Daily Market Outlook, February 10, 2021
Risk tone remained broadly positive, as the main US equity indices reached new intraday highs, helped by expectations that the vaccine rollout and fiscal stimulus will fuel an economic recovery. That sentiment followed through into the Asian trading session, while European stocks are set to open higher. US 10‑year Treasury yields were steady at about 1.16%.
The only noteworthy economic data release today is US CPI inflation for January. In line with the market consensus forecast, expect annual headline CPI to edge up to 1.5% from 1.4% in December. The core rate (excluding food and energy), however, is predicted to fall slightly to 1.5% from 1.6%. Much bigger increases in headline inflation are expected in the coming months and it could average near 3% in Q2. The anticipated pickup will be driven by energy price base effects and is not an indication of rising domestic inflation pressures. As such, the Federal Reserve is likely to maintain accommodative monetary policy for a while yet. Fed Chairman Jerome Powell has already pushed back as premature on any discussion about a ‘tapering’ of bond purchases. He speaks today at 7pm (GMT) at the Economic Club of New York.
Bank of England Governor Andrew Bailey is also scheduled to give a Mansion House speech which will be published at 5pm. There is no mention on the BoE website on what the speech will be about. The Bank expects the economy to contract by about 4% this quarter, mainly as a result of the national lockdown, but a vaccine-fuelled recovery is anticipated in the second half of the year. Backward-looking Q4 2020 GDP data will be released on Friday and are expected to show the economy growing by about 0.6%, which would be a marked slowdown from Q3, but remaining positive nonetheless despite the November lockdown in England.
ECB President Christine Lagarde is also scheduled to speak today at 1pm. She has acknowledged that the Eurozone economy likely started contracting again in Q4 2020 and that new variants of Covid and extended containment measures will continue to weigh on economic activity in the current quarter. The next policy meeting in March will allow for an official reassessment of forecasts. However, the ECB’s message seems to be that there is no expectation of a need to alter policy for a while, given the headroom and flexibility in asset purchases under the Pandemic Emergency Purchase Programme.
G10 FX Options Expiries for 10AM New York Cut
EUR/USD: $1.1905-30(E1.8bln), $1.2020-25(E1.0bln), $1.2065(E1.1bln), $1.2090-10(E928mln), $1.2115-25(E818mln), $1.2300(E1.1bln)
USD/JPY: Y104.50($550mln), Y104.95-105.10($610mln), Y105.35-50($681mln)
AUD/USD: $0.7550(A$1.4bln-AUD puts), $0.7650(A$759mln), $0.7750(A$591mln-AUD puts), $0.7780-00(A$671mln)
USD/CAD: C$1.2700-05($656mln)
USD/CNY: Cny6.40($648mln), Cny6.4050($670mln), Cny6.42($650mln), Cny6.4350($1.0bln), Cny6.44($680mln)
----------------
Larger Option Pipeline
EUR/USD: Feb12 $1.2000-05(E1.0bln), $1.2110-25(E1.0bln), $1.2170-85(E1.6bln); Feb16 $1.1940-50(E1.2bln), $1.2000(E1.2bln); Feb18 $1.2000-10(E1.7bln), $1.2200(E1.2bln)
USD/JPY: Feb11 Y105.00-05($1.1bln), Y105.75($2.1bln); Feb12 Y103.50-60($1.3bln), Y104.00-20($1.4bln), Y104.95-105.00($3.0bln), Y106.00-10($2.1bln), Y106.30-35($1.0bln)
GBP/USD: Feb12 $1.3850(Gbp873mln)
AUD/USD: Feb12 $0.7620-30(A$1.1bln), $0.7720-35(A$1.2bln); Jan17 $0.7615-25(A$1.2bln)
AUD/JPY: Feb11 Y80.73-75(A$1.0bln)
Technical & Trade Views
EURUSD Bias: Bullish above 1.2050 targeting 1.2350
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 1.2040 would suggest further consolidation
Flow reports suggest topside offers into the 1.2150 area and then after a brief weak period increasing into the 1.2180-1.2220 level with weak stops above the level and increasing on any push above the 1.2250 level with possible strong offers into the 1.2300 level Downside bids light through to the 1.2080 area and possible weak stops appearing through the level and opening the chance of a test to the 1.2000 level in the short term with stronger bids into the 1.1950
GBPUSD Bias: Bullish above 1.35 targeting 1.3830/60
GBPUSD From a technical and trading perspective, as as 1.35 supports then prices can extend higher to test interim wave 5 upside objectives to 1.3830/60 area
Flow reports suggest topside congestion through the current levels increasing through the 1.3850 area and through to the 1.3900 level before weak stops appear however the congestion is likely to continue through the 2017/18 ranges with some weakness on the 1.40 handle, downside bids light through the 1.3800 area and weak stops likely on a strong dip through to the 1.3750 area opening a quick squeeze through the 1.3700 level before stronger bids are likely to appear.
USDJPY Bias: Bullish above 104.50 targeting 107
USDJPY From a technical and trading perspective, 105.50 target achieved anticipate a profit taking pullback to develop ahead of 106 to retest bids back to 104.50. 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
Flow reports suggest downside bids through to the 104.40 level before some lighter bids appear, stronger bids through the 104.20-103.80 area will likely see weak stops however, strong bids are likely to appear on any test of the 103.50 area and continuing through to the 103.00 level, Topside offers light through the 105.00 level and increasing into the 105.40-60 area however, strong resistance remains in the 105.80-106.00 level with congestion likely to continue through the 106.70-107.00 areas
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 offers through the 0.7750 area and then likely to see increasing offers through to the 0.7820 area before congestive offers then start kicking in on any move through the area into the 0.7850-60 areas. Downside bids light back through the 77 cents level and weak stops on a dip through the 0.7680 area and limited bids through to the 0.7620 level and increasing through to the 0.7580 level before stops appear.
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!