Daily Market Outlook, September 9th, 2021

Overnight Headlines

Chinese Stocks Slide As Regulators Ramp Up Pressure On Gaming; Dollar Firm On Cautious Risk Mood, Euro Looks To ECB Decision

Today’s attention will center on the latest European Central Bank (ECB) policy update. The last meeting in July was the first since it adopted a new monetary policy strategy, including a symmetric 2% inflation target with some tolerance above the target. The ECB adjusted its forward guidance on interest rates, in effect raising the hurdle for a first increase. The focus for today’s meeting is expected to be on whether the pace of asset purchases under the Pandemic Emergency Purchase Programme (PEPP) will be scaled back in Q4. It had been raised to about €80bn a month since the start of Q2 (in addition to the ongoing €20bn a month under the regular Asset Purchase Programme), but there is some pressure to rein back some stimulus, especially after inflation jumped up to 3.0% in August while Q2 GDP growth also beat expectations.

Hawkish ECB comments from the heads of some northern European central banks over the past week or so, on their desire to reduce asset purchases have attracted significant market attention, although it is not clear how widely their views are shared. The central view at the ECB will likely be more cautious, with more weight attached to risks relating to the delta variant and indications that global growth may be moderating. The ECB’s new forecasts will upgrade short-term inflation, but the ‘transitory’ argument for medium-term inflation will likely prevail. Overall, therefore, any reduction will likely be limited, with a majority of policymakers probably preferring to maintain purchases under PEPP at a higher pace than in early 2021 when purchases were about €60bn a month.

Meanwhile, with some US Fed officials leading the charge for a September ‘taper’ announcement, today’s speakers are likely to attract interest ahead of the Fed’s ‘blackout’ period ahead of its announcement on 22nd Sept.

Early tomorrow morning, look for a monthly increase of 0.8% in July UK GDP. Services output, covering most of the economy, probably expanded by 0.8%, but potentially a risk of a fall in manufacturing output, affected by supply issues. That monthly pace of GDP growth, if maintained in August and September, would lead to Q3 growth of around 2.5%, not far off the Bank of England’s current projection.

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

EUR/USD: 1.1750 (1BLN), 1.1765-75 (449M), 1.1800-10 (1.1BLN) 1.1870-80 (1.1BLN), 1.1895-1.1900 (1BLN), 1.1905-10 (350M), 1.1925 (400M) 1.1940-55 (1BLN).
USD/CHF: 0.9100 (340M), 0.9140 (270M), 0.9160 (252M).
EUR/CHF: 1.0900 (357M).
USD/CAD: 1.2665 (370M)
GBP/USD: 1.3815-20 (736M), 1.3835-40 (302M), 1.3860-65 (311M) 1.3885 (292M), 1.3900 (221M)
AUD/USD: 0.7350 (397M), 0.7375-80 (1.2BLN), 0.7400 (495M)
USD/JPY: 109.50-65 (1.6BLN), 109.75-80 (789M), 110.00-10 (573M) 110.20-25 (1.1BLN), 110.35-40 (500M), 110.45-50 (1BLN)
AUD/JPY: 79.30 (340M), 81.60 (585M).
GBP/JPY: 152.70 (419M)

EURUSD Bias: Bearish below 1.19 Bullish above

GBPUSD Bias: Bearish below 1.39 Bullish above.

USDJPY Bias: Bullish above 109 Bearish below

AUDUSD Bias: Bearish below 0.75 Bullish above