Daily Market Outlook, October 30, 2020
Asian equity markets are down this morning despite gains in US stocks yesterday. Futures prices currently point to European and US markets opening lower. Global coronavirus cases rose by a single day record of half a million yesterday, with the US amongst the countries posting record increases. Eighty million people have already voted in the US election, the highest early participation rate in more than a century. President Trump said he would deliver a big fiscal stimulus package quickly after re-election. The European Central Bank maintained its current monetary policy stance for now but strongly signalled that more stimulus measures were likely at its December meeting.
The October Lloyds Business Barometer fell for the first time in five months. The overall confidence index declined 7 points to 18, its lowest level since July. Given that the reading for firms’ ‘own business prospects only fell marginally, the decline largely reflects less optimism about trends in the wider economy. Pay and price expectations for the year ahead also eased back.
This morning’s French GDP data, which showed a rise of 18.2%, confirmed expectations of a strong initial rebound in output following the big fall seen in Q2. Expect today’s Q3 GDP estimates for Germany, Italy, Spain and the Eurozone as a whole to also record big gains. However, that will still leave activity well below pre-pandemic levels. Moreover, the rises will not tell us much about the prospects for the next few months given signs that activity is already slowing sharply and seems likely to slow further following the most recently announced restrictions. Consequently, the data may have little impact on markets.
Eurozone October CPI inflation and September unemployment data will also be released this morning. Already released German and Spanish numbers have confirmed that annual Eurozone inflation will probably still be negative. The unemployment rate is forecast to edge up to 8.3% from 8.1% in August.
Yesterday’s Q3 US GDP implied that today’s September consumer spending release will show another big rise. However, concerns persist over whether this strength will be maintained during the winter months. Meanwhile, the PCE deflator, the Fed’s preferred inflation measure, is expected to have edged up modestly but still be below the 2% target.
ECB Council member and German central bank head Weidmann will speak today. As one of the most hawkish of ECB policymakers it will be interesting to hear his reaction to recent developments.
Citi FX Quant: Prelim FX hedge rebalancing month end - As of asset index closing values of 28 October, the estimate for this month-end’s FX hedge rebalancing needs has flipped to a moderate USD buy from a sell-signal published in the preliminary estimate earlier this week. The signal change is largely driven by a sharp fall in equity indices which are down month-to-date in both the United States and Europe. Foreign investors’ needs to reduce hedges on US equities is the main driver of the estimated USD buying need. However, with the FTSE Russell US Government Bond Index under-performing other major markets this month, fixed income investors’ hedge rebalancing needs are also estimated to be USD positive. Although European equity markets are down more than the US this month, the signal is a USD buy across all crosses. This is because our model assumes more foreign ownership of US equities and higher hedge ratios in Europe. The average signal strength is -0.6 standard deviations across all G10 currencies. The signal to sell AUDUSD is on the margin stronger because of out-performance of Australian assets.
Today’s Options Expiries for 10AM New York Cut
- EURUSD: 1.1600 (472M), 1.1670 (400M), 1.1690-1.1700 (1BLN), 1.1750-55 (1.5BLN), 1.1770 (330M), 1.1800 (2.2BLN), 1.1850 (1.7BLN)
- GBPUSD: 1.2800 (254M), 1.3000 (400M), 1.3100-10 (530M), 1.3200 (557M)
- USDJPY: 104.00 (1.4BLN), 104.50 (2.2BLN), 104.60 (405M), 104.80-85 (1.8BLN), 104.95-105.00 (1.2BLN)
- AUDUSD: 0.7000 (352M), 0.7115 (261M), 0.7150 (403M), 0.7180-85 (800M)
Technical & Trade Views
EURUSD Bias: Bullish above 1.1687 bearish below
EURUSD From a technical and trading perspective, as 1.1687 supports look for a test of the primary equality objective at 1.19, expect profit taking pull back on first test. UPDATE a failure to hold 1.1687 lows opens quick move to test 1.1610
Flow reports suggest topside offers light through to the 1.1750 area with weak stops likely on a push through the 1.1760 area before running into further light stops from the 1.1780-1.1820 area with stronger stops above the level, downside bids light through to the 1.1650 area where strong bids are likely to be present with the market likely containing further buyers through to the 1.1600-20 area, weak stops likely on a break of the 1.1580 area with some mild breakout stops likely to appear however, downside bids then start to improve.
GBPUSD Bias: Bullish above 1.2861 targeting 1.3266
GBPUSD From a technical and trading perspective, while 1.2950 attracts sufficient bids look for a test of primary equality objective at 1.3264
Flow reports suggest downside bids light through to the 1.2900 area where stronger bids remain, with weak stops likely through the level and opening the downside only to the 1.2850 where stronger bids are likely to move through and the support growing for the moment at each sentimental level. Topside offers light through to the 1.3100 level before limited offers move in, only once the market tests towards the 1.3200 level do the offers increase with strong stops suspected through the level.
USDJPY Bias: Bearish below 104.30 bullish above
USDJPY From a technical and trading perspective, as 104.30 supports look for a test of descending trendline resistance at 105.50 UPDATE breach of 104.30 opens a test of bids to 103.80
Flow reports suggest downside bids strengthen into the 104.20-00 level with possibly bottom pickers appearing below the figure level however weak stops through the 103.80 area could see a quick stab lower through to the 102.00 level before bids start to reappear. Topside offers light on a push through the 105.00 level with limited offers into the 105.80-106.20 area and the possibility of congestion then continuing through to the 106.40-80 area. And stronger offers thereafter
AUDUSD Bias: Bearish below .7243 targeting .6907
AUDUSD From a technical and trading perspective, as .7170 caps upside attempts look for decline to resume to expose bids and stops towards .6900
Flow reports suggest topside offers into the 0.7140-60 area unchanged before some light weakness appears however, 0.7180-0.7200 area sees stronger offers and 0.7220 level likely to see some congestion with stop losses through the level to open a quick move to stronger offers around the 0.7250 area. Downside bids light through to the 0.7060-40 area with stronger bids likely to appear on any move to test the 0.70000 areas, while there may be some weak stops on a move through the 0.6980 area the market is likely to see plenty of congestion into the 0.6950 area and increasing bids beyond.
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. 72% 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.
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!