Daily Market Outlook, June 29, 2021
Overnight Headlines
- Asian equity markets are mostly down this morning, following declines in Europe and a mixed performance in the US yesterday. Concerns about a renewed rise in Covid-19 cases has been cited as a reason. UK daily coronavirus cases climbed to their highest since the end of January yesterday. Nevertheless, PM Johnson said that 19th July would "very likely" remain the date for ending Covid-19 restrictions in England. Reports suggest that agreement for general UK travel to the US is now unlikely before September. Some EU countries have also tightened restrictions on travel from the UK.
- Today’s Bank of England money supply and bank lending data for May will give a timely indication on the strength of the UK’s buoyant housing market. The extension of the stamp duty holiday in March’s budget seems to have given the market a further lift. Nevertheless, the level of mortgage transactions is still expected to be down slightly from April. In contrast, bank lending secured on dwellings, which was surprisingly weak in April, is forecast to have picked up. Other lending measures will provide additional insight into the strength of consumer and investment spending.
- Today’s June CPI data for Spain and Germany will give some insight into tomorrow’s update for the Eurozone as a whole. Annual inflation rates have gone up in both countries this year, primarily because of the rise in the oil price. Expectations for this month are that annual inflation will hold at 2.4% in Spain but fall modestly in Germany to 2.1% from 2.4% in May. That would be consistent with a small decline in Eurozone ‘headline’ inflation. Also to be released are the European Commission’s measures of economic confidence that are thought likely to provide further evidence of a second-quarter rebound in economic activity.
- In the US, the Conference Board’s consumer confidence measure slipped in May for the first time in six months, possibly due to concerns about rising inflation. However other consumer sentiment measures point to a modest rebound in June.
- The Lloyds Business Barometer for the UK rose for the fourth consecutive month in May to its highest level in three years, reflecting an improvement in businesses’ own prospects and their feelings about the wider economy. However, as June has seen an acceleration in Covid-19 cases and the decision not to end all restrictions, it is uncertain whether the latest update, which is out early tomorrow, will post another rise. It will also provide further information on the state of the labour market and price pressures.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD 1.1900-10 (625M), 1.1985-90 (426M), 1.2050 (375M)
USD/JPY 109.35-45 (1.2BLN), 110.10-15 (680M), 110.85 (465M)
111.00 (430M), 112.00 (1.228BLN). EUR/JPY 132.35 (240M)
EUR/GBP 0.8500 (360M). AUD/JPY 84.35 (342M)
AUD/USD 0.7600 (302M). NZD/USD 0.7260 (720M)
USD/CHF 0.9195-00 (340M). USD/CAD 1.2300-10 (570M)
Technical & Trade Views
EURUSD Bias: Bearish below 1.21 Bullish above
Slips as USD and JPY firm in risk off session • EUR/USD opened 0.11% lower at 1.1928 after a quiet US session • After trading at 1.1929 it edged lower with EUR/JPY selling adding weight • Mood in Asia was risk-off with most equity markets easing • EUR/USD traded down to 11.1907 and is around 1.1910 into the afternoon • EUR/USD bids are tipped ahead of 1.1900 with support at 1.18845/50 • Sellers are lined up around 1.1975 with resistance at 38.2 fibo at 1.2007 • Sentiment is mildly bearish ahead of US non-farm payrolls on Friday
GBPUSD Bias: Bearish below 1.4080 Bullish above.
Soft, reflecting the negative technical outlook • -0.1% in a 1.3859-1.3878 range – decent flow once Asia fully opened • Negative sterling signals ahead of 'freedom day' • Charts; daily momentum studies, 5, 10 & 21 daily moving averages fall • 21 day Bollinger bands slide – bearish setup suggests further losses • 10 DMA capped repeatedly, now comes in at 1.3908 – pivotal resistance • Downtrend targets a test of 1.3756, 61.8% of the 2021 rise • 1.3786 June low and 1.3908, 10 DMA initial support and resistance Negative sterling signals ahead of 'freedom day' While sterling has been in a holding pattern for a week, recent topside failures leave the daily charts showing a significant bearish bias ahead of Britain's July 19 'freedom day'. Political controversy continues in the UK after the health minister resigned over the weekend. His replacement Sajid Javid strongly believes the battle between vaccination and the spread of COVID-19 is close to being won, with 22,868 new cases on Monday and only 3 deaths . Javid and Prime Minister Boris Johnson expect 'freedom day' to become a reality on July 19, as the UK fully reopens and begins what will become a new 'normal' life . If reopening is successful, it will be sterling-positive longer term. Short term the technical picture has developed a decidedly negative look. Daily momentum studies, 5, 10 and 21 daily moving averages all head south, while the 21-day Bollinger bands slide, which is a strong bearish trending setup. The falling 10-day moving average capped on three of the last four days, and now comes in at 1.3909. A close above 1.3909 would undermine the downside bias, and a close above 1.4018/28, 50% of the June fall and 21 DMA, would end it. The downtrend targets a test of 1.3756, 61.8% of the 2021 rise, then the 1.3669 April low
USDJPY Bias: Bullish above 108 targeting 112
JPY crosses off again after Tokyo fix • USD/JPY, JPY crosses peak out into today's Tokyo fix, off post-fix • This the pattern recently especially in USD/JPY, 110.64 to 110.46 EBS • USD/JPY downside limited though, bids still sub-110.50, trail down • Massive, $1.1 bln in option expiries today down between 110.00-15 • Upside just as limited ahead of 111.00, $465 mln expiries at 110.85 • Tech support at now flat 110.41 Ichi daily tenkan, kijun 109.83 below • US yields soggy, Treasury 10s @1.477%, risk-off, Nikkei -0.9% @28,791 • EUR/JPY 132.92 to 131.63, GBP/JPY 153.62 to 153.09, AUD/JPY 83.72 to 83.40
Options to help contain USD/JPY into U.S. jobs data Massive USD/JPY option expiries near current spot levels are likely to help contain USD/JPY price action into Friday's keenly anticipated U.S. non-farm payrolls data. June non-farm payrolls are expected to rise by 690,000 according to a Reuters poll (May +559,000) and the unemployment rate to tick down to 5.7% from 5.8% in May. Massive option expiries have already been evident recently, including $1.3 billion at 111.00 on Friday and $1.4 billion at 110.50 on Monday. Tuesday sees $1.1 billion between 110.00-15 strikes and Wednesday $1.45 billion between 110.20-25, $1.3 billion at 110.50 and $1.3 billion between 110.70-75. Friday also sees large strikes on 110 and $1.7 billion at 111.00.All of these strikes will work to keep USD/JPY in a core 110.50-111.00 or tad wider 110.00-111.50 range until the key jobs report. Moves within these ranges will be driven by U.S. yields, which have seen very choppy trading of late, surging Monday only to fall off sharply later in the day as the S&P 500 index and Nasdaq hit fresh record highs
AUDUSD Bias: Bearish below .7790 bullish above
Drifts lower in risk-off Asian session • AUD/USD opened 0.32% lower at 0.7565 as USD firmed against risk currencies • After trading 0.7570 it came under pressure as Asian shares moved lower • Mood was risk-off with E-minis easing 0.16% and key commodities slipping • AUD/USD traded down to 0.7550 and is at the lows into the afternoon • Buyers tipped ahead of 0.7500 with support at double-bottom at 0.7478 • AUD/USD sellers 0.7600/10 with resistance at 38.2 fibo at 0.7635 • Sentiment mildly bearish, but range likely to hold ahead of Friday's US jobs • COVID-related lockdowns in Australia may limit upside for now
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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!