Daily Market Outlook, September 11, 2020
Risk sentiment was mixed during the Asian trading session, with China and Japanese equities up on the day, but South Korea and the Australia market weaker. Key headlines overnight include no progress in the US Congress on a fiscal stimulus bill, while President Trump indicated no extension to the deadline for the sale of the US arm of TikTok, thus maintaining tensions with China.
EU-UK tensions remained elevated after the UK told the EU that it would not withdraw the Internal Market Bill – the EU has threatened legal action. The EU’s Barnier, meanwhile, said “significant differences” remained after the latest round of negotiations on a new trade agreement ended yesterday in London. It was reported, however, that the UK’s Frost will still travel to Brussels next week for further discussions.
UK July GDP was released earlier this morning. It showed a rise of 6.6%m/m compared with an 8.7% increase in June. The data was marginally below the consensus forecast for 6.7%. Still, it was a robust start to Q3 and the economy is on track for a strong rebound after the drop of more than 20% in Q2. Large increases in output were reported across the broad sectors, including industrial production (5.2%), construction (17.6%) and services (6.1%). The overall GDP level is now about 12% below February (pre-Covid) levels, compared with the trough of 25% in April (see chart).
This week’s main US data release is August CPI inflation, due this afternoon. Look for a rise in the headline measure to 1.1%y/y from 1.0%, but a fall in the core rate to 1.5%y/y from 1.6%. Overall, there is nothing expected that would lead to a major change in Fed policy settings next week, especially as it has shifted to an ‘average inflation targeting’ which allows for overshoots to make up for past undershoots. Yesterday, initial weekly jobless claims did not fall as expected, and instead stayed at 884k, suggesting the labour market recovery may be slowing.
There is a bevy of ECB appearances today, including panel discussions with Executive Board member Schnabel and Chief Economist Lane. President Lagarde is scheduled to participate in a Eurogroup press conference. Yesterday, the ECB left policy unchanged as widely expected, while Ms Lagarde gave a more upbeat assessment of economic prospects than perhaps expected, although risks to the outlook remain tilted to the downside.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.1750-60 (700M), 1.1770-80 (400M), 1.1800-05 (1BLN) 1.1850 (1.1BLN), 1.1900 (901M)
- USDJPY: 105.00 (436M), 106.00 (587M), 106.40-50 (600M), 106.70 (250M)
- AUDUSD: 0.7200 (694M), 0.7265-75 (325M), 0.7300 (257M)
Technical & Trade Views
EURUSD Bias: Bearish below 1.1950 targeting 1.1750
EURUSD From a technical and trading perspective, further consolidation likely look for supply at 1.1950 to contain upside attempts setting up a test of ascending trendline support to 1.1750.
Flow reports suggest downside bids into the 1.1740-60 congested sentimental area with increasing bids into the 1.1720-00 level weak stops on a dip through the 1.1680 area for the prospect of a deeper move through to the 1.1500 level before stronger bids start to appear and all that is available is possible congestive sentimental bids, topside offers light through to the 1.1800 level where some offers are starting to build with increasing congestion through to the 1.1850-1.1900 area with some weak stops above the 1.1920 level but almost certainly running into strong offers from there through to the 1.2000 level.
GBPUSD Bias: Bearish below 1.3350 targeting 1.3050
GBPUSD From a technical and trading perspective, the breach of 1.32 would negate the near term bullish thesis opening a retest of 1.3050 from above. UPDATE target achieved, now look for a test of the pivotal primary trendline support at 1.2830/50
Flow reports suggest downside bids into the 1.2950 area are likely to be strong still and once through to the 1.2900 area medium sized congestion opens up the downside to decent stops and the market then open to the 1.2760 area before decent bids reappear with limited sentimental bids around the 00/50 areas. Topside offers light through to the 1.3050 level with some congestion likely around the level and a push through likely to trigger weak stops for a move through to the weaker congested 1.3100 area and stronger stops above.
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.
Flow reports suggest topside offers remain into the 107.00-20 area with congestion likely to be mixed with weak stops on a break of the level and that congestion likely to continue on any move into the 107.60 area where stronger offers are likely to appear, maybe another round of stops before stronger offers then appearing through to the 108.00 level. Downside bids light through to the 105.50 level where congestion is building then stronger bids likely on any dip through to the 105.20 area and weak stops then putting in an appearance on a dip below the 104.80 level.
AUDUSD Bias: Bullish above .7250 Bearish below
AUDUSD From a technical and trading perspective, as .7250 now acts as support look for a test of psychological .7500. Only a daily closing breach of .7220 would concern the bullish thesis opening a retest of .7100. UPDATE sub .7220 negates the near term bullish thesis, as .7270 now acts as resistance look for a test of .7100 ascending trendline support
Flow reports suggest topside offers light through the 0.7300 level with very light stops on a push through the 0.7320 area and stronger offers starting around the sentimental 0.7340-60 area limited at best, stronger offers start to appear on a move through the 74 cents level and continue through to the 0.7450 area although some weak stops possible, downside bids into the 0.7250 level a little thinner however, once through the 0.7240 level the market is likely to increase in size particularly through the 0.7220 area and weak stops possibly tempered by stronger bids below the 0.7180 level.
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