Daily Market Outlook, May 20, 2021
US equity markets fell for a third straight session, although earlier losses were mostly erased. Asian markets are mixed, while European stocks are poised to open higher. The minutes of the 27/28 April FOMC meeting were published last night and pre-date last week’s unexpectedly big jump in inflation. They remained dovish, but revealed that some officials said “it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases”. St Louis Fed President Bullard yesterday suggested that the US labour market might be tighter than thought, for instance, if the participation rate stays below pre-pandemic levels.
The UK CBI Industrial Trends survey will give an early read of manufacturing confidence in May. Strong domestic and global demand is expected to lead a rise in the total orders balance to 0 from 8, while there will be a focus on the average selling prices balance which has shifted significantly higher in recent months. Whether, and to what extent, that eventually leads to a rise in consumer prices remains to be seen, but BoE officials remain of the view that the spike in UK CPI inflation this year will prove to be temporary. The MPC’s Cunliffe is scheduled to give a keynote speech at 10:05am.
There will also be UK attention on updates on GfK consumer confidence just after midnight and official retail sales at 7am tomorrow morning. Look for retail sales to have risen by 4.5%m/m in April (36.8%y/y), following the 5.4%m/m gain in March, consistent with a strong pickup in spending, as pent-up demand is unleashed in response to the easing of Covid restrictions. Anecdotal evidence and unofficial surveys pointed to a rise in sales as non-essential stores were allowed to open. The GfK consumer confidence measure for May will provide a further indication on whether sentiment is continuing to improve, expect it to rise to -13 from -15, which would be its highest since March of last year.
In the US, today’s focus will include the Philadelphia Fed manufacturing survey and weekly jobless claims. Look for the headline index in the Philly Fed survey to fall back to 47.0 in May from 50.2, but there will be attention on some of the price indicators. Meanwhile, expect a further fall in initial jobless claims to 450k from 473k, reflecting strong economic growth feeding through to the labour market. Finally, Dallas Fed President Kaplan is scheduled to take part in a moderated Q&A session.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD: 1.2100-10 (750M), 1.2160 (916M), 1.2175 (1.3BLN)
1.2190-95 (580M), 1.2220-30 (530M)
USD/CHF: 0.9000 (407M), 0.9035 (686M), 0.9160 (500M), 0.9200 (485M)
GBP/USD: 1.3990-1.4000 (592M), 1.4020 (607M), 1.4220 (201M)
AUD/USD: 0.7730-40 (1BLN), 0.7760-65 (1.1BLN), 0.7775-85 (1.2BLN)
0.7800-15 (530M). USD/CAD: 1.2125-30 (524M). AUD/JPY: 84.50 (439M)
USD/JPY: 108.65-75 (800M), 108.85-90 ( 463M), 109.00-15 (922M)
109.50 (290M)
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 1.2270/80.
Another EUR 5-billion nearby between Wednesday and Friday. DTCC data shows 1.7-billion between 1.2160-75 Thursday, 1-billion 1.2160-70 Friday. FX option prices retain a small EUR/USD bullish bias for now
Flow reports suggest topside offers strong through the 1.2275 level and increasing on a push above the 1.2300 level all the way to the 1.2350 before weak stops are joined by buyers on the move through the highs of the last couple of years, downside bids light through the 1.2200 area and weak stops likely on a dip through the level and opening a quick move through the 1.2150 area and towards 1.2100 where stronger bids are likely.
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 topside offer through the 1.4200 level with weak stops likely to open a test through to the 1.4250 before stronger offers start to appear through to the 1.4300 level and a long term trend line likely to have attracted option barriers, a break here does however likely see stronger stops appearing and the market opening to a larger move towards the 1.47-1.48 area. Downside bids light into the 1.4100 with weak stops on a move through the level to test quickly through weak sentimental 1.4050 and stronger bids then appearing for any test of the 1.4000 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 light through the 109.00 level with weak stops below the 108.80 and opening the market to a new test of the 108.00 level, stronger bids into the 107.80 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, the breach of .7790 refocuses attention on the downside as .7820 contains upside attempts, look for a test of .7680.
Flow reports suggest downside bids light through the 0.7750 area and stronger bids likely continue through to the 0.7700 area before weak stops appear below the 0.7680 and a stronger 0.7650 area then holds the downside, topside offers into the 0.7800 area with weak stops through the 0.7820 before opening for a new run higher and strong offers likely through the 0.7840-60 area to build for the 79 cent 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!