Daily Market Outlook, May 26, 2021
Comments from US Federal Reserve officials, reiterating the transitory inflation message, supported risk sentiment overnight. Chicago Fed President Evans, for instance, said yesterday that recent data are not a precursor to a persistent movement to undesirably high inflation. Asian equity markets are mostly higher, which is expected to follow through to the start of European trading. The Reserve Bank of New Zealand left policy unchanged, but the kiwi dollar rose after the central bank signalled interest rates might start to rise in the second half of next year.
The economic calendar is light today. French INSEE business confidence, released earlier this morning, showed confidence jumping up to 108 in May from 96, with manufacturing confidence up to 107 from 104 both above their long-term averages of 100. Consumer confidence also rose to 97 from 95. These are the highest levels since the start of the pandemic and support expectations of a strong economic expansion as containment measures are relaxed. Last week’s flash PMI survey indicated the fastest pace of French services growth since last July.
There are no UK data releases today. Yesterday, the Bank of England’s member Tenreyro suggested that global interest rates are likely to remain low, with the Fed not responding to temporary inflation spikes. Fellow external MPC member Vlieghe speaks tomorrow about bond yields and “what they tell us about future growth and inflation”.
Later this morning (10am), the ECB’s Villeroy (Bank of France Governor) speaks at the French National Assembly. He made some dovish comments yesterday regarding future ECB policy. The mooted reduction in the pace of PEPP purchases in Q3 (potentially to be announced at the June meeting) was described as “purely speculative”, and he stated, “our monetary policy can be patient”.
US Fed Vice Chairman Quarles speaks twice today, on regulation and then, at 8pm, he will discuss the economic outlook. He said yesterday that current inflationary pressures are most likely to be transitory, reiterating the Fed’s central view, and that the Fed’s has tools to tackle inflation if it turns out to be persistently too high.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD: 1.2195-1.2200 (652M), 1.2205-15 (500M), 1.2220-30 (619M)
1.2250 (307M), 1.2275 (297M)
USD/CHF: 0.9000 (200M). EUR/CHF: 1.1000 (740M)
EUR/GBP: 0.8600-15 (1.1BLN). GBP/USD: 1.4150 (351M), 1.4220 (427M)
AUD/USD: 0.7740-50 (1.2BLN), 0.7770-85 (1.1BLN) , 0.7820 (268M)
NZD/USD: 0.7215 (598M), 0.7300 (205M)
USD/JPY: 108.00 (1.1BLN), 108.25 (410M), 108.50-60 (611M), 108.80 (604M)
108.95-109.00 (410M), 109.25 (725M), 109.50 (1.1BLN)
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 congested through to the 1.2300 level with weak stops limited through the 1.2320 area and long term trend line around the 1.2345 area likely to see strong offers before weak stops opening the topside to further gains through the 1.2400 level
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 offers light through the 1.4200 level however, very few stops and stronger offers starting to appear through to the 1.4250 level and then increasing through to the 1.4310 area before weakness and stops appear for a break through to the 1.44 level before sentimental offers increase, downside bids light through to the 1.4100 level before stronger bids appear for any move beyond the 1.4050 level as congestion and sentimental levels appear
USDJPY Bias: Bullish above 108 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 108.50 before 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 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. 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
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!