Progressive news around a potential coronavirus vaccine has led to some positivity returning back to the financial market, with almost all major equity indices trading higher on the day in Asia. The CEO of Pfizer said yesterday that an experimental vaccine could be distributed in the US before 2021, while AstraZeneca has resumed clinical trials in the UK. Meanwhile, the UK’s chief Brexit negotiator, David Frost said that the EU has made it clear that there is no guarantee that Britain will be added to their list of approved third countries for food imports.
Amid the resurgence in Covid-19 cases, new rules restricting the gathering of more than six people in England take effect from today. Even before the measures were announced, concerns over the durability of the recovery beyond the current quarter had already been building, leaving the likelihood of further easing measures being announced by the Bank of England, a near certainty. However, while markets don’t expect any major announcements to be forthcoming on Thursday at the conclusion of the September meeting, the BoE is likely to set the stage for further measures being announced later in the year. A readiness to provide additional stimulus is likely to be the key message from the other major central bank meetings this week too, with the US Federal Reserve and Bank of Japan set to deliver their latest musings on Wednesday and Thursday, respectively.
Today’s data calendar is limited to the Eurozone industrial production report for July. Reports from a number of euro area countries have already been published, suggesting that the recovery has continued into Q3, albeit at a slower pace. Today’s release is expected to show industrial production increased by 4.0% in July, down from the 9.1% pace registered in June. The ECB’s Chief Economist, Philip Lane participates in a discussion on the Eurozone economy and ECB policy at a money and finance forum. Speaking last Friday, Mr Lane expressed strong concerns over the dampening effects of a buoyant euro on Eurozone inflation.
Early tomorrow morning, the Office for National Statistics (ONS) publishes the UK labour market report for July. So far, the official UK unemployment data have shown little sign of the malaise seen in other metrics as a result of the furlough scheme and a fall in participation (people not actively seeking work due to lockdown). Expect the unemployment rate to edge up to 4.0% in the three months to July from 3.9% in June.
This week’s snapshot of market positioning and sentiment via the CFTC Commitment of Traders Report shows a moderate reduction on the overall USD short position that speculative traders have amassed in recent weeks but the change is marginal; the aggregate USD short position reflected in the major currencies we cover in this report edged USD239mn lower to a still substantial USD33.2bn. Once again, sentiment shifts were highly concentrated; neutral sentiment and positioning continues to characterize the market’s approach to the high beta currencies—the AUD, NZD and MXN—for the most part. However, the CFTC data has reflected a fairly consistent negative view of the CAD in recent weeks, with bearish sentiment and positioning prevailing since March even as the CAD recovered from its lows. This week, however, CAD sentiment has improved, via a modest reduction in gross shorts and a rise in gross CAD longs—just as the CAD is showing signs of weakening again. Net CAD shorts fell a sizeable USD756mn in the week.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.1820-30 (375M)
- USDJPY: 106.00 (230M), 106.20 (250M), 106.50 (555M), 106.70 (450M)
- AUDUSD: 106.00 (230M), 106.20 (250M), 106.50 (555M), 106.70 (450M)
Technical & Trade Views
EURUSD Bias: Bullish above 1.18 bearish below
EURUSD From a technical and trading perspective,test of 1.1750 trendline attracted fresh bids, as 1.18 now acts as interim support look for a test of offers and stops above 1.1950
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 1.1850 level and beyond cleared by yesterday’s rush high will likely see offers beginning to build around the 1.1900-20 area with very little in the way of stops likely for the moment until testing the 1.1950 area where stronger offers start to appear and continue through to the 1.2000 level and the point where the EU start to make noises again.
GBPUSD Bias: Bearish below 1.3050
GBPUSD From a technical and trading perspective, test of the pivotal primary trendline support at 1.2830/50 stalls downside for now, however as 1.3050 acts as resistance look for renewed downside to target 1.26 next
Flow reports suggest light bids into the 1.2800 area with stronger bids appearing into the long term trend line around the 1.2765 area, with sentimental bids likely just through the area with limited bids then through the 1.2700 level and increasing on any attempt to dip through the level, topside offers light through the 1.2900 level with weak stops on a move through the level opening a return to the 1.3000 level and slightly stronger offers holding in the area.
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 .7220 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.
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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