Daily Market Outlook, February 5, 2021
Asian equity markets are mostly up for the fourth day out of the last five. Signs of improving Covid-19 trends and hopes of an early passage of more US fiscal stimulus are helping to support markets. The US Congress is pressing ahead with the voting on the fiscal package, but has blocked some elements including extra income support for higher rate taxpayers.
The UK’s new hotel quarantine plan for travellers from coronavirus hotspots will start on 15th Feb. President Biden has called China the US's most serious competitor, but said he is ready to work with them when necessary. Australian retail sales rose by 2.5% in Q4 2020 following a 6.5% Q3 gain. In Germany, factory orders fell by a larger-than-expected 1.9% in December.
The US labour market report will be a key focus for markets today. It is always seen as a key bellwether of US economic conditions, and today’s update for January follows a decline in employment in December. That was the first monthly fall since last April. It seemed to be primarily concentrated in sectors most impacted by social distancing restrictions as Covid-19 accelerated ahead of Christmas. Expect a modest rebound in employment in January and look for a 80k rise. The already released ADP report points to this, as it recorded a 174k increase following a 78k drop in December. Less positively also look for a small increase in the unemployment rate to 6.8% from 6.7%. Overall the data would be further confirmation that the rebound in the US labour market has stalled for now. Today’s release will also contain annual revisions for 2020 but these seem unlikely to fundamentally change the bleak picture of a very big fall in employment.
US international trade for December is also out today. The already released advanced report showed a smaller goods trade deficit compared to November. That should help pull down the overall deficit. Canada’s labour market report for January will be watched for whether employment has fallen for the third month in a row. The European data calendar is very light, with nothing of note in the UK. In Italy, retail sales are expected to have picked up in December but the rebound looks to have been relatively modest given the almost 7% decline in November.
BoE Governor Bailey and ECB policymaker De Guindos will both speak on a webinar about central banks and the post-Covid recovery. Yesterday’s BoE policy update sounded upbeat on the possibility of a strong bounceback in economic activity later this year. The BoE has ruled out a move to negative interest rates for at least six months as banks need preparation time. It remains a possibility after that, although the BoE seemed to indicate it is currently not the most likely outcome.
G10 FX Options Expiries for 10AM New York Cut
EUR/USD: $1.1960-75(E729mln), $1.2000(E1.1bln), $1.2040-50(E934mln), $1.2115-20(E586mln)
USD/JPY: Y103.00($1.0bln), Y104.95-105.00($1.5bln), Y105.45-55($760mln-USD puts), Y105.75-80($498mln)
EUR/GBP: Gbp0.8760-70(E1.2bln-EUR puts), Gbp0.8850-51(E783mln)
AUD/USD: $0.7600(A$627mln), $0.7650-55(A$925mln)
AUD/NZD: N$1.0600(A$520mln), N$1.0650-65(A$570mln)
USD/CNY: Cny6.4000($700mln), Cny6.4250($815mln)
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Larger Option Pipeline
EUR/USD: Feb08 $1.2000-05(E1.2bln); Feb10 $1.1920-30(E1.3bln), $1.2300(E1.1bln); Feb12 $1.2000-05(E1.0bln)
USD/JPY: Feb12 Y104.95-105.00($1.6bln), Y106.00-10($1.7bln), Y106.30-35($1.0bln)
AUD/USD: Feb08 $0.7600-05(A$1.1bln), $0.7650(A$1.0bln), $0.7815-30(A$1.1bln); Feb10 $0.7550(A$1.4bln-AUD puts)
USD/CAD: Feb09 C$1.2960($1.2bln)
USD/CNY: Feb08 Cny6.45($1.6bln); Feb09 Cny6.50($2.1bln), Cny6.55($1.2bln)
Technical & Trade Views
EURUSD Bias: Bearish below 1.2050 targeting 1.1895
EURUSD From a technical and trading perspective, the closing breach of 1.20 opens a move to test the equality objective at 1.19 unless fresh demand develop here bears will target a test of the yearly pivot back towards 1.17
Flow reports suggest downside bids scattered around levels 1.1950 and through to the 1.1900 level with stronger bids likely until the 1.1880 breaks and weak stops appear. Topside offers into and through the 1.2080 area continuing to the 1.2120 area before weakness appears and light weak stops open the 1.2150 area for a test, from there though topside offers start to increase into the 1.2200 level and above to limit any sudden moves,
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 offers into the 1.3750 area with weak stops covered by stronger offers the closer the market pushes towards the 1.3800 area, weak stops through the level on a move through and likely to continue only a short distance before weakness appears and the topside opens up through to the 1.40 handle with sentimental offers limited. Downside bids through the 1.3600 area and stops losses through the level and a light run through to the 1.3550 area and strong bids start to appear and continue to increase into the 1.3500 level.
USDJPY Bias: Bullish above 104 targeting 105.50
USDJPY From a technical and trading perspective, as 104 acts as support look for a test of 105.50 from here watch for bearish reversal patterns to suggest a resumption of the dominant downtrend. Targeting achieved anticipate a profit taking pullback to develop ahead of 106 to retest bids back to 104.50
Flow reports suggest topside offers into the 106.00 area with congestion through the level with weak stops likely on a move through to the 106.20 area and then further strong congestion into 106.50 area, increasing offers through the 106.70 area and continuing into the 107.00 level with stronger offers on a further test higher into the 107.50 area. Downside bids light back through the 105.00 level with increasing bids into the 104.50 level with bids beginning to fill the market around the level and stronger bids into the 104.00-20 areas and stronger bids below the 103.60 levels
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.
Flow reports suggest downside bids light through to the 0.7560 area and bids likely to be strong through to the 0.7550 areas and increasing on any move into the 0.7500-0.7480 area with strong stops through the level and opening stronger downside potential, topside bids light through the 0.7650 area and limited build of offers around the 77 cents level sees limited stops and the market then starting to increase resistance on any move through the 0.7750 level.
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!