Daily Market Outlook, October 5, 2023

Munnelly’s Market Commentary… 

Asian equity markets mostly traded higher, finding relief as risk assets rebounded with yields retreating from recent highs after weak US ADP jobs data and a drop in oil prices. The Nikkei 225 led the gains, up 1.6%, breaking a five-day losing streak. Meanwhile, the KOSPI rose 0.7% and the Hang Seng initially lagged due to light news flow and the absence of mainland Chinese participants, but eventually gained momentum.

The UK's September services PMI was revised upward to 49.3 from the preliminary flash estimate of 47.2, signaling a moderate contraction. Today, the focus is on the September construction PMI survey, which returned to slight expansion in July and August, though housing-building activity remained in contraction.The Bank of England's Decision Maker Panel (DMP) survey will also be released, closely watched by policymakers for signs of inflation expectations. Earlier this week, the British Retail Consortium (BRC) reported a decline in shop price inflation to a one-year low of 6.2% in September.

Stateside, trade data and weekly jobless claims will be released, with several central bank speakers scheduled. Notable Fed speakers include Barkin, who will discuss the economic outlook, and Daly, who will speak at the Economic Club of New York. ECB Chief Economist Lane, ECB VP Guindos, and other ECB officials will also make appearances at a monetary policy conference.

FX Positioning & Sentiment

The demand for USD and market anxiety has driven FX option implied volatility to recent highs, and sellers have been cautious to return even though USD gains have temporarily stalled. Concerns regarding Japanese intervention, triggered by the sharp drop of USD/JPY from above 150.00 on Tuesday, led to a peak of 1-month implied volatility at 10.2. This was a significant increase from the late September lows of 7.7. Currently, it's trading in the range of 9.65-9.9 as the FX market settles around 149.00. There has been notable interest in downside strike options, reflecting concerns about intervention and potential setbacks in USD/JPY. For EUR/USD, 1-month implied volatility rose to 7.9 from a late September low, while the current 1-month realized volatility level is around 6.25. Longer-dated options have provided greater returns for those who purchased them during the recent lows.

CFTC Data As Of 26-09-23

  • Net USD G10 long grew slightly to $5.1bn in Sep 20-26 period, $IDX +1.01%

  • EUR$ -1.01% in period specs -3,582 contracts now +98,399

  • $JPY +0.81%, specs -7,893 contracts now -109,512; USD longs eye 150

  • GBP$ -1.92% in period, specs -18,014 contract, long cut to 15,669

  • Specs wary of diminishing BoE hike outlook, falling UK growth

  • CAD, AUD buck the trend specs +15k CAD, +10k oz as commodities rise, oil abv $90

  • BTC -3.82% in period specs +197 contracts on dip, now +1,794; central banks near end of hike cycle supports BTC. (Source Reuters)

FX Options Expiries For 10am New York Cut

(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)

  • EUR/USD: 1.0500 (1.3BLN), 1.0525 (792M), 1.0575 (478M), 1.0600 (546M)

  • GBP/USD: 1.2100 (506M)

  • AUD/USD: 0.6400 (583M), 0.6425 (352M), 0.6440 (743M)

  • USD/CAD: 1.3625 (441M)

  • USD/JPY: 147.85 (374M), 148.00 (511M), 148.40-50 (1BLN)

  • 149.00 (1.1BLN), 149.30-40 (510M)

  • EUR/JPY: 155.25 (250M), 155.50 (250M). GBP/JPY: 185.00 (486M), 187.00 (420M)

Overnight Newswire Updates of Note

  • World's biggest bond markets steady after heavy selloff

  • Long Bonds’ Historic 46% Meltdown Rivals Burst Of Dot-Com Bubble

  • POLL-Undeterred by dollar's renewed strength, analysts see weakness ahead

  • US government shutdown later this year would not hurt rating – Fitch

  • Steve Scalise, Jim Jordan bid to fill top job in leaderless US House

  • UAW, automakers signal progress after days of stalemate -sources

  • BOJ data suggests there was no forex intervention on Tuesday

  • Japan's Kishida vows to focus on wage hikes at union meeting

  • China jitters turn private equity investors towards India and Indonesia

  • US budget fight could create opening for China in the Pacific

  • England worst place in developed world to find housing

  • Oil up after OPEC+ maintains output cuts but shaky demand caps gains

(Sourced from Bloomberg, Reuters and other reliable financial news outlets)

Technical & Trade Views

SP500 Bias: Bullish Above Bearish Below 4270

  • Above 4280 opens 4315

  • Primary resistance  is 4400

  • Primary objective is 4190

  • 20 Day VWAP bearish, 5 Day VWAP bearish

EURUSD Bias: Bullish Above Bearish Below 1.0610

  • Above 1.0610 opens 1.0650

  • Primary resistance is 1.0760

  • Primary objective is 1.0450

  • 20 Day VWAP bearish, 5 Day VWAP bearish

GBPUSD Bias: Bullish Above Bearish Below 1.22

  • Above 1.22 opens 1.23

  • Primary resistance  is 1.2450

  • Primary objective 1.2060

  • 20 Day VWAP bearish, 5 Day VWAP bearish

USDJPY Bias: Bullish Above Bearish Below 148.50- 150 Target Hit, New Pattern Emerging

  • Below 148 opens 147.50

  • Primary support 144.50

  • Primary objective is 150

  • 20 Day VWAP bullish, 5 Day VWAP bearish

AUDUSD Bias: Bullish Above Bearish Below .6450

  • Above .6475 opens .6525

  • Primary resistance  is .6620

  • Primary objective is .6270

  • 20 Day VWAP bearish, 5 Day VWAP bearish

BTCUSD Bias: Bullish Above Bearish below 27500

  • Above 28600 opens 30000

  • Primary resistance  is 28175

  • Primary objective is 23300

  • 20 Day VWAP bullish, 5 Day VWAP bullish