Daily Market Outlook, June 21, 2021
Overnight Headlines
- U.S. senators haggle over funding of $1 trillion infrastructure compromise • U.S extends travel restrictions at Canada, Mexico land borders through July 21 • Republican Party outspends Democrats in May in bid to retake U.S. Congress • Europeans, U.S. warn Iran nuclear talks won't be open-ended • China keeps lending benchmark rate unchanged for 14th straight month • CN Jun Loan Prime Rate 1Y, 3.85%, 3.85% prev; 5Y, 4.65%, 4.65% prev • Hong Kong seeking closer integration with mainland China, Lam says • AU May Retail Sales MM 0.1%, 0.5% f'cast, 1.1% prev • Australia: taking China to WTO over wine tariffs enables negotiations • UK house prices show biggest seasonal rise since 2015 – Rightmove • ECB Pres Lagarde – ECB has made good progress on new strategy • Digital euro will protect consumer privacy, ECB executives pledge – FT • Bank of Canada to break sequence of lower terminal rates as governments splurge • Italy, hosting G20, will call for tougher 'gig economy' rules
- Looking Ahead – Economic Data (GMT) • No major economic data scheduled
- Looking Ahead – Events, Auctions, Other Releases (GMT) • N/A BoE Woods, Mutton panellists at City Week 2021, Cleland keynote speech • 10:30 BoP Gov Centeno presents Financial Stability Report • 12:00 ECB McCaul panellist at online Salzburg Global Finance Forum • 12:30 ECB Lagarde pre-recorded message to Women Leaders Summit 2021 • 14:15 ECB Lagarde parliamentary testimony
- Week Ahead-Fed comments in focus, BOE policy decision due The focus this week will be on a raft of Federal Reserve speakers after the market threw a bit of a taper tantrum following last week's unexpectedly hawkish FOMC meeting and hawkish rhetoric from St. Louis Fed President James Bullard on Friday. The coming week features a crowded schedule of Fed speakers including an appearance before a House Select Subcommittee by Fed Chair Jerome Powell on Tuesday. Other speakers include New York Fed President Williams, Atlanta Fed President Bostic, San Francisco Fed President Daly, Dallas Fed President Kaplan, and Bullard again. The deluge of speeches could cause some volatility, as some officials may push back against the hawkish market interpretation of Fed expectations, while others may support that interpretation. The Bank of England meets on Thursday and is not expected to take any action after its decision to slightly slow its weekly bond purchases at the last meeting.
- Week Ahead-Flash PMIs and Fed's favoured inflation gauge lead The week ahead is relatively quiet for key data, with flash PMIs dominating the global economic calendar while the hawkish turn in Federal Reserve expectations will keep U.S. data in the spotlight. The highlight will be the Fed's favoured inflation gauge, PCE prices, due Friday. Other U.S. data includes trade balance, durable goods, final Q1 GDP, Markit flash PMI, existing and new home sales, and University of Michigan consumer sentiment. Euro zone flash PMIs and consumer confidence, and the German Ifo will be the most noteworthy in a quiet week for European data. Flash PMIs will be the only top-tier data out of the UK this week. It will be a very quiet week for Japan as well, with Tokyo CPI and flash manufacturing PMI the only data of note. There is no data due out of China. Australia has no further data due after Monday’s retail sales, which lagged expectations. In New Zealand, trade data is expected.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD 1.1800 (320M), 1.1860 (522M), 1.1900 (554M)
1.1925 (520M), 1.1940-50 (975M)
USD/JPY 109.50 (260M), 110.00 (1.2BLN), 110.50 (860M)
EUR/GBP 0.8575 (465M), 0.8620-30 (345M)
AUD/JPY 78.00 (1.24BLN), 81.00 (1.2BLN)
Technical & Trade Views
EURUSD Bias: Bearish below 1.21 Bullish above
Overnight trade: Back under pressure as attempted rally stalls • EUR/USD opened 1.1860 after easing Friday when USD broadly strengthened • It traded up to 1.1876 at one stage on short-covering before sellers emerged • Risk-off session in Asian eventually supported USD and JPY • EUR/JPY fell 0.50% at one stage to put the EUR/USD back under pressure • EUR/USD around 1.1850 heading into the afternoon – just above Friday low • Support is at 76.4 of the 1.1702/1.2266 move at 1.1836 • A break below 1.1835 targets the 2021 trend low at 1.1702 • Resistance is found at the 200-day MA at 1.1996 with sellers ahead of 1.1900
Flow Reports suggest downside congestion through the 1.1820-1.1780 area, a break sees weak stops however, congestion is likely to continue to the 1.1700 level absorbing most of the pressure and likely stronger bids for the moment, Topside offers light through to the 1.1900 and limited congestion and increasing on a move through the 1.1960 level before stronger stops appear above the 1.2020 area if it could get there in a short squeeze.
