Daily Market Outlook, May 11, 2021
Tech stocks dragged US markets lower at the close, while major Asian indices are also lower overnight, including Japan’s Nikkei (down more than 3%). Concerns about rising inflation has been cited as a factor weighing on risk sentiment ahead of US CPI figures tomorrow and with further inflationary pressures in the pipeline as a result of the recent surge in some commodity prices. In China, producer price inflation increased to a three-year high of 6.8%, although CPI remained subdued at 0.9%. In the UK, the British Retail Consortium reported a stellar 39.6% rise in like-for-like sales in April compared with a year earlier (during the first lockdown).
This morning’s German ZEW survey is the main Eurozone release this week. It is a survey of financial professionals, but it sometimes provides a useful guide to business surveys due later in the month. Look for further improvements in the current situation index to -40.0 and a potential rise in the expectations component to 73.0, reflecting hopes that progress in vaccinations will allow economic activity to resume (see chart).
In the UK, the government in Westminster confirmed a further easing of lockdown measures in England on 17 May, including the reopening of indoor pubs and restaurants. The Queen’s Speech this afternoon will set out the government’s legislative agenda for the new parliament. It is expected to include measures to form part of the ‘levelling up’ agenda, including bills to support skills and housebuilding. Bank of England Governor Bailey, meanwhile, is scheduled to discuss Libor.
Early Wednesday (7am) sees the release of official Q1 and March UK GDP figures. Also of interest will be the March trade figures in light of reported disruptions, partly related to new EU trading arrangements. Expect March GDP to have risen by 1.2%, led by a 2.0% increase in services activity including the reopening of schools, as well as a 1.0% rise in industrial output. That would be the second consecutive rise in monthly GDP following the drop in January. For Q1, expect GDP to have fallen by 1.7%, but the momentum through the quarter is expected to help lead to a return to positive quarterly growth in Q2. Last week, the Bank of England upgraded its full-year 2021 growth forecast to 7.25% from 5%.
Of particular interest from a global markets point of view is a number of Fed speakers later today, especially in light of last Friday’s much weaker-than-expected rise in April nonfarm payrolls, which likely reinforced the cautious approach towards removing policy stimulus, but also because of ongoing concerns that inflation is set to accelerate. Speakers include Fed Governor Brainard, Philadelphia Fed President Harker and Minneapolis Fed President Kashkari, who are all expected to provide updated views on the economic outlook.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD: 1.2095-1.2100 (1.5BLN), 1.2125 (1.5BLN), 1.2150 (253M), 1.2185-90 (1.6BLN), 1.2265-70 (466M)
AUD/USD: 0.7620-30 (2.7BLN), 0.7800 (623M), 0.7865 (200M), 0.7915 (370M)
NZD/USD: 0.7200-05 (900M)
USD/JPY: 108.00 (1.6BLN), 108.25-35 (481M), 108.45-50 (665M), 109.00 (830M)
Technical & Trade Views
EURUSD Bias: Bearish below 1.2120 bullish above
EURUSD From a technical and trading perspective, the close through 1.2120 is constructive but bulls must defend 1.21 to set up a test of 1.2240/50. Failure to find sufficient support at 1.21 would suggest a false upside break opening a retest of 1.2050.
Flow reports suggest topside congestion through to the 1.2160 level from the highs and then while there maybe some weak stops just beyond stronger offers are likely through the level to the 1.2200 area with weak stops again appearing but very limited and the 1.2250 again seeing the stronger offers through to the 1.2300 level with the market then having the ability to test this year’s highs, downside bids light through to the 1.2000 area and then weak stops on a move through the 1.1920 level opening the market to the 1.1850 area where stronger congestion appears.
GBPUSD Bias: Bullish above 1.40 bearish below
GBPUSD From a technical and trading perspective, as 1.3960 now acts as support bulls will target a retest of 1.4230’s. Only a close back below 1.40 would concern the bullish thesis.
Flow reports suggest further downside bids strong into the 1.4000 with congestion likely to continue through the level and while there may be some stops that congestion is likely to continue through to the 1.3950 level, light bids through the level but increasing again into the 1.3800 level with congestion then continuing through the level.
USDJPY Bias: Bullish above 108 targeting 112
USDJPY From a technical and trading perspective, as 107.50 acts as support there is potential for a test of the pivotal 108.50, through here will open another look at 110.
Flow reports suggest downside bids into the 108.40 however, a break through the level is likely to see weak stops and breakout stops appearing and the market free to quickly test 107.50 and an old trendline then nothing until closer to the 107.00 area where stronger bids start to appear but the downside opening to Feb levels, topside offers through to the 110.00 level with light congestion through the figure level and weak stops possibly limited and stronger offers likely increasing on a move higher towards the 111.00.
AUDUSD Bias: Bearish below .7790 bullish above
AUDUSD From a technical and trading perspective, as .7790 now acts as support bulls will target a retest of prior cycle highs above .80 cents
Flow reports suggest topside offers in the 0.7850 area however, while there maybe some offers in the area the market looks to be fairly open through to the 79 cents level and ultimately ranges from the end of Feb, downside bids light through the 0.7700 level with weak stops likely on a move through the 0.7680 before stronger bids around the 0.7650 area and continuing through to the 0.7600 likely increasing in size, any further moves are likely to see strong support into the 0.7550 to calm the situation.
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. 73% 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!