Daily Market Outlook, August 20, 2020

Daily Market Outlook, August 20, 2020

A risk-off mode has swept across the financial market following the release of a downbeat assessment of the economic outlook from the US Federal Reserve. The minutes to the July policy meeting were published last night and showed increased concern amongst Fed officials over the pace of US growth in the second half of the year amid ongoing tensions with China and the current health crisis. The Fed noted that the latter would “weigh heavily” on economic activity and inflation in the near term, which posed considerable risks to the medium-term outlook. All the major equity indices in the Asia-Pacific region are trading lower as a result, while equity futures are pointing to a soft start across Europe and the US.

Earlier this week, the regional Empire State manufacturing survey for August posted a sharper-than-expected deceleration in the US, indicating a moderation in the pace of activity following a strong initial bounce from re-opening activity. As a result, and following the release of the Fed minutes last night, today’s Philadelphia Fed manufacturing survey is likely to attract significant attention. A moderation in the headline measures is expected, we look for a fall to 21.0 in August from 24.0 in July, with a larger drop likely to add to fears over the pace of the US recovery. Elsewhere, the focus will also be on the latest weekly US jobless claims data. Last week’s report showed the number drop below 1mn for the first time since March to 963k, consistent with a gradual improvement in the US labour market. While market expectations are for a further decline, there is risk of a modest pick-up, back above the 1mn mark, which in the current environment is likely to do little to quell fears over the pace of the US recovery.

Overnight, the UK GfK consumer confidence reading for August will provide a timely update. Expect another modest rise to -25 (from -27), which points to an ongoing gradual rise in confidence but still leaves it well below pre-pandemic levels. This will be followed by the release of the UK retail sales report for July at 07:00 BST. Uncertainty persists as to what extent sales have slowed after what appeared to be an initial post-lockdown surge due to pent-up demand. After very strong rises in the official measure of retail sales in both May and June, which left it only slightly below its level of a year ago, look for a 0.5% m/m fall in the headline rate (-1.6% m/m in the ex-auto fuel measure). In part, this also reflects the opening up of large swathes of the services sector, providing consumers with other avenues to spend, other than retail.

Today’s Options Expiries for 10AM New York Cut (notable size in bold)

• EURUSD: 1.1725 (309M), 1.1750-55 (1.0BLN), 1.1760-65 (670M), 1.1770 (586M), 1.1800 (833M), 1.1840-50 (2.2BLN), 1.1900 (1.4BLN), 1.1925 (322M), 1.1950 (1.26BLN), 1.1975 (581M), 1.20 (585M)
• USDJPY:105.00 (281M), 105.85 (230M), 106.00 (280M) 106.50 (290M), 107.00-10 (1.25BLN), 107.20 (210M)
• AUDUSD 0.7100 (703M), 0.7120-25 (810M), 0.7225 (291M), 0.7300 (700M).
• GBPUSD 1.3100-10 (445M).

Technical & Trade Views

EURUSD Bias: Bullish above 1.17 targeting 1.20 

EURUSD From a technical and trading perspective, as.18 continues to hold as such stops above 1.19 are starting to look vulnerable en route to a 1.20 battle as discussed in last week's live session. Only a closing breach of 1.17 would concern the bullish bias UPDATE first foray towards 1.20 meets some supply and potential option barrier protection. As 1.1850 supports then bulls will continue to try and erode the 1.20 offers and stops 

GBPUSD Bias: Bullish above 1.3150 Bearish below

GBPUSD From a technical and trading perspective, as 1.30 is defended stops above 1.32 look vulnerable for a test and breach enroute to a 1.33 test. Only a closing breach of 1.30 would concern the bullish bias UPDATE target achieved, potential for profit taking pullback to 1.3150 before another base attempt targeting 1.3330 UPDATE Key reversal pattern yesterday on the Daily time frame as 1.3150 now acts as resistance look for a test of range support to 1.30

USDJPY Bias: Bullish above 105.50 targeting 107.50 Bearish below 105.30

USDJPY From a technical and trading perspective, anticipated test of the equality objective at 104.50 attract big bids, printing a key reversal pattern on Friday, as discussed in today’s Chart Hit, as 105.50 acts as a support look for a test of the equality objective to 107.50. UPDATE as 106.40 supports look for a grind higher to test symmetry swing resistance sighted at 108 UPDATE retesting support at 105.50 failure to find sufficient bids here will expose 104.18 again

AUDUSD Bias: Bullish above .7200 targeting .7300

AUDUSD From a technical and trading perspective, test of stops and offers above .7220 has delivered the anticipated corrective phase, as .7170/90 now acts as resistance look for a test .6950 as ascending support. UPDATE potential double top in place to deliver the test of ascending trend channel support now at .7000 UPDATE price retesting supply to .7220 through here opens a test of ending diagonal resistance at .7300 UPDATE reversal from the test of offers above .7250 finds support at .7150 as this contains the donside look for another run at .7300 before a more meaningful reversal

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