GBPUSD Bias: Bearish below 1.4080 Bullish above.
Overnight trade: Busy as stocks, UST yields fall – USD key for cable • Flat in a 1.3800-1.3829 range with plenty of interest • Asian stocks fell, with UST yields, 10yr -5bp to 1.398%, Emini S&P -0.6% • UK house prices show biggest seasonal rise since 2015 Rightmove • Move from central London to the leafy suburbs and further continues • Charts; daily momentum studies 5, 10 & 21 daily moving averages fall • 21 day Bollinger bands expand – signals support a strong downtrend • Pace of last week’s 2.5% fall leaves studies oversold, but trend is strong • Trend pause possible, as oversold unwinds, and UST yields fall
Flow Reports suggest downside weak stops likely on a push through the 1.3780 with congestion likely through the 1.3750 and continuing into the 1.3700 level before stronger sellers reappear for a move through to lighter congestive bids on a run through the sentimental 50/00 areas with stronger bids likely to be limited too the 1.3500 area. Topside offers into the 1.3900 level likely to be light with weak stops very likely through the 1.3800 level and very little in the way of offers until into the 1.4000 level and strengthening from there into sentimental areas
USDJPY Bias: Bullish above 108 targeting 112
Overnight trade: slumps with US yields, bids return @110.00, options • USD/JPY off in Asia from 110.25 into the Tokyo fix to 109.94 EBS • US yields continue to slump in Asia, Treasury 10s to 1.399% • Bids return from @110.00, most look to be options-related • Massive $1.2 bln in option expiries today at 110.00 strike • Large above at 110.50 too, $860 mln, core 110.00-50 range eyed by most • Market risk-off, reflected in soggy crosses, EUR/JPY 130.88 to 130.53 • GBP/JPY 152.43 to 151.90, AUD/JPY 82.39-75, tad better bid • Nikkei off hard after Wall St plunge Friday, -3.4% @27,980
Flow reports suggest topside offers light through the 110.20 level with very limited weak stops if any at all and congestion then appearing from the 110.40-60 area before stronger offers start to appear on any move towards the 110.80 level and likely to continue through the 111.20 level before stops appear however, stronger offers around the 111.50 level likely to limit the first move higher. Downside bids light through to the 109.00 and congestion all the way through, a push through the 108.80 level will likely see weak stops appearing and the market then seeing light congestion to the 108.50 and stronger bids from there on.
AUDUSD Bias: Bearish below .7790 bullish above
Overnight trade: Moves higher on recovery from over-sold territory • AUD/USD gapped higher to open 0.7490 after closing Friday at 0.7478 • AUD & NZD were worst performers Friday and last week, but made ground today • AUD/USD traded as high as 0.7522 despite a generally risk-off session • There was no reaction to slight miss in Aus prelim retail sales • AXJ equity index -1.0%; Nikkei -3.4% and E-minis -0.50% • Heading into the afternoon the AUD/USD is +0.40% at 0.7508 • Sentiment in Asia is AUD/USD selloff last week was over-sold and overdone • West Pac forecast that RBA will hike in Q1 2023 resonated in Asia • Resistance is at the 200-day MA at 0.7553 and break would ease pressure • Support is at the 61.8 of 0.6990/0.8007 move at 0.7378
Flow reports suggest light congestion to the topside through the 0.7550 area however, a push through sees very little to slow the market through to the 0.7620 area and likely weak stops starting to build in the area, downside bids light and weak stops likely on a dip through todays lows and the market opening for a test through to the 0.7350 level with little trouble before stronger congestion through into the 0.7300 level.
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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!