Daily Market Outlook, October 5th, 2021

Overnight Headlines

Today’s data calendar is dominated by reports on September service sector activity. In the Eurozone and the UK these are second estimates and not expected to be much revised from initial outturns, although new data will be released on individual Eurozone economies. In both cases, first estimates were down from August with the accompanying commentary suggesting that supply issues more than offset any boost from the relaxation of restrictions over the summer. In the case of the UK, where the activity index fell to its lowest since February, recruitment challenges were cited frequently as an issue for firms.

In the US, the September ISM survey for services is published. The index slipped back in August but that followed an unexpectedly strong July print and so remains at a level that has historically been consistent with strong growth in GDP. The already published US PMI Services report for September pointed to a further slowing in activity. Supply issues were again cited as an important factor behind the deceleration, but it also noted that a summer pickup in Covid cases may have led demand growth for some consumer services to slow. The PMI and ISM have not always moved together on a month-to-month basis but with other measures also pointing to a near term softening expect the ISM to have fallen to 60.7 from 61.7.

Today’s speaker schedule is relatively light. In the US, Fed Vice Chair Quarles will talk about Libor transition, while ECB President Lagarde will address a conference this afternoon. Early Wednesday morning the New Zealand central bank will issue its latest monetary policy update. It is widely expected to raise policy interest rates by 25 basis points to 0.50%. Concerns over building inflationary pressures and an overheating housing market are likely to be cited. The policy move was originally expected in August but delayed by a pickup in Covid infections.

(Hedging effect can often draw spot toward strikes pre expiry if nearby)

USDJPY - 112.50 600m. 112.00 845m. 110.80/111.00 1.18bn (762m P).
EURUSD - 1.1790/1.1800 745m. 1.1750 415m. 1.1730 716m. 1.1620/30 514m. 1.1600 505m.
AUDUSD - 0.7440/50 1.12bn (697m C).
AUDNZD - 1.0410 2.09bn (1.41bn P).
USDCAD - 1.2800/10 1.13bn (1.07bn C). 1.2670/80 570m. 1.2610/20 2.01bn (1.41bn P). 1.2410/20 476m.
AUDJPY - 80.00 525m.
GBPJPY - 151.90 400m.
USDZAR - 14.10 450m.
USDMXN - 20.00 460m. 19.95 460m.
USDCNH - 6.46 577m.

EURUSD Bias: Bearish below 1.17 Bullish above

GBPUSD Bias: Bearish below 1.36 Bullish above.

USDJPY Bias: Bullish above 109 Bearish below

AUDUSD Bias: Bearish below 0.75 Bullish above

Moves lower in Asia – muted impact from RBA decision
AUD/USD opened +0.28% at 0.7288 after USD broadly eased Monday
After trading to 0.7293, it came under pressure as equity markets swooned...
AUD/USD traded down to 0.7262 before basing and bouncing to 0.7278
It was around 0.7275 when the RBA decided to keep policy unchanged as expected
RBA was optimistic economy would bounce back, but said wage growth was retrained
AUD/USD eased to 0.7265 and remains offered into the afternoon
Support is at the 10-day MA at 0.7254 and break eases upward pressure
Resistance is at 0.7310/20 where daily highs and 55-day MA converge