Daily Market Outlook, April 27, 2021
Asian equity markets are mostly lower, with rising Covid-19 cases in parts of the world, notably India, cited as concerns for investors. Nevertheless, markets continue to consider progress in vaccinations, particularly in developed economies. The Bank of Japan overnight left policy unchanged, as expected, and upgraded its GDP growth forecast to 4.0% for FY2021 and to 2.4% for FY2022. Yesterday, the German government reportedly revised up its growth projection for 2021 to 3.5% from 3.0% in January.
There are mainly second-tier economic data releases today, ahead of first estimates of US and Eurozone Q1 GDP on Thursday and Friday, respectively. The US FOMC meeting starts today and concludes tomorrow, with no policy change expected, although the focus will be whether any adjustments will be made to the its forward guidance, given the increasingly positive news on the economy.
The ECB’s Hernandez de Cos is scheduled to speak in a couple of events, with the topics set to be financial stability and the Spanish economy. Yesterday, ECB Executive Board member Panetta sounded dovish, noting that the Eurozone economic recovery is expected to be “slow and incomplete” and remains dependent on policy support. In contrast, the Bank of Canada last week announced it is scaling back bond purchases. BoC Governor Macklem will testify before a parliamentary committee later today.
In the UK, this morning’s CBI distributive trades survey will provide an early indication of retail activity in April. The reported sales balance is predicted to bounce back to 10 from -45 in March as parts of the economy, including non-essential retail, reopen. The main US release is the Conference Board measure of consumer confidence, expect a rise to 112 in April from 109.7, reflecting vaccination progress and an improving labour market.
CITI: Month-end FX Hedging prelim
The preliminary estimate of month-end FX hedge rebalancing flows points to a greater than average USD selling need this month.
· US equities and bonds have out-performed in April, meaning that foreigners’ needs to hedge gains in US assets will likely dominate this month-end’s rebalancing. Both bond and equity investors are likely to be USD sellers, although equities hedge rebalancing contributes 86% to the signal.
· The signal exceeds 1.5 standard deviations in all crosses except GBP where good performance of UK equities and bonds creates some offsetting GBP selling needs.
· Average signal strength across all USD crosses measures 1.7 standard deviations. Signals of this magnitude have occurred only 5% of the time since 2004.
· There are plenty of data releases and central bank speakers scheduled for Friday, 30 April, albeit most of them fall hours ahead of the 4pm Ldn fix.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD: $1.1935-50(E1.0bln-EUR puts), $1.2000(E727mln), $1.2070-75(E766mln-EUR puts), $1.2100-05(E847mln-EUR puts), $1.2120-25(E886mln-EUR puts)
USD/JPY: Y108.50($505mln), Y108.74-75($1.5bln-USD puts), Y109.00-10($1.3bln-USD puts), Y109.45-65($1.3bln-USD puts), Y109.70-85($1.8bln-USD puts)
USD/CHF: Chf0.9225($525mln-USD puts)
AUD/USD: $0.7695-0.7700(A$516mln), $0.7710-25(A$1.4bln-AUD puts), $0.7830-35(A$1.2bln-AUD puts)
USD/CAD: C$1.2500($602mln-USD puts), C$1.3050($676mln)
USD/CNY: Cny6.52($710mln)
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Larger FX Option Pipeline
EUR/USD: Apr28 $1.1900(E2.0bln), $1.1980-85(E1.8bln-EUR puts), $1.2000(E2.6bln, E2.35bln of EUR puts), $1.2030-41(E1.1bln), $1.2100-05(E1.3bln), $1.2130-45(E1.1bln-EUR puts); Apr29 $1.1850(E1.5bln), $1.1875-85(E1.1bln), $1.1890-1.1905(E1.4bln-EUR puts)
USD/JPY: Apr28 Y108.10-15($1.0bln-USD puts); Apr29 Y106.25($1.3bln), Y106.60-70($1.5bln-USD puts), Y106.85-107.00($1.5bln), Y108.45-50($1.2bln-USD puts), Y109.00($1.0bln-USD puts)
EUR/JPY: Apr29 Y129.85-95(E1.1bln-EUR puts)
GBP/USD: May03 $1.3700(Gbp1.3bln)
USD/CHF: Apr29 Chf0.9200($1.1bln-USD puts)
AUD/USD: May04 $0.8000(A$1.1bln)
AUD/JPY: Apr29 Y81.00(A$1.1bln-AUD calls)
AUD/NZD: May04 N$1.0855-65(A$2.0bln-AUD puts)
USD/CAD: Apr28 C$1.2600($1.1bln-USD puts); Apr29 C$1.2550($1.15bln-USD puts)
USD/MXN: Apr30 Mxn19.50($1.4bln)
USD/ZAR: Apr29 Zar14.20($1.0bln-USD puts)
Technical & Trade Views
EURUSD Bias: Bearish below 1.1950 bullish above
EURUSD From a technical and trading perspective, the breach of 1.20 resistance opens a test of 1.2090/1.21, as 1.1950 supports look for a test of trendline resistance at 1.2125.
Flow reports suggest stops appear around the 1.2120 level and given the perchance of some banks to call a move to fade the Euro above the 1.2000 possibly starting to cause pain as option hedges go could see a squeeze higher and into the Feb ranges before seeing offers coming in above the 1.2150 level and increasing. Downside bids light through to the 1.1980 level with weak stops on a breakthrough to the medium congestive 1.1950 and therefore exposing the stronger bids 1.1900 level through to the 1.1880 and strong stops
GBPUSD Bias: Bullish above 1.39 bearish below
GBPUSD From a technical and trading perspective, as 1.3960 contains upside attempts look for a test of range support towards 1.37.
Flow reports suggest downside congestion into the 1.3800 level with that congestion lightening on a push through the 1.3780 area and then increasing through the 1.3760 area as the bids deepen from 1.3720-00 level weak stops likely on a move through the 1.3700 area however, late Mar and early Apr has shown that bids are likely to lurk just below the area with breakout stops likely to be below the 1.3650 level. Topside offers light through the 1.3900 level and open quickly for the moment to the 1.4000 level before stronger offers start to appear around the level, sentimental levels may have light offers however, they are still building having come off so quickly leaving the market filling gaps still.
USDJPY Bias: Bullish above 108 targeting 112
USDJPY From a technical and trading perspective, as 107.50 acts as support there is potential for a test of the pivotal 108.50, through here will open another look at 110. Failure below 107 would be a significant bearish development
Flow reports suggest downside bids test 107.50 and an old trendline then nothing until closer to the 107.00 area where stronger bids start to appear but the downside opening to Feb levels, Topside offers appearing through the 108.80 level and increasing into the 109.00 level light offers until the 109.40 area is likely to see strong congestion increasing through to the 110.00 level before stronger stops are likely to appear
AUDUSD Bias: Bearish below .7700 bullish above
AUDUSD From a technical and trading perspective, the closing breach of .7730 has relieved downside pressure opening a move to test offers towards .7820
Flow reports suggest topside offers continue through the 0.7800 area with a break through the 0.7820 area likely to see weak stops and a test towards the sentimental 0.7850 area however, while there maybe some offers in the area the market looks to be fairly open through to the 79 cents level and ultimately ranges from the end of Feb, downside bids light through the 0.7700 level with weak stops likely on a move through the 0.7680 before stronger bids around the 0.7650 area and continuing through to the 0.7600 likely increasing in size, any further moves are likely to see strong support into the 0.7550 to calm the situation,
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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.
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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!