Asian equity market is mixed this morning with Chinese indices down but most other markets higher. US President Trump has said that a Covid-19 vaccine may be weeks away. The WTO has ruled that some US tariffs on imports from China broke its trade rules. Meanwhile, TikTok is reported to be set to become a standalone US company in order to satisfy White House concerns.
Just released data for UK inflation showed a big but less-than-expected drop in annual CPI inflation in August. The annual rate fell to 0.2% down from 1% in July primarily due to the impacts of the temporary reduction in VAT in the hospitality sector and the ‘eat out to help out’ scheme. Inflation is likely to pick up modestly in subsequent months as the impact of these initiatives start to fall out but it may stay below the government’s 2.0% target for many months. The rest of today’s UK calendar is light with only the ONS’s July house price inflation measure to be released. That data will be too early to have been impacted by the Chancellor’s temporary reduction in stamp duty. Attention now will move to tomorrow’s Bank of England policy update and Friday’s retail sales release.
The main event for markets today is likely to be the US Federal Reserve’s latest policy update. In a speech late last month, Fed Chair Powell announced some amendments to the Fed’s policy framework. In particular that it will now try to balance past inflation target undershoots by allowing some overshoot before it starts to tighten policy. Effectively that reinforces the message that US interest rates are unlikely to go up for a long period of time. Despite that announcement the US central bank seems unlikely to make any policy changes today. There has been speculation prior to the last few meetings that the Fed may ‘harden’ its policy guidance by formally linking future moves to changes in inflation or unemployment. This is a possibility for today but a number of Fed policymakers have commented that they see no great urgency to make this change. Other policy actions seem very unlikely as Fed speakers have previously questioned the benefits of introducing a yield curve control policy or of moving to negative interest rates. Fed policymakers will update their economic forecasts but these will probably not change significantly.
Ahead of the Fed announcement the US retail sales update for August is expected to post another sizeable rise. Retail spending has rebounded sharply post lockdown and we look for a 0.8% rise for August. However, doubts about the sustainability of the strong pickup persists.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.1825-35 (1.1BLN), 1.1845 (250M), 1.1845-50 (700M)
- USDJPY: 105.00 (836M), 105.15-25 (1.4BLN) , 105.75 (316M) 106.00 (330M), 106.15-25 (800M), 106.45-50 (1.2BLN)
- AUDUSD: 0.7250 (350M), 0.7275-80 (500M), 0.7290-0.7300 (600M)
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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