Daily Market Outlook, September 28, 2020
Market risk sentiment has improved mildly at the start of the new week, with most equity indices in the Asia Pacific trading higher this morning. Nevertheless, overall confidence remains weak as concerns have grown that a rising trend in Covid-19 cases may herald a sharp slowdown in economic growth in Q4 and beyond. In the US, House Speaker Pelosi said that another coronavirus stimulus package was possible and that talks were continuing.
Against a background of rising Covid-19 cases, it seems likely that there will be an acute focus on infection statistics in the week ahead. The concern for many is that restrictions not only in the UK but elsewhere will need to be tightened further in the coming weeks unless new cases stops accelerating. Over the weekend, reports suggest the government is preparing to enforce a total social lockdown in the North and London to stem the spread of the virus. Consequently, news around that and the infection statistics may receive more attention than the coming week’s economic data calendar, particularly as the releases will be for the period prior to the recent rise in coronavirus cases. For the UK, this represents one of two major risks facing the UK’s economic outlook.
Another round of ‘formal’ negotiations kicks off today between the UK and the EU on the long-run relationship. Some reports last week pointed to breakthroughs on some key sticking points. However, the situation remains uncertain and the late December deadline for the end of the transition phase is fast approaching.
Elsewhere, today is void of any notable data releases, however, there are a number of central bank speakers due, including ECB President Lagarde – who attends a European Parliament hearing in Brussels (14;45 BST) – while fellow ECB council member Schnabel speaks online at (10:45 BST) and again at 14:30 BST in Frankfurt. In recent weeks, a number of ECB members have expressed some concern over the dampening effects of a strong euro on inflation, although Ms Lagarde was a little more guarded in the recent post meeting press conference, noting that the ECB would “carefully assess” the euro. Her comments attracted some criticism, particularly with other Council members expressing more concern. However, the decline in euro since the last ECB policy meeting suggests she is unlikely to express additional unease today.
In the US, Fed member Mester participates in an Economic Equality webinar (19:00 BST). In recent weeks, Mester has been vocal in calling for more and broader stimulus to play its role in supporting the US economy in its recovery.
This week’s snapshot of market positioning and sentiment via the CFTC Commitment of Traders Report shows the first increase in the overall USD short position in four weeks to USD34.5bn after investors added USD2.7bn to their net bet against the dollar. The size of this week's net short increase is larger than the USD2.3bn by which speculative accounts trimmed negative bets on the dollar over the previous three weeks. The USD1.48bn increase in the EUR’s net long accounted for slightly over half of the net weekly move against the USD as speculative accounts maintain a firmly bullish view on the EUR. The EUR’s net position clawed back some of the ground lost upon last week’s USD2.5bn reduction to total USD27.9bn in the week to Tuesday yet is still somewhat far from its USD31.1bn peak in lateAug. The move followed from an increase in long exposures (+16.4k contracts) against a smaller increase in short bets (+4.1k contracts).
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.1580-90 (400M), 1.1600 (850M), 1.1640-50 (1.1BLN) 1.1700 (805M), 1.1750 (1BLN)
- USDJPY: 104.70-80 (750M), 104.90-105.00 (1BLN), 105.50 (1.8BLN)
- AUDUSD: 0.7000 (1.3BLN), 0.7160 (576M), 0.7175-80 (1.1BLN)
- GBPUSD: 1.2525 (500M), 1.2800 (456M)
Technical & Trade Views
EURUSD Bias: Bearish below 1.1750 Bullish above
EURUSD From a technical and trading perspective,test of 1.1750 trendline attracted fresh bids, as 1.18 now acts as interim support look for a test of offers and stops above 1.1950 UPDATE as 1.1700/50 acts as support expect continued rotation in 1.17/1.19 range, a breach of 1.17 would suggest a deeper correction underway to challenge bids at 1.16. UPDATE as 1.1750 now acts as resistance look a challenge of bids and stops below 1.16
Flow reports suggest downside bids limited through the 1.1620 area opening the downside through to the 1.1480-1.1500 level in the short term, limited congestion around the 1.1650 level likely to give way with similar limited congestion through the figure and onwards Topside offers light through the congested 1.1800 area and the market then building above the 1.1860 area and through into the 1.1900 level with weak stops through the level but limited stops likely to leave the topside vulnerable to reversals through the area.
GBPUSD Bias: Bearish below 1.2850 Bullish above
GBPUSD From a technical and trading perspective, test of the pivotal primary trendline support at 1.2830/50 stalls downside for now, however as 1.3000 acts as resistance look for renewed downside to target 1.2650 next UPDATE as 1.2850 acts as resistance look for a test of bids to 1.26/1.2570
Flow reports suggest downside congestion through the 1.2700 level with limited potential for stops with a stronger supportive area on a dip to the 1.2650 level and increasing through to the 1.2630 area and possibly to the 1.2600 area before weak stops appear, any push through the level will likely to find stronger bids into the sentimental handles through to 1.2500 and possibly stronger key area. Topside light through to the 1.2800 level with limited offers only just starting to build in the area, a push through the 1.2850 area opens up the chance of a short squeeze through the 1.2900 level before stronger offers start to increase through to the 1.30000.
USDJPY Bias: Bearish below 105.50 Bullish above
USDJPY From a technical and trading perspective, as 106.50 acts as resistance look for another test of support at 105.50 failure to find sufficient bids here will expose 104.18 again. UPDATE as 105.50 now acts as resistance look for a test of bids towards 103.80 as the next downside objective. NOTE Massive 3-billion USD/JPY between 104.90-105.10 expire Thursday NY cut
Flow reports suggest offers light through to the 105.50 level with some weak stops likely on a break through and opening the market through to the slightly stronger 106.00 area with stops on a break through the 106.20-30 area, offers remain into the 107.00-20 area with congestion likely to be mixed with weak stops on a break of the level and that congestion likely to continue on any move into the 107.60 area where stronger offers are likely to appear, maybe another round of stops before stronger offers then appearing through to the 108.00 level. Downside bids into the 104.20 light and then increasing on any dips to the 104.00 level and stronger stops through the 103.80 level, any break here opens the chance of a deeper move through to the 103.00 level before stronger bids start to appear with possible option related buyers.
AUDUSD Bias: Bullish above .7150 Bearish below
AUDUSD From a technical and trading perspective, as .7220 now acts as support, look for a test of psychological .7500. Only a daily closing breach of .7220 would concern the bullish thesis opening a retest of .7100. UPDATE as .7220 now acts as resistance look for a test of bids to .7050 UPDATE as .7150 acts as resistance lok for a test of bids and stops below .7000
Flow reports suggest downside light bids through to the 0.7020 area with stronger bids starting to make an appearance and possible option related bids coming into play, a push through the 0.6980 level should see weak stops appearing and the market running into congestion on any push to the sentimental 0.6950 area and likely to continue through to 69 cents area, Topside offers light through the 70 cents handle with stronger offers starting to build for any move through to the 0.7100 with weak stops on a push through the 0.7120 area and opening to the 0.7160 level before sufficient offers appear to slow any further rise however, strong offers through to the 72 cents level are likely to stymie any further movement.
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 76% 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!