Daily Market Outlook, May 27, 2021
Asian equities are mixed overnight with markets remaining unsure about the future course of monetary policy. US Federal Reserve policymaker Quarles noted that it will be important for the Fed to begin discussing plans to reduce its bond purchases at upcoming meetings if the economy stays strong. In the UK, media sources reported that the daily tally of Covid-19 cases passed 3,000 for the first time in a month but noted that authorities hope that the vaccination rollout will help prevent a similar rise in hospitalisations. The German consumer confidence reading for June rose by less than expected to -7.0 in June from -8.6 in May.
There is no significant new data in either the UK or the Eurozone. However, policymakers from both the European Central Bank and the Bank of England are scheduled to speak and so there will be market interest in their comments. The ECB’s next policy meeting is now less than two weeks away and there continues to be speculation about whether the pace of asset purchases will be scaled back at that time. If the Governing Council wants to send a clear signal on their intentions beforehand they are running out of time, so all upcoming comments from members, including today’s speeches, will be followed with that in mind.
In the UK, external Monetary Policy Committee member Vlieghe is scheduled to talk about what bond yields tell us about future economic conditions. It will be particularly interesting to hear what he makes of this year’s rise in gilt yields.
US Q1 GDP is a second estimate that is not expected to be revised significantly from the first reading. That showed a rise in output in Q1 in contrast to the falls in the UK and the Eurozone. The rest of today’s US releases are timelier indicators of Q2 trends. Weekly jobless claims have been providing a more positive signal of labour market conditions than the disappointing April monthly job reports. So it will be interesting to see if the latest numbers see another big decline. April durable goods orders are expected to show further improvement in the buoyant manufacturing sector. Pending home sales are also forecast to be up although some reports point to a lack of new stock.
Early Friday morning the Lloyds Business Barometer for May will be released. In April the overall confidence measure rose to a two and half year high reflecting big rises in optimism about firms own business conditions and the wider economy. May will be watched for further improvement. The readings on the labour market and price pressures may also provide insight into current inflation concerns.
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 (500M), 1.2200 (519M)
GBP/USD: 1.4100-15 (253M), 1.4200 (297M)
EUR/CHF: 1.0800 (260M), 1.1000 (440M) . EUR/NOK: 9.9550 (700M)
AUD/USD: 0.7700 (272M), 0.7745 (401M), 0.7770-80 (652M), 0.7800 (359M)
USD/CAD: 1.2100 (787M), 1.2125 (797M), 1.2155 (442M), 1.2195-1.2205 (1.5BLN)
USD/JPY: 108.90-109.00 (555M)
Technical & Trade Views
EURUSD Bias: Bearish below 1.2150 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 1.2270/80. A close through 1.2150 would suggest a corrective phase developing.
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
GBPUSD Bias: Bullish above 1.41 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 1.41 would concern the bullish thesis opening the window for a corrective cycle.
Flow reports suggest topside offers light through the 1.4200 level however, very few stops and stronger offers starting to appear through to the 1.4250 level and then increasing through to the 1.4310 area before weakness and stops appear for a break through to the 1.44 level before sentimental offers increase, downside bids light through to the 1.4100 level before stronger bids appear for any move beyond the 1.4050 level as congestion and sentimental levels appear.
USDJPY Bias: Bullish above 108 targeting 112
USDJPY From a technical and trading 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
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 and trading perspective, the breach of .7790 refocuses attention on the downside as .7820 contains upside attempts, look for a test of .7680.
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
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!