Asian equity market is mixed but broadly stable after the declines at the end of last week. US-China tensions remained high, but the key news was comments over the weekend which raise the risk of no UK-EU trade agreement being reached. This morning’s media reports that PM Johnson will say later today that both sides should “move on” if there is no agreement by 15 October. It was also reported that the UK government plans new legislation to override parts of the Withdrawal Agreement in case talks fail.
It is a quiet start to the week. The US is closed for Labor Day and there is little else in the calendar apart from the Eurozone Sentix survey which will provide an update on investor sentiment. Earlier this morning, Germany released July industrial production figures which showed a rise of 1.2%, less than expected, and down from somewhat stronger increases of 9.3% in June and 7.4% in May. Figures for Italy, France and Spain are due later in the week.
The main Eurozone focus this week is the ECB policy decision due to be announced on Thursday. No policy change is expected (asset purchases are set to continue into next year), but the ECB’s new economic forecasts and communication will be closely followed.
The British Retail Consortium will release ‘unofficial’ retail sales figures for August in the early hours of tomorrow morning. Retail sales have recovered strongly in recent months as lockdown measures have eased. The main UK focus this week, however, will be official July GDP data due on Friday, expect it to show a strong month-on-month rise, setting up for a strong rebound in Q3, although the outlook beyond that remains highly uncertain, with a number of risks on the horizon.
The aggregate USD short position that has built up over the course of the past 6 months moderated slightly this week. The overall USD short position, reflected in the netted exposures to the major currencies we follow, fell just over USD600mn this week to USD33.4bn. This is still exceptionally large by historic standards, however. As has been the case in recent weeks, the EUR continues to dominate overall positioning. The net EUR long fell USD2.0bn, reflecting some liquidation of gross long EUR positions, as well as a pick-up in gross EUR shorting activity.
The EUR remains by far the largest single currency position on the IMM. The value in these positioning and sentiment data are really to be found in these sorts of situations where extreme positioning (such as we have seen in the EUR) ultimately becomes a contrarian signal for markets. We may be at or close to that sort of inflection point now. While net EUR longs were pared back, speculative accounts boosted exposure to the JPY, lifting net longs USD718mn to take the overall net JPY long to USD3.5bn. This is within the recent range of positioning among speculative accounts that have been (net) bullish on the JPY since March. Net GBP longs increased a smidge this week and net CHF longs were pared slightly but moves here are not significant.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.1790 (193M), 1.1800-10 (2BLN), 1.1875 (336M
- USDJPY: 106.00-15 (1.2BLN), 106.38-40 (366M)
- GBPUSD: 1.3135 (183M)
- AUDUSD 0.7425 (200M)
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 1.1800 area with weak stops likely on a dip through the 1.1780 areas before congestion through the 1.1750 level and stronger bids then putting in an appearance on a move through to the 1.1700 area. Topside offers through the 1.1900 area likely to be weak but then increasing on any push through the 1.1950 area and towards the 1.2000 level in particular.
GBPUSD Bias: Bearish below 1.3350 targeting 1.3050
GBPUSD From a technical and trading perspective, the breach of 1.32 would negates the near term bullish thesis opening a retest of 1.3050 from above.Flow reports suggests the breach of 1.3250 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 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 .7350 targeting .7500, Bearish below .7250
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. 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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