Daily Market Outlook, January 29, 2021
Equity markets remain choppy as the rebound from Wednesday’s sharp decline in the US market faded in late US trading. The US S&P500 index still ended up 1%, but Asian bourses are mostly in the red. Global stocks this week are set to be down their most since October, as investors grapple with a challenging near-term economic outlook related to extended lockdowns and varied vaccine rollouts. The EU has warned that it could limit the export of vaccines. Separately, a new vaccine (Novavax) produced in the UK is reportedly 89% effective in trials and will be assessed by the regulator.
This morning’s European Q4 GDP data may reaffirm concerns about the divergence in economic performance that has opened up with the US. Yesterday’s figures showed US growth remaining positive at an annualised pace of 4.0% (annualised), albeit significantly slower than in Q3.
The second lockdown in France, however, resulted in growth contracting by 1.3%q/q, according to data released earlier this morning. The outturn, though, was less negative than the consensus forecast for a 4% fall, partly reflecting the pickup in consumer spending in December and, more broadly, the economy adapting to containment measures. Spain’s economy, meanwhile, recorded an unexpected rise of 0.4% against expectations for a 1.4% fall.
The release of German Q4 GDP has been delayed until 9am. The country may have escaped a decline, helped by robust industrial activity. The consensus and our forecast is for a flat outturn, although France and Spain have surprised on the upside. Overall Eurozone Q4 GDP will be released next week. The slow vaccine rollout and extended lockdowns mean GDP is at risk of falling in Q1.
The Lloyds Business Barometer, also released earlier this morning, showed a slight fall in UK business confidence to ‑7% in January following the jump up to a nine-month high of ‑4% in December. The decline reflected renewed concerns about the pandemic and its impact on trading prospects and the wider economy. Nevertheless, confidence is still the second highest since last May’s low point, suggesting that vaccine hopes are trumping unease about new variants of the coronavirus, but the near-term outlook remains challenging.
US data later today are expected to show December consumer spending falling for a second consecutive month, highlighting the fragility of the near-term outlook as the labour market recovery stalls. The fall in November was the first decline since April. The preliminary reading of the University of Michigan consumer sentiment index fell to 79.2 in January and that is expected to be confirmed in today’s final release.
CitiFX Quant Month-end Final:The final update of the month-end FX hedge rebalancing model suggests there is no USD signal today. The average signal over G10 crosses works out exactly zero, something that has happened only once before since 2004.
The MSCI US equity index has gained by almost exactly as much as the FTSE US Government Bond index has lost this month, leading to offsetting hedge rebalancing flows from foreign investors. Given the larger proportion of United States in international equity indices and an assumed tilt in international asset allocation towards equities over bonds, this would normally still lead to a weak USD sell-signal even if we assume that bonds are hedged to a greater degree.
However, several foreign equity and bond markets have out-performed the US this month and this creates offsetting needs to sell those currencies. On the margin, this pressure is likely strongest in Japan where the net signal is a JPY sell at -0.3 standard deviations.
The signals for EUR and GBP are marginal buys at 0.15 and 0.1 standard deviations respectively, suggesting that the strongest relative signals today are for EURJPY and GBPJPY upside.
G10 FX Options Expiries for 10AM New York Cut
EUR/USD: $1.2000(E562mln), $1.2050-60(E826mln-EUR puts), $1.2070-75(E1.0bln), $1.2100(E697mln), $1.2200(E801mln), $1.2300(E953mln)
USD/JPY: Y103.80-85($593mln), Y104.35-45($1.3bln)
EUR/GBP: Gbp0.8800(E661mln-EUR puts), Gbp0.8845-60(E1.1bln-EUR puts)
USD/CHF: Chf0.8800($1.46bln-USD puts)
AUD/USD: $0.7400(A$541mln), $0.7610-30(A$778mln-AUD puts), $0.7650(A$866mln), $0.7725-35(A$1.0bln-AUD puts), $0.7750-55(A$503mln), $0.7880(A$812mln)
USD/CAD: C$1.2750-60($830mln-USD puts)
USD/MXN: Mxn19.80($1.2bln), Mxn20.00($1.4bln)
USD/CNY: Cny6.45($740mln), Cny6.47($1.1bln), Cny6.50($1.5bln-USD puts), Cny6.55($782mln)
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Larger Option Pipeline
EUR/USD: Feb01 $1.2000(E1.5bln), $1.2220-30(E1.2bln-EUR puts); Feb02 $1.2150(E1.3bln-EUR puts), $1.2290-1.2300(E1.1bln); Feb03 $1.2070-80(E1.1bln-EUR puts)
USD/JPY: Feb04 Y104.30-40($1.5bln); Feb05 Y103.00($1.0bln-USD puts)
AUD/USD: Feb02 $0.7600(A$1.16bln-AUD puts), $0.7685(A$1.1bln-AUD puts)
USD/CNY: Feb02 Cny6.55($1.1bln)
USD/MXN: Feb04 Mxn20.50($1.6bln)
Source: DTCC
Technical & Trade Views
EURUSD Bias: Bearish below 1.2265 targeting 1.2050
EURUSD From a technical and trading perspective, failure below 1.22 opens a retest of bids to 1.2050, only a close back through 1.2265 would suggest a false downside break. Downside target achieved expect profit taking pullback to test offers at 1.2150/1.22. Potential reversal developing on the second test of bids towards 1.2050, daily close through 1.22 would be constructive for a move to retest 1.2350
Flow reports suggest downside bids into the 1.2050 area with increasing bids into the 1.2000 level with weak stops on any move through into the 1.1980 level with break out stops a possibility, Topside offers through the 1.2100 level light with the topside likely to remain weak through to the 1.2180 area before some stiffness appears through to the 1.2200 level with very little in stops until 1.2220 level and weak stops easily absorbed in stronger resistance.
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 through the 1.3750 area and increasing on any move towards the 1.3800 level weak stops on a break through opens up a larger rise with limited stops through the 1.3850 area but opening the 1.41/1.42 over time. Downside bids light through to the 1.3650 area and stronger bids currently being tested with weak stops likely on a dip through light for the moment and stronger bids into the 1.3600 level and increasing on any move to the 1.3550 area.
USDJPY Bias: Bearish below 104.50 targeting 101.20
USDJPY From a technical and trading perspective, as 104.20/50 contains upside attempts, look for the next leg lower to target 101.20. A close through 104.50 opens a test of 105.50 as the next decision point
Flow reports suggest topside offers through the 104.80 area increasing through to 105.00 level normal offers are likely to be thin with an old trend line in the area and weak stops are likely joined by break out players for a move through to the 105.50 area before congestion starts to appear. Downside bids light through the 104.00 level and weak stops limited, market likely to remain weak through to the 103.50 area where interest starts to increase with congestion around that level and stronger bids through to the 102.80 area.
AUDUSD Bias: Bullish above .7600 bullish targeting .8000
AUDUSD From a technical and trading perspective, as .7600 now acts as support, look for target wave 5 upside objective towards .8000. Note .7800 is an interim measured move upside objective that may prompt a profit taking pullback before the uptrend resumes from.7450 trend support
Flow reports suggest bids likely just below the lows and through into the 0.7580 area before weak stops appear opening the market a little through to the 0.7550 area with stronger bids again and possibly continue through to the 0.7500 area. Topside offers light through the 77 cents level and likely to continue through to the 0.7750 with very little interference however beyond that level is likely to see stronger offers the closer the market gets to the 78 cents area and continuing through to the 0.7820 area before stops appear and open a higher move over the next couple of days.
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!