Daily Market Outlook, March 5, 2021
US Fed Chair Powell’s comments yesterday failed to arrest the rise in bond yields. He said that the rise in yields “caught my attention”, but there appeared no further pushback, although he reiterated that rising inflation was due to temporary factors and the Fed was in no hurry to raise rates. Equity markets remained under pressure, as the fall at the US close largely followed through in Asia. Separately, reports suggest that the US Senate may vote on the $1.9 trillion fiscal stimulus bill this weekend. China, meanwhile, set an economic growth target of “above 6%” for 2021, below current consensus forecasts for over 8%.
Today’s US monthly employment report will be closely watched. Despite nonfarm payrolls rising in eight out of the last nine months, total employment is still nearly 10 million below pre-pandemic levels. Policymakers therefore still see significant slack in the labour market, suggesting that higher inflation in the coming months, led by energy prices, is likely to be temporary. So far, the US labour market appears slow to respond to economic growth which has picked up again after slowing sharply in late 2020 in the wake of rising Covid-19 infections. The ‘unofficial’ ADP report, released earlier this week, showed a disappointing rise of 117k private sector jobs in February, less than the 205k consensus forecast. However, initial jobless claims in the latest two weeks have fallen, so that may be a sign of improving labour activity. On balance, after December’s 227k fall in US jobs and a disappointingly small 49k rebound in January, look for February payrolls to rise by a relatively small 145k. The consensus forecast is slightly firmer at 195k. These nevertheless would be well down on the rises seen last autumn. We also expect the US unemployment rate to rise to 6.5% from 6.3% last month.
Interestingly, Fed Governor Brainard said last week that the real unemployment rate may be close to 10%, partly as a result of lower labour force participation since the start of the pandemic, i.e. people dropping out of the labour market and no longer classified as unemployed. That reinforces signals from Fed members that they are in no hurry to tighten monetary policy.
Outside the US, there are no major economic data releases in the UK or the Eurozone. The Bank of England MPC’s Haskel is scheduled to speak on a panel at 2pm about economic challenges facing US Treasury Secretary Yellen, while the Fed’s Bostic discusses macroeconomic policy at 8pm – the last Fed speaker before next week’s ‘quiet period’.
G10 FX Options Expiries for 10AM New York Cut
EUR/USD: $1.1727(E1.1bln), $1.1900(E513mln), $1.2000(E764mln), $1.2035-55(E945mln-EUR puts), $1.2075(E547mln), $1.2100(E647mln)
USD/JPY: Y106.40-60($2.0bln-USD puts), Y107.00-05($1.1bln), Y107.24-25($691mln)
GBP/USD: $1.3995-00(Gbp650mln), $1.4080-00(Gbp516mln)
EUR/GBP: Gbp0.8600(E700mln-EUR puts)
EUR/SEK: Sek10.17(E603mln-EUR puts)
AUD/USD: $0.7450(A$671mln), $0.7750-60(A$669mln-AUD puts), $0.7900(A$682mln)
AUD/NZD: N$1.0475(A$600mln)
USD/CAD: C$1.2500($960mln), C$1.2620-25($1.3bln), C$1.2640-55($670mln)
USD/MXN: Mxn20.40($570mln)
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Larger Option Pipeline
EUR/USD: Mar10 $1.2000-10(E1.3bln); Mar12 $1.1995-1.2000(E1.9bln)
USD/JPY: Mar08 Y104.25-40($2.8bln), Y105.50-55($1.7bln); Mar10 Y105.80($1.2bln); Mar11 Y107.75($1.1bln); Mar12 Y105.95-106.00($2.7bln), Y108.30($985mln)
AUD/USD: Mar10 $0.7500(A$1.3bln); Mar11 $0.7600(A$1.7bln), $0.8000(A$1.8bln)
AUD/NZD: Mar11 N$1.0730(A$1.8bln-NZD puts)
USD/CNY: Mar08 Cny6.45($1.5bln)
USD/MXN: Mar12 Mxn20.30($1.1bln)
Technical & Trade Views
EURUSD Bias: Bullish above 1.20 bearish below
EURUSD From a technical and trading perspective, the closing breach of 1.21 and the descending trendline is a bullish development opening a retest of prior highs at 1.2350, only a move back through 1.20 would suggest further downside opening a potential test of 1.17 yearly pivot
Flow reports suggest downside bids through to the 1.1940 area with light bids into the 1.1920-1.1880 level with weak stops likely through to the 1.1850 before congestion likely through the level and increasing on any push to the 1.1800 level however, downside does start to look vulnerable on any move through the 1.1750 area.
GBPUSD Bias: Bullish above 1.3750 targeting 1.44
GBPUSD From a technical and trading perspective, as 1.40 now acts as support bulls will target a test of 1.44 as the next upside objective. Below 1.40 opens a retest of 1.3750 pivotal trend support.
Flow reports suggest downside bids into the 1.3850 area with likely weak stops on a move through before stronger bids likely into the 1.3800 level and increasing congestion possible to the 1.3750 area before weakness reappears to the downside, topside offer light through the 1.4000 with limited sentimental offers before weak stops appear and the market likely to be weak through to close to 1.4100 where the market sees stronger offers.
USDJPY Bias: Bullish above 107.30 targeting 109.85
USDJPY From a technical and trading perspective, as 104.50 supports there is potential for a further squeeze higher to test offers towards 107. A loss of 103.50 would negate further upside and suggest a resumption of trend. Target achieved, look for a profit taking pause to develop above 108.60, as 107.30 support bulls will target a test of 109.85 next
Flow reports suggest topside offers increasing into the 108.50 area with congestion likely to increase on any move through the 108.80 and then through to the 109.20 level even through that level market is likely to remain strongly offered to the 110.00 area before strong stops start to appear, Downside bids light through the 107.50 area and limited into the 107.20-106.80 with weak stops likely on a break through the level and opening the downside to a quick move through to the 106.00 area before stronger bids start to appear.
AUDUSD Bias: Bullish above .7560 bullish targeting .8000
AUDUSD From a technical and trading perspective, as the major trendline support at .7560 now acts as support, look for target wave 5 upside objective towards .8000. A closing breach of .7730 of the internal descending trendline will encourage the bullish thesis.
Flow reports suggest downside bids into the 0.7700 area and likely to be strong however, weak stops through the 0.7680 area with the market likely only to open a short distance before stronger bids again appear and the market struggles for any further downside movement, Topside offers light through the 78 cents level with weak stops likely above the level and the 79 cents level then likely to open quickly and very little to curb the push.
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!