Daily Market Outlook, May 28, 2021
Asian equities are mostly higher, with the ‘risk on’ tone supported by reports that President Biden will later today unveil a budget to increase federal spending by $6 trillion in the coming fiscal year. Economic data also supported sentiment, with US initial jobless claims yesterday falling to a new pandemic low of 406k. In the UK, Health Secretary Hancock said it is too early to say whether the fourth step in roadmap out of lockdown on 21 June in England can go ahead, with the Indian variant accounting for three-quarters of all new cases. UK cases have started to edge higher, although hospitalisations remain low.
The latest monthly Lloyds Business Barometer survey was released overnight, based on polling between 4-18 May. It showed UK business confidence up for a fourth consecutive month, to 33% in May from 28%, including a five-year high in optimism for the economy. Employment expectations also picked up, with a third of businesses expecting to increase their workforce in the coming year. Despite that, pay expectations appeared to have stabilised after rising in recent months, and they remain below pre-pandemic levels.
In the Eurozone, France was the first major country to release May CPI inflation figures (German and Eurozone reports are due next week). The French data showed the EU-harmonised inflation measure rising to 1.8% from 1.6%. Later this morning, the Eurozone economic sentiment index for May is expected to rise for a fourth straight month. Within the index, the ‘flash’ consumer confidence has already been released and showed an increase, while improvements are predicted for industrial confidence and services confidence. It all adds to evidence of a buoyant industrial sector and strengthening services activity as domestic economies start to open up.
For the US, markets will await further details of the Biden federal spending proposals. In terms of data, expect personal consumption to have risen by 0.7% in April, driven by spending on services as restrictions are lifted. Markets will be watching the PCE deflator closely, which is the Fed’s preferred inflation measure. The figures follow the surge in the CPI measure to 4.2%, which partly reflected the impact on services prices from the reopening of the economy. However, global supply chain disruptions also seemed to play a key role, resulting in a surge in used car prices. Look for headline PCE deflator to pick up to 3.6%y/y from 2.3%y/y, and for the core measure (excluding food and energy) to rise to 3.0%y/y from 1.8%y/y. Fed officials continue to say the inflation rise is expected to be transitory. The advance April goods trade balance and the final reading of the University of Michigan consumer sentiment survey for May will also be released today.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD: 1.2185 (461M), 1.2200-10 (1.6BLN), 1.2215-25 (1BLN)
1.2250-60 (913M), 1.2265-75 (1BLN)
EUR/CHF: 1.0800 (420M), 1.1000 (760M), 1.1040-50 (328M)
EUR/GBP: 0.8625 (427M). GBP/USD: 1.4150 (268M), 1.4200 (464M)
AUD/USD: 0.7750 (575M), 0.7800 (287M).
USD/CAD: 1.2000 (640M), 1.2050 (420M), 1.2100 (1.5BLN), 1.2150 (612M)
USD/JPY: 108.50-60 (915M), 110.00 (2BLN), 110.50 (1BLN)
EUR/JPY: 132.80-85 (480M), 133.00 (210M)
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!