Daily Market Outlook, September 1, 2020

Daily Market Outlook, September 1, 2020

Daily Market Outlook, September 1, 2020 

Chinese Caixin manufacturing PMI beat expectations, rising to 53.1 in August from 52.8 against consensus forecasts for a small decline. Still, Asian equity market trades mixed following the broad retreat in US markets, with the exception of technology stocks. In Australia, the RBA kept interest rates and its 3-year yield target unchanged at 0.25% as expected. Separately, Germany is reportedly expected to revise its economic growth forecast today to show a smaller contraction in 2020 than the 6.3% fall previously predicted. 

A key question is whether, partly as a result of renewed rises in coronavirus cases, the recovery in Eurozone economic activity may be starting to falter. Evidence of that came in particular from last week’s August ‘flash’ services PMI release, which fell back towards the key 50 level. The picture was more mixed for manufacturing, with the German PMI edging higher for a fourth consecutive month, but the French index surprisingly fell back below 50, signalling contraction. Today’s final manufacturing PMIs for the Eurozone will include the August breakdown for Italy and Spain, among others, for the first time. For the single currency area as a whole, it is expected to reaffirm the flash estimate of 51.7, which was marginally lower than July’s 51.8. 

The final August UK manufacturing PMI is also released later this morning. It is expected to be unrevised at 55.3 which, as the chart shows, suggests activity in the sector is rebounding more firmly than in the Eurozone. Also due in the UK is the release of Bank of England money figures, including mortgage approvals which are expected to show recovery in housing activity. Eurozone unemployment and ‘flash’ CPI inflation figures are also due. Expect the July unemployment rate to rise to 8.0% from 7.8%. Look for August headline CPI to drop to 0.1%y/y with the risk it could be lower, down from 0.4%y/y in July. The principal driver is the reversal of last month’s jump higher in clothing and footwear price inflation which was a result of less discounting than usual for the time of year. 

The US focus today will be on the ISM manufacturing survey, which should post a marginal rise to 54.3 in August from 54.2. Construction spending is also forecast to have risen by 1.0% in July, likely reflecting the housing recovery. Central bank speakers include the Fed’s Brainard – potentially interesting following the review of the policy framework announced last week – and the ECB’s Chief Economist Lane.

The moderation in overall USD shorting activity seen last week did not last too long; this week’s CFTC sentiment report shows aggregate USD short positioning, reflected by the total net positions of the major currencies we cover in this report rising to new high of just over USD34bn, a gain of USD2.1bn and a new record.  Risk and exposure is heavily concentrated in the EUR contract, however. Net EUR longs rose USD1.9bn this week, accounting for the vast majority of the overall sentiment shift against the USD. Net EUR longs now account for 92% of all the open (net) positions reflected in the table below (ex-gold). This week, the positioning shift reflected gross short covering rather than an increase in gross long positions, which are little changed relative to the start of August.

Today’s Options Expiries for 10AM New York Cut (notable size in bold)

  • EURUSD: 1.1895 (571M), 1.1900 (569M), 1.1950 (981M), 1.2000 (834M)
  • USDJPY: 105.00 (1.1BLN), 105.50 (600M), 106.00 (846M), 106.60 (511M), 106.75 (460M)
  • GBPUSD: 1.3310 (280M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.17 targeting 1.20 

EURUSD From a technical and trading perspective, the breach of previous cycle highs at 1.1964 has encourage some near term profit taking, as 1.19 acts as support lok for a test of offers and stops above 1.20 before a more meaningful correction to retest 1.1850

Screenshot 2020 09 01 at 08.41.05

GBPUSD Bias: Bullish above 1.32 targeting 1.35

GBPUSD From a technical and trading perspective, as price sustains trade above 1.3250 look for a test of the primary trendline resistance sighted towards 1.35. Only a closing breach of 1.32 would concert the bullish thesis opening a retest of 1.3050 from above.

Screenshot 2020 09 01 at 08.31.59

USDJPY Bias: Bearish below 106.50 Bullish above

USDJPY From a technical and trading perspective, as 106.50 acts as resistance look for another test of  support at 105.50 failure to find sufficient bids here will expose 104.18 again. 

Screenshot 2020 09 01 at 08.34.07

AUDUSD Bias: Bullish above .7350 targeting .7500

AUDUSD From a technical and trading perspective, as .7350 now acts as support look for a test of psychological .7500. Only a daily closing breach of .7250 would concern the bullish thesis opening a retest of .7100

Screenshot 2020 09 01 at 08.37.19

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.

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