Daily Market Outlook, October 6th, 2021

Overnight Headlines

  • Democratic Lawmakers Insist They Won't Back Down On Debt Ceiling
  • Biden Had Productive Discussion With Democrats On Spending Bills
  • Biden And China's Xi Agree To Abide By The Taiwan Agreement
  • US Suspends Authority To Ship Nuclear Materials To China's CGN
  • German Political Parties Edge Toward Coalition Decision After Talks
  • UK PM To Reveal ‘National Living Wage’ Rise In A Few Weeks
  • UK Businesses Face ‘Historic’ Price Jumps Just As Growth Slows
  • Kuroda: Japan's Labour Practices Keep Wage Pressures Under Control
  • RBNZ Raises Rates To Tame Inflation And Signals More To Come
  • Australia Banking Watchdog Tightens Home Loan Requirements
  • US Dollar Firm Ahead Of Payrolls Report; Kiwi Shrugs Off Rate Hike
  • US Oil Prices Rises To Highest Since 2014 Amid Global Energy Crunch
  • Asian Equity Markets Slip As Inflation, Default Compound Virus Worries

The Day Ahead

  • At the party conference today, UK PM Johnson is expected to reject a return to high levels of immigration, and instead urge businesses to invest towards a “high-wage, high-skill, high-productivity economy”, according to reports. Data wise, the UK construction PMI and Eurozone retail sales are likely to attract only limited attention in the markets this morning.
  • Official UK construction data point to falling output in four months to July, with supply constraints in materials and labour likely affecting the ability to meet demand. In contrast, the construction PMI survey has been rather more upbeat, rising to as high as 66.3 in June before dropping in the following two months. The index still stood at 55.2 in August, well into expansion territory (above 50). For today’s September print, look for a small rise to 55.5, although the market consensus forecast is for another decline to 54.0.
  • In the Eurozone, expect the volume of retail sales in August to have increased by 0.8%m/m after the 2.3%m/m decline in July. That would leave it about 3.5% above its February 2020 (pre-pandemic) level. Eurozone consumer confidence also unexpectedly improved in September. Tomorrow morning’s German industrial production figures for August at 7am will also be watched. Eurozone GDP growth is expected to remain strong in Q3, with something similar to the 2.2%q/q rise in Q2 likely, despite supply bottlenecks and the ongoing pandemic.
  • The main focus today is the US ADP employment data, which will be watched ahead of Friday’s official labour market report. The ADP estimate is not always a good predictor of the official figures, but is eyed nonetheless as a potential gauge of risks to Friday’s outcome. Look for a rise of 480k in today’s ADP private payrolls, a little above the consensus forecast for 430k. The broader picture is that Fed Chair Powell seems to have set the bar low for tapering to start this year, with a go-ahead likely even with moderate employment growth in September.

G10 FX Options Expiries for 10AM New York Cut

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

  • USDJPY - 109.80/110.00 716m. 109.50 2.10bn (1.51bn P). 108.20 910m.
  • EURUSD - 1.1860/70 453m. 1.1720/30 671m. 1.1700 482m. 1.1600/20 1.00bn (649m C).
  • GBPUSD - 1.3830/50 804m.
  • AUDUSD - 0.7320/30 736m. 0.7300/10 1.00bn (C). 0.7200 549m.
  • NZDUSD - 0.7000 2.21bn (1.76bn C).
  • USDCAD - 1.2730/40 1.00bn (515m P). 1.2710/20 1.04bn (975m C). 1.2600 958m. 1.2550/60 2.09bn (1.23bn P). 1.2520/30 1.19bn
  • (832m P). 1.2500/10 503m. 1.2430/50 978m.

Technical & Trade Views

EURUSD Bias: Bearish below 1.17 Bullish above

  • Narrow range as sellers at 1.1600 cap for now
  • EUR/USD opened 0.20% lower at 1.1597 and traded in a 1.1588/1.1600 range
  • Heading into the afternoon it is trading around 1.1595
  • Asian equity markets fell despite the positive lead from Wall Street
  • EUR/USD support is at a double-bottom formed at 1.1560/65
  • Resistance is at the 10-day MA at 1.1642 and break eases downward pressure
  • EUR/USD trending lower with the 5, 10 and 21-day MAs in a bearish alignment
  • Range trading likely ahead of US non-farm payrolls barring any surprises

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • Soft toward the base of a 1.3612-1.3630 range with only occasional interest
  • CIPS/Markit PMI:Construction all activity - leads UK data - poll 54
  • Johnson to return to election agenda amid COVID-19/Brexit chaos
  • Charts; momentum studies, 5, 10 & 21 daily moving averages conflict
  • 21 day Bollinger bands slide - bias remains lower while 1.3681 21 DMA caps
  • Sustained 1.3681 break would target a test of the falling 1.3921 upper Bolli
  • Tuesday's 1.3599 NY low then 1.3586 Asian base are initial supports

USDJPY Bias: Bullish above 109 Bearish below

  • USD/JPY up a small leg, Asia 111.46-65 EBS, remains better bid
  • Tokyo fix and Japanese investment demand still, especially on dips
  • Offers eyed towards 112.00, above though - exporters, profit-takers
  • Few large nearby option expiries today, tom 111.00-50 total $2 bln
  • Higher US yields supportive, Treasury 10s up small leg too, @1.548%
  • Nikkei off another 1% to @27,544, Kishida regime start not auspicious?
  • Crosses steady, most buoyant, EUR/JPY 129.28-45, GBP/JPY 151.77-152.14

AUDUSD Bias: Bearish below 0.75 Bullish above

  • Dragged lower by slumping stocks and NZD weakness
  • AUD/USD opened flat at 0.7290 as buoyant Wall Street offset higher US yields
  • After trading at 0.7291 th AUD/USD started leaking lower
  • Weak equities weighed, as E-minis eased 0.45% and AXJ index fell 0.65%
  • NZD/USD fell despite a hawkish hike by the RBNZ and that too weighed on AUD
  • AUD/USD fell to 0.7262 and is trading around 0.7265 into the afternoon
  • Support is at a double-bottom at 0.7250 and break targets 0.7170
  • Resistance is at 0.7315/20 where the 55-day MA and daily tops converge
  • AUD/USD will likely remain heavy while risk assets remain volatile