Daily Market Outlook, January 07, 2020
Main Market Themes
Market rose modestly overnight to recover some of its most recent losses but global equities were seen engaged in a broad based declines amidst a flare-up in US-Iran tension following the US government’s killing of top Iranian commander Qassem Soleimani.
US major indexes picked up around 0.2-0.6%, led by gains in the communication service sector as investors weighed potential retaliation by the Iranian government which could lead to a significant escalation of geopolitical risk in the Middle East.
US Treasuries fell, leading yields to pick up around 2-4bps along the curve. Gold prices spiked to a near seven-year high at $1565.74/troy ounce as investors rushed to safe havens while crude oils extended further gain by 0.4% - Brent crude settled at 68.91/barrel, its highest in more than three months.
Markit US PMI gained further in December: The IHS Markit US Services PMI edged up to 52.8 in December (Nov: 51.6) to indicate a further rebound in services sector output growth following a slump in activity during the summer. The moderate expansion was a result of stronger rise in new orders, new export orders and employment but confidence level remained low. The highly watched ISM non-manufacturing index, a key gauge for the services industry is slated to be released tonight.
Eurozone services sector remains main driver of growth; factories saw loss of price pressure: The IHS Eurozone services PMI rose to 52.8 in December (Nov: 51.9), led by growth in all countries which confirmed that the euro area’s services industry remains the primary driver of growth and is on solid footing. In a separate release, producer prices index rose 0.2% MOM in November (Oct: 0.0% revised) that resulted in a smaller annual contraction in the index (-1.4% YOY vs -1.9% YOY). The latest print marks PPI’s fourth successive contraction since August, confirming the loss in inflationary pressure in the midst of a manufacturing downturn.
Eurozone investor confidence jumped in January: The Sentix Investor Confidence Index jumped by nearly 7pts to 7.6 in January (Dec: 0.7), greatly beating the consensus estimate of 2.6 and prompting a surge in the euro amidst improving trade sentiment. Investors turned optimistic over both current economic conditions and outlook as the current situation index edged up by 6.6pts and while the expectations index rose by 7.3pts.
UK services industry stabilized amidst greater Brexit clarity: The Markit/CIPS UK Services PMI managed to rise back to the neutral level of 50.0 in December (Nov: 49.3) following a decline in November according to the final reading, indicating that business activity was unchanged in the last month of 2019. Analysts had been expecting the PMI to drop further to 49.1 in the contractionary territory. The latest print points to a stabilization in the services sector that was helped by improving order book at year end. Notably business optimism rebounded to its highest in 15 months that helped drive employment, a result of greater Brexit clarity after the general election in early December.
Japan manufacturing downturn deepened at year end: The Jibun Bank Japan Manufacturing PMI slipped to 48.4 in December (Nov: 48.9) to mark its eighth back-to-back contraction in factory conditions, driven by falling output and new orders. IHS Markit said that the manufacturing sector looks to be contributing negatively to 4Q GDP and this, in tandem with the recently weak services PMI suggest that the economy might be in contraction in the last quarter of 2019.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.1052 (EUR326mn); 1.1125 (EUR1.2bn); 1.1230 (EUR329mn)
- GBPUSD: 1.3155 (GBP218mn)
- USDJPY: 107.50 (USD498mn); 108.00 (USD554mn); 109.10 (USD320mn)
- AUDUSD: 0.6700 (AUD688mn); 0.6800 (AUD418mn); 0.6840 (AUD304mn)
Technical & Trade Views
EURUSD (Intraday bias: Neutral, Bullish above 1.1175 Bearish below 1.1150)
EURUSD From a technical and trading perspective, the daily chart is orientated with a bearish bias, however as prices continue to hold the 1.1150 as support there is a window for prices to pressure stops above 1.12, looking for sellers to remerge here for a test of the symmetry swing downside objective sited at 1.11. NO CHANGE IN VIEW
GBPUSD (Intraday bias: Neutral, Bullish above 1.3150 Bearish below 1.3050)
GBPUSD From a technical and trading perspective, as .1.3150 caps upside attempts look for a test of bids and stops below 1.3000, failure to find a base here would open a test of pivot confluence down to 1.2930/35, only a breach of 1.3150 would delay downside objectives.GBPUSD...UPDATE the upside breach of 1.3150 suggests a test of offers and stops above 1.3210, as this area caps there is a window to retest 1.3050 support. A close above 1.3250 would set an equidistant swing objective at 1.3420.
USDJPY (intraday bias: Bearish below 108.50 targeting 107.40)
USDJPY From a technical and trading perspective, as 108.50 contains upside moves, look for a grind lower to test bids and stops below 107.50, expect profit taking on the first test of this area. On the day only a move through 108.60 would negate the downside objectives.NO CHANGE IN VIEW
AUDUSD (Intraday bias:Bearish below .6930 targeting .6840)
AUDUSD From a technical and trading perspective, as .6970/80 cap any upside advance look for a breach of support at .6930 to open another leg of downside to target bids and stop sited below .6900. On the day a move through .6980 would negate the downside scenario opening a retest of prior swing highs to .7030. AUDUSD...UPDATE failure below .6900 with .6930 now acting as intraday resistance look for a test of .6840 next.
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High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% and 71% 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!