Daily Market Outlook, September 4, 2020
Asian equity market is a sea of red following the sell-off in Europe and the US yesterday. The technology-focused US Nasdaq index fell 5%, while Japan’s Nikkei was down 1.3%. Futures point to further declines at the European open.
There were notable comments from the Fed’s Evans and Mester. Evans warned that partisan politics and a lack of fiscal action present a “very significant downside risk to the economy”. Both he and Mester appeared to play down the need to introduce explicit forward guidance in the near term. Earlier this morning, German factory orders in July increased for a third straight month, although by less than forecast at 2.8%.
UK construction PMI data for August is likely to match the readings for manufacturing and services showing a further rise in activity from July. A small rise from July’s 58.1 is expected. Anecdotal reports point to an ongoing strong bounce in construction, which may have been further boosted by the move on stamp duty. Less positively, the employment subcomponent may provide the same warning of potential future declines seen in manufacturing and services reports.
The key focus today is the US labour market report. Expect employment growth in August to have slowed to 1,425k from 1,763k in July, but the unemployment rate to fall to 9.8% from 10.2%. Earlier this week saw the ADP report a smaller-than expected rise in private sector jobs of 428k, less than half the consensus forecast. That may pose downside risks for today’s official payrolls, although the two series often do not move lockstep. Initial jobless claims, on the other hand, fell more than expected to 881k, although a new seasonal adjustment method made comparisons to past data more difficult. Also, a softening in ISM services yesterday to 56.9 from 58.1 show that, while the recovery remains on track, sentiment has softened slightly from July.
Bank of England MPC member Saunders will give a speech today entitled “The Economy and Covid-19: Looking Back and Looking Forward”. The ECB’s Villeroy and Lane will also appear at scheduled events.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.1780-90 (2.4BLN), 1.1795-1.1800 (1.1BLN), 1.1810 (260M) 1.1830 (240M), 1.1850 (650M), 1.1865-75 (1.5BLN), 1.1900-10 (3.5BLN) 1.1935-50 (1.5BLN), 1.2000 (3BLN)
- USDJPY: 05.55 (500M), 105.75 (365M), 105.90 (255M), 106.00 (1.3BLN) 106.35 (330M), 106.50-60 (1.3BLN), 106.65 (1BLN), 106.70-80 (1BLN)
- GBPUSD: 1.3100 (261M), 1.3350 (270M)
Technical & Trade Views
EURUSD Bias: Bearish below 1.1950 targeting 1.1750
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 UPDATE target achieved anticipated profit taking pullback underway, as 1.1950 acts as resistance look for a test of 1.18 UPDATE 1.18 test underway, flow reports suggest congestion starts to appear through this level and stronger bids appearing could see price retest 1.1900/50 before reversing to test pivotal 1.1750/00 UPDATE 10-billion option expiries between 1.1780-1.1910 may help to define today’s range resistance and support ahead of the NY cut as related hedging flows can typically limit ranges – especially when this big.
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. UPDATE as 1.34 acts as near term resistance look for a test of pivotal ascending trendline support to 1.32. Flow reports suggest the push through 1.33 does see some limited congestion down through the 1.3250-00 area however, it’s not until the 1.3150-00 sees stronger bids.
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 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 .7350 targeting .7500, Bearish below .7250
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 UPDATE breach of .7300 warns of potential near term local high in place and would set a test of pivotal .7250. Flow reports suggest downside bids light through to the 73 level where stronger bids start to appear for any dip through to the 0.7200 level and possibly stronger bids into 0.7150 UPDATE Flow reports suggest 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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