Daily Market Outlook, November 19, 2021

Overnight Headlines

  • Japan Eyes Record Stim Package, Bucking Global Tapering Trend
  • China’s Economy Is In For Much Slower Growth - Beige Book’s Miller
  • Fed's Evans, Erstwhile Dove, Says May Need 2022 Rate Hike
  • Fed's Bostic Says Appropriate To Normalize Policy Next Year
  • Democrats’ Spending Bill Adds $367b To Deficit Over 10 Yrs: CBO
  • European Union Says Taiwan Trade Policy Unchanged - CNA
  • Covid-19 Surge Prompts Renewed Lockdown In Parts Of Europe
  • Oil Set For Weekly Drop As Decision On SPR Hangs Over Market
  • PBoC Warns Against One-Way Yuan Bets After Rally To 6-Year High
  • JGB Yields Fall As Buyers Emerge After Three Days Of Selling
  • Asian Shares Down As Alibaba's Slide Reignites China Worries
  • Evergrande Resumes Construction On 63 Projects In Pearl River Delta
  • Apple Aims To Launch Self-Driving Electric Car In 2025, Says Report
  • Applied Materials Sales Forecast Miss Estimates On Supply Chain Woes

The Day Ahead

  • Asian equity markets are mixed this morning. The Japanese Government announced a record US$490bn fiscal stimulus package to help the economy recover. Germany has said that it intends to impose tighter restrictions on unvaccinated citizens. Irish PM Martin said that there was “serious intent” on the part of the EU to solve the Northern Ireland border issue.
  • Data released this morning showed that UK consumer confidence rose in November for the first time in three months. Meanwhile, UK retail sales data for October posted a larger-than-expected monthly rise of 0.8% (and 1.6% excluding fuel). That was the first increase in five months and overall sales are still lower than at the same point a year ago. Nevertheless, it is tentative evidence that conditions for retailers are improving as they head into the important pre-Christmas spending period.
  • UK public finance data for October were also released this morning. This showed a monthly net borrowing figure of £18.8bn about the same level as that month a year ago. This may prompt concerns that the recent downtrend in the budget deficit may now be slowing.
  • The rest of today’s data calendar is light with no significant releases that are likely to have a marked impact on markets. However, there will be some potentially interesting speeches from central bankers. In the UK, market expectations of a December interest rate hike remain elevated after higher-than-expected inflation data, a buoyant labour market report and comments from BoE Governor Bailey that the decision not to raise rates in November was a close-run thing. BoE Chief Pill, who is scheduled to speak today, warned about potential inflationary pressure ahead of the November policy update, although he then voted with the majority to leave policy unchanged. Consequently, it will be interesting to see whether his concerns have grown in light of recent news.
  • European Central Bank President Lagarde will speak at the start of an ECB conference on recovering from the pandemic. More generally, the conference has a combination of internal and external speakers. Particularly interesting from a UK point of view may be Charlie Bean who is former BoE policymaker and currently holds a senior position at the OBR. He is set to talk about macroeconomic policy.

G10 FX Options Expiries for 10AM New York Cut

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

EUR/USD: 1.1375 (780M), 1.1390-1.1400 (822M), 1.1445-50 (577M)

USD/CHF: 0.9110-25 (1.3BLN), 0.9370 (480M)

EUR/GBP: 0.8425 (300M), 0.8515-25 (857M)

AUD/USD: 0.7275 (302M), 0.7350 (230M). NZD/USD: 0.7000-15 (390M)

USD/CAD: 1.2475 (603M), 1.2500 (388M), 1.2575-85 (489M), 1.2650 (566M)

USD/JPY: 114.00 (612M), 114.75 (574M), 115.00 (400M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • Offered tone as USD gently bid in Asia
  • EUR/USD under mild pressure after correcting higher yesterday
  • Bids are tipped at 1.1345/50 ahead of hourly support at 1.1325/30
  • EUR/USD ended a six-day sequence of lower lows yesterday
  • A break below yesterday's 1.1314 low would likely energize trend lower
  • Trend lower still in place with 5, 10 and 21-day MAs in a bearish alignment
  • Only a break above the 10-day MA (1.1429) would suggest momentum is waning
  • EUR/USD options warned of downside risk by ramping premiums
  • Those premiums peaked after erasure of big 1.1300 barriers Wed's
  • Noted profit taking in FX spot and options space since
  • Benchmark 1-month implied volatility back at 6.5 from 7.1, 3m 6.1 vs 6.4
  • However, 1-month 5.3 Monday - reached 6.3 as expiry got ECB/FED
  • Cen-bank risk will continue to underpin those dates expiring just after
  • Downside risk hasn't gone away- options hold big premium for EUR put vs call
  • But implied volatility setbacks suggest downside drop/panic over for now

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • 0.1% at the base of a 1.3484-1.3500 range with flow and a firmer USD
  • UK consumers turn more confident despite inflation worries
  • Supply chain issues mean many are buying Christmas presents early
  • Charts - 5, 10 & 21 daily moving averages conflict, 21 day Bolli bands fall
  • Neutral setup - close above 1.3463 10 DMA suggests a period of consolidation
  • Primary downtrend valid while 1.3575 21 DMA holds - break would be bullish
  • 1.3462-65, NY low, 10 and 5 day moving averages are initial support
  • IMM speculators flipped to net GBP short on dovish BoE hold
  • IMM speculators cut gross GBP longs by 3,251 contracts in week ended Nov 9
  • They also raised gross GBP short positions by 23,889 contracts to 66,097
  • Combination flipped net position to GBP short: 12,093 contracts
  • First net GBP short position for four weeks
  • Bearish shift in GBP bets fuelled by BoE's rate hold on Nov 4
  • On Monday, BoE's Bailey said he is very uneasy about inflation

USDJPY Bias: Bullish above 112.50 Bearish below

  • USD/JPY better bid in Asia as US yields edge up, 114.25 to 114.40 EBS
  • Offers from Japanese exporters, specs selling rallies from @114.50
  • Offers likely to trail up to 114.97 high Wed, 115.00 option barriers
  • Bids from Japanese importers, specs buying dips towards 114.00, below
  • Option expiries today - 114.00 $612 mln, 114.75-115.00 total $1 bln
  • US yields tad higher in Asia, Treasury 10s 1.586%-1.599% range, now @1.597%
  • Nikkei +0.4% @29,718, E-Minis +0.4% @4721, AXJ mixed
  • EUR/JPY 129.81-98 EBS, GBP/JPY 154.05-34, AUD/JPY 83.03-25

AUDUSD Bias: Bearish below 0.75 Bullish above

  • Consolidates above support in quiet Asian session
  • AUD/USD opened +0.15% at 0.7276 after USD gave back ground on profit taking
  • After trading @ 0.7280 it drifted down to 0.7268 when the USD broadly firmed
  • Heading into the afternoon it is trading around 0.7275 - little changed
  • Support is at a rising trend-line at 0.7255 and yesterday's 0.7250 low
  • A break below 0.7250 targets 0.7200/20 where the 100 & 200-week MAs converge
  • Resistance is at the 10-day MA at 0.7421 and break would ease pressure
  • Soft commodity prices continues to weigh on AUD sentiment