Daily Market Outlook, June 22, 2021
Overnight Headlines
- The hawkish shift in Federal Reserve expectations has given the US dollar a strong boost , but the prospect of a major trend higher over the medium-term seems unlikely at this stage. Friday's rise to 92.40 in the US dollar index was in part due to a rise in short-term US Treasury yields and in part due to safe-haven flows prompted by a tumble in risk assets. The USD gave back some of the gains on Monday when Wall Street erased Friday's losses, as investors reassessed Friday's price action as being an overreaction. A key factor behind USD weakness between the end of March and middle of May was an optimistic global growth outlook. Indications from the Fed will tweak policy sometime in the future if economic strength and inflation is persistent and shouldn't necessarily dim the strong global growth outlook . The short USD strategy was overcrowded and due for a correction. IMM data released yesterday showed speculators increased their net short USD positions to close to US$ 19 billion as of Tuesday, June 15. The hawkish shift in Fed expectations provided the catalyst for unwinding a chunk of those bets. Paring of short USD positions has the potential to push the US dollar index to the March 31 high around 93.50, as long as the 200-day moving average (around 91.50) holds. But if risk assets remain buoyant and the global recovery narrative remains largely in place, the USD index may present a selling opportunity at the higher levels.
- Fed's Powell sees 'sustained improvement' in economy, notable rise in inflation • Fed officials open debate on bond taper • NY Fed Williams – Not concerned by higher use of reverse repo facility • Regulators tell Biden US financial system in good shape-White House • Speculators’ bearish bets on USD rise, EUR and GBP longs up, JPY shorts too – CFTC/Reuters • New Zealand consumer confidence rises in Q2 to 107.1, Q1 105.2 • Bitcoin steadies in Asia trading after Monday's plunge
- Looking Ahead – Economic Data (GMT) •14:00 EZ Jun Consumer Confid. Flash, -3.0 f'cast, -5.1 prev
- Looking Ahead – Events, Auctions, Other Releases (GMT) • 08:00 ECB/Slovakia CB Kazimir presents latest quarterly economic report • 14:00 ECB Lane speaks at Athens University event • 17:30 ECB Schnabel on-line presentation to Bonn Rotary Club
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD 1.1850 (250M), 1.2075 (400M), 1.2175 (535M)
USD/JPY 110-10 (535M), 110.30 (480M)
GBP/USD 1.4150 (250M). EUR/GBP 0.8575 (290M)
AUD/USD 0.7640 (399M). AUD/JPY 0.8415 (310M)
USD/CAD 1.2490-95 (445M). USD/ZAR 14.50 (220M)
Technical & Trade Views
EURUSD Bias: Bearish below 1.21 Bullish above
Overnight trade: Consolidates above 1.1900 in quiet session • EUR/USD opened +0.41% at 1.1917 after USD gave back gains on risk rally • After trading at 1.1919 it slipped back to 1.1901 when USD firmed early • Buyers at 1.1900 underpinned and it drifted above 1.1910 into the afternoon • Short-term trend is lower with 5, 10 and 21-day MAs in a bearish alignment • Support is at the 76.4 of the 1.1704/1.2266 move at 1.1836 • Resistance is at the 200-day MA at 1.1996 and break eases the pressure • Market will look to sell rallies while the 200-day MA caps
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: touch softer as risk appetite returns, bearish setup • -0.15% in 1.3904-1.3940 range, busy early, then quiet, as the USD firmed • Britain begins negotiations to join trans-Pacific trade deal • Charts; daily momentum studies 5, 10 & 21 daily moving averages fall • 21 day Bollinger bands expand – signals support the strong downtrend • Bounce back above 1.3869 lower 21 day Bolli band eases oversold conditions • Downtrend targets a test of 1.3756, 61.8% of the 2021 rise • Close above 1.3963, 38.2% of the June fall would undermine downside bias USD poised for more gains but a major trend unlikely
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:better bid with risk on, on firmer US yields • USD/JPY better bid, risk on and US yields firmer, Asia 110.22-47 EBS • US yields firmer after recent plunge, Tsy 10s back around 1.50% @1.490% • Nikkei recoups most of yesterday losses to 27,795, +2.9% @28,822 • USD/JPY offers from @110.50, bids ahead of 110.00, some option-related • Option expiries today, 109.93-110.10 total $702 mln, 110.30 $480 mln too • USD/JPY at top of descending hourly Ichi cloud between 110.36-40 • Underlying support at 109.69 Ichi daily kijun, bounce from area yesterday • JPY crosses too rebound after recent plunges, USD/JPY supportive
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: Maintains offered tone through Asian session • AUD/USD opened 0.86% higher at 0.7542 after risk bounce underpinned • After trading at 0.7546 it tracked lower for rest of the morning • AFR article made the rounds saying RBA won't be in a rush to tighten • Dalian iron ore continued decline and was 2.5% down – to add weight on AUD • The AUD/USD traded to 0.7512 and was around 0.7515 into the afternoon • It is trending lower with the 5, 10 & 21-day MAs in a bearish alignment • The 200-day MA at 0.7555 should prove tough resistance • Support is at double-bottom at 0.7478 and 61.8 fibo at 0.7378 • Rallies likely to be sold while 200-day MA caps rallies
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!