Daily Market Outlook, May 21, 2021
US stocks rebounded overnight to post their first positive close of the week amid a stabilisation in market sentiment. Equities across the Asia-Pacific also stabilised, while European stocks are poised to open higher. Meanwhile, the ‘flash’ PMIs for Japan reported a decline in service sector activity in May, likely a result of the recent stepping up in lockdown conditions earlier this month. Sentiment across the manufacturing sector also cooled, but the headline PMI remained above the 50 mark, consistent with rising activity. Domestically, UK consumer confidence rebounded back to pre-Covid levels this month. The headline measure rose to -9, from -15 in April, primarily led by improvements in consumers’ assessment of the economic situation.
Just released UK retail sales figures showed a much stronger than expected increase in April. The volume of sales (including fuel) surged by 9.2% on the month, after having risen by 5.1% in March, supported by the lifting of restrictions on non-essential retail stores. The strong retail sales report provides the first piece of ‘hard’ data for Q2 activity and supports the expectation of a solid rebound in GDP after the drop recorded in Q1. This follows the sharp rise seen across a number of business activity surveys, including the PMIs, where both the manufacturing and services measures rose sharply last month, with the latter registering its highest reading since October 2013.
Today’s PMI updates for May will provide a timely update on current business conditions, particularly in light of the latest easing in lockdown restrictions. As the service sector will have benefited most from the further easing in restrictions in May, expect to see a further rise in the headline index to 64.0 from 63.2 in April. If so, that would mark a record high for the services PMI. Of late, the PMIs have also provided evidence of firmer inflationary pressures as supply chain disruptions and higher commodity prices push up input costs. Last month also saw some indications of a firming in labour costs as businesses begin to respond to more positive conditions. Further signs of such pressures in the May results may temper any positive market response to a further rise in output.
Elsewhere the focus is also likely to be on May PMI data. In the Eurozone, the manufacturing measure may slip modestly to 62.5 from a very high reading of 62.9 in April. However, the services reading, after moving above 50 for the first time in eight months in April, is expected to rise further, to 53.0. Together, those two readings would historically be consistent with positive GDP. Both May PMI indices for the US are expected to post a further rise in May from already high levels in April pointing to a strong acceleration in Q2 GDP growth.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD: 1.2150-70 (1.9BLN), 1.2200 (1.3BLN), 1.2225 (301M), 1.2275 (353M)
USD/CHF: 0.9000-20 (590M)
EUR/GBP: 0.8620-35 (386M)
GBP/USD: 1.4095-1.4100 (476M), 1.4200 (302M), 1.4225 (284M)
AUD/USD: 0.7690-0.7700 (1.2BLN), 0.7750-60 (468M), 0.7780-90 (346M)
NZD/USD: 0.7200 (755M), 0.7220-25 (285M), 0.7250 (306M)
USD/JPY: 108.45-60 (1.2BLN), 109.35-40 (387M), 109.60-65 (750M)
Technical & Trade Views
EURUSD Bias: Bearish below 1.2150 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. A close through 1.2150 would suggest a corrective phase developing.
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 1.41 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 1.41 would concern the bullish thesis opening the window for a corrective cycle.
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 108.30 targeting 112
USDJPY From a technical and trading perspective, as 108.30 supports bulls will target 110.70’s, a closing breach of 108.30 would suggest a corrective move to test 106.30
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.
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!