Daily Market Outlook, March 23, 2021
Asian equity markets are broadly lower overnight. Concerns about the Covid-19 situation across Europe and stressed relations between China and other major economies were cited as causes. This followed the imposition of sanctions on China over human rights abuses. US officials said that the relationship with China was being evaluated after ‘high-level’ talks. Germany has extended its lockdown by four weeks and warned citizens to stay at home over Easter. UK MPs will vote on an extension of the foreign travel ban on Thursday amidst growing warnings of a possible Covid-19 ‘third wave’.
UK labour market data for the three months to January showed a fall in employment of 147k, coming in only slightly better than expectations. However, the unemployment rate surprisingly slipped to 5.0% from the previous month’s reading of 5.1%. The rise in unemployment is undoubtedly still being restrained by the government’s furlough scheme, particularly during lockdown. The latest extension to end September has resulted in most forecasters revising down their expectation of the extent to which unemployment will pick-up later this year. However, there is still a widespread assumption that it will rise sharply once support is removed.
The rest of today’s data calendar is light. In the UK, the March CBI industrial trends survey will be watched for further evidence of supply chain disruptions that have been cited as raising costs and constraining production in recent months. US new home sales may show further signs of the negative impact of bad weather in the South.
A number of US Federal Reserve policymakers are scheduled to speak today. Of most interest will be comments from Fed Chair Powell, who will be testifying to a Congressional Committee alongside Treasury Secretary Yellen, about the effectiveness of measures to combat the economic implications of the pandemic. Questioning is likely to focus in particular on the latest fiscal stimulus package and will probably be split along party lines. Democrats will be looking for Powell to support the package with Republicans focusing on the inflation risks. A number of Bank of England policymakers are also scheduled to talk, including BoE Governor Bailey. However, it is assumed that they will not be primarily commenting on the immediate policy outlook.
UK inflation data for February will be released early Wednesday morning. Expect it to show only a modest rise in annual headline CPI inflation to 0.8%, from 0.7% in January, leaving it still well below the 2.0% target. Meanwhile, ‘core’ inflation is expected to drop modestly to 1.3% from 1.4% previously. Inflation is expected to pick up more sharply from April, reflecting the impact of higher energy prices. However, some of the policy decisions announced in the Budget may help offset the near-term rise.
Going forward, any consolidation in back-end UST yields should serve to entrench the higher yield environment – a positive for the USD. However, this is set against a backdrop of global recovery, which tends to be net negative for the USD, unless the US emerges as a leader in the next recovery phase.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD: 1.1895 (508M), 1.2000 (567M)
USD/JPY: 108.00 (2BN), 108.12 (1.8BN)
AUD/USD: 0.7750 (1.3BN)
EUR/GBP: 0.8600 (556M), 0.8625 (490M)
AUD/NZD: 1.0790 (1.6BN)
AUD/JPY: 83.15 (487M)
Technical & Trade Views
EURUSD Bias: Bullish above 1.20 bearish below
EURUSD From a technical and trading perspective, the failure to recapture 1.20 on the upside leaves the 1.1830 lows exposed, through here bears will press for a test of the yearly pivot at 1.1720. Only a move back through 1.20 would reduce downside pressure opening a test of the monthly pivot from below at 1.2085
Flow reports suggest topside offers weak through to the 1.1940-60 area with stronger offers then increasing through to the 1.2000 level with weak stops through the level and stronger offers into the 1.2050 level. downside bids light through to the 1.1800 area with weak stops through the 1.1780 level before stronger bids appear through the 1.1750 level and increase on a test into the 1.1720 level.
GBPUSD Bias: Bullish above 1.3750 targeting 1.44
GBPUSD From a technical and trading perspective,a retest of 1.3750 pivotal trend support has seen fresh demand develop as this level continues to attract support bulls will target a retest of cycle highs en route to 1.44 upside objective.
Flow reports suggest downside bids into the 1.3800 level with weak stops likely on a dip through the 1.3780-40 levels with congestion likely to soak up much of the selling through to the 1.3700 level with possibly strong congestion then around the 1.3700 level increasing into the 1.3650 level before being able to make a move to the 1.3600 area and strong bids again. Topside light through the 1.3900 level with minimum stops and the market then seeing offers through the 1.3950 area and increasing into the 1.4000 level with stronger stops through the level and increasing offers from 1.4050-1.4100 level.
USDJPY Bias: Bullish above 107.30 targeting 109.85
USDJPY From a technical and trading perspective, as 108.30 continues to attract demand bulls will target a test of pivotal 109.85 ahead of the yearly R1 pivot at 110.
Flow reports suggest topside congestion is likely to soak up some of the weak stops above through to the 109.50 area where strong congestion is likely to appear and increasing offers into the 110.00 and like the previous spikes at the beginning of last year any move is likely to find resistance above and continuing through the 110.00 with break out stops likely to be a little more nervous, downside bids light through to the 108.00 level with weak stops on any retrace through the 107.80 level and opening a dip to the 106.00 area possible over the coming week
AUDUSD Bias: Bullish above .7560 bullish targeting .8200
AUDUSD From a technical and trading perspective, as .7820 contains upside attempts there is potential for a head & shoulders pattern to develop, a loss of pivotal .7560 would open a move to test trend support at .7400 next
Flow reports suggest topside offers through to the 0.7840-60 area and then increasing offers onwards through 0.7900, with the offers likely to continue through to the 0.7950 area and likely increasing resistance through to the 0.8000 levels, downside bids into the 76 cents level with strong bids likely through to the 0.7580 area, weak stops are likely to be few and far between with stronger bids likely into the 0.7550 level and likely stronger congestion through to the 0.7500 area.
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. 75% 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!