Daily Market Outlook, October 21st, 2021

Overnight Headlines

  • Biden Pushes Infrastructure, Spending As Dems Try To Seal Deal
  • Democrats Look For Tax Options If They Have To Ditch Rate Hikes
  • Fed's Quarles: The Taper Test Is Met, Fed Is Not Behind The Curve
  • Fed’s Mester: No Rate Hike ‘Any Time Soon,’ Watching Inflation
  • German Tax Take Surges, Ministry Optimistic On Growth, Inflation
  • UK Health Minister Warns Covid Restrictions Could Return This Year
  • IMF: China Has Policy Options To Cushion Economy’s Slowdown
  • RBA Faces Pressure To Follow The Fed With Framework Review
  • China Fixes Yuan At Four-Month High, Breaching Key Threshold
  • Oil Extends Gains As US Inventory Draw Points To Strong Demand
  • Asian Shares Shuffle Higher With A Wary Eye On Evergrande

The Day Ahead

  • Equities across Asia traded lower as concerns on a number of fronts weighed on sentiment, including elevated inflation, China’s property sector and the outlook for corporate earnings. Media reports suggest that China’s Evergrande have ended negotiations on a potential sale of its property management arm, prompting a further drop in its share price.
  • In the UK, ahead of next week’s Budget, the latest set of public finances data showed a smaller-than-expected deficit print in September. Borrowing rose by £21.8bn (market expectations: £22.6bn), to take the cumulative deficit between April and September to £108.1bn – some £43.4bn less than the Office for Budget Responsibility (OBR) had expected at this point of the fiscal year.
  • Ahead of tomorrow’s UK manufacturing sector update from the more widely watched Markit PMI surveys, today sees the CBI release its October Industrial Trends report. Similar to the PMI report, the CBI survey has also seen a slowdown in output growth in recent months, despite overall order flows remaining relatively upbeat. Today’s report will also include quarterly updates on optimism, employment, capacity and the factors limiting output. Expect these to mirror the messages, that ongoing supply chain issues and labour shortages are increasingly causing UK manufacturing firms to struggle to complete client orders, resulting in stocks of finished goods falling and backlogs of outstanding work rising.
  • Elsewhere, it is a relatively quiet day with no major data published out of the Eurozone except for the consumer confidence update for October. In the US, there are a number of second-tier releases due, including weekly jobless claims, the Philadelphia Fed survey (October), existing home sales and leading index updates for September.
  • Overnight, the GfK UK consumer confidence report for October is expected to show a further decline, following on from the unexpected drop last month. Broader concerns about energy supplies and retail prices are expected to have weighed on sentiment, and we look for the headline measure to fall to -16 in October from -13. Meanwhile, early tomorrow the ONS will publish the September retail sales report. The stockpiling of fuel due to the panic over shortages is expected to have boosted overall retail sales last month. Look for an increase in headline retail sales of 1.8%m/m, with underlying sales (excluding automotive fuel) also expected to have risen by 0.9%m/m.

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 )

  • USDJPY - 115.30 610m. 111.90/112.00 585m. 110.00 662m.
  • EURUSD - 1.1820 564m. 1.1730/40 1.54bn (766m P). 1.1650/60 506m. 1.1500 420m.
  • GBPUSD - 1.3550 429m.
  • AUDUSD - 0.7500 612m. 0.7470 727m. 0.7390/0.7400 921m. 0.7290/0.7300 756m.
  • NZDUSD - 0.6950 1.98bn (P). 0.6770 2.46bn (P).
  • USDCAD - 1.2650 1.02bn (560m). 1.2300/10 655m.
  • EURGBP - 0.8550 801m. 0.8460 639m.
  • AUDJPY - 85.00 541m.
  • USDZAR - 14.50 457m. 13.75 530m.
  • USDCNH - 6.50 933m. 6.47 447m. 6.45 820m. 6.44 1.40n (1.20bn P). 6.43 549m.

Technical & Trade Views

EURUSD Bias: Bearish below 1.17 Bullish above

  • Grinding higher as USD remains soft in Asia
  • EUR/USD opened at 1.1650 when USD eased during US session
  • It grinded higher through the morning as the USD retained an offered tone
  • Heading into the afternoon it is at the session high at 1.1666
  • Resistance is at the 38.2 of the 1.18909/1.1522 move at 1.1670
  • A clear break targets 1.1715 where the 50% retrace and 55-day MA converge
  • Support is at the 21-day MA at 1.1615 and break eases upward pressure

GBPUSD Bias: Bearish below 1.37 Bullish above.

  • Private sector pay to rise – cable targets 1.3900
  • Trades +0.05% at the top of a tight 1.3822-1.3830 range with moderate flow
  • Bank of England to raise rates to 0.25% in Q1, or sooner poll
  • UK pay awards set to regain pre-pandemic pace - XpertHR
  • Private sector employers expect 2.5% pay increases to Aug 22 - no huge jump
  • Charts; 5, 10 & 21 day moving averages climb, 21 day Bollinger bands expand
  • Daily momentum studies head north - positive signals continue to build
  • Targets 1.3831 break, 50% of 2021 fall, and test of 1.3913 September high
  • Close below 1.3705 rising 10 DMA needed to undermine the topside bias

USDJPY Bias: Bullish above 112.50 Bearish below

  • USD/JPY in consolidation mode, Asia 114.22-41 EBS, in stasis for now
  • Bids/support from area of ascending 100-HMA 114.26, bids trail down
  • Japanese importers remain in buy-dip mode, alongside Japan investors
  • Firm US yields, steeper yield curve supportive, Treasury 10s @1.671%
  • Few nearby option expiries in area today, 115.00 KOs still eyed above
  • EUR/JPY and GBP/JPY also in stasis, 133.17-36 EBS and 157.83-158.19
  • Antipodeans continue higher, AUD/JPY 85.79 to 86.24, NZD/JPY 82.12 to 82.50
  • Higher yields abroad on hawkish CB expectations, surging commodities eyed

AUDUSD Bias: Bearish below 0.75 Bullish above

  • Market risk off and AUD and NZD seeing continuing risk-off flows
  • AUD/USD off from 0.7546 earlier to 0.7498 so far in Asia
  • Market moving in on ascending 55-HMA below at 0.7486, Ichi cloud below
  • AUD/JPY sales played major part in AUD turnaround, cross 86.24 to 85.47
  • NZD/USD down from 0.7219 earlier to 0.7190 so far, awaiting London re-open
  • On hold for now between hourly Ichi kijun, tenkan at 0.7188, 0.7204
  • NZD/JPY sales too played big part in NZD turnaround, cross 82.50 to 81.88
  • Risk off mood to favour JPY, USD for now though JPY buy-backs have abated
  • Aussie, Kiwi yields heavy now but any rebound could see AUD, NZD base
  • Massive option expiries below today - NZD 0.6775 NZ$2.4 bln, 0.6950 1.9 bln
  • Large AUD too, 0.7500 A$371 mln, 0.7470-75 726 mln, AUD/JPY 85.00 A$541 mln