow reports suggest 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, 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.
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. 73% 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!