Asian equity market broadly positive overnight, with stocks in China and Hong Kong paring earlier losses despite US President Trump vowing to reduce economic ties with China. Futures markets point to a positive open for equities in Europe. In the UK, the British Retail Consortium reported a stronger-than-expected rise of 4.7%y/y in August retail sales, up from 4.3% in July.
Bank of England Chief Economist Haldane warned against extending the government’s furlough scheme, saying that it would prevent a “necessary process of adjustment”. He also argued that the recovery is not being given enough credit and that consumers and businesses have been adaptive and resilient.
Today sees the start of another round of formal UK-EU trade talks in London this week. The mood music from both sides have not been entirely positive, with level playing field provisions and fisheries being sticking points. PM Johnson indicated a willingness to leave without a deal, while the UK’s chief Brexit negotiator Frost said more EU realism is needed but also that “there is still time to reach a good agreement”.
An update of Eurozone Q2 GDP is expected to confirm the earlier estimate of a 12.1%q/q contraction. For the first half of the year as a whole, the Eurozone economy shrank by about 15%, with larger declines in France and Italy, and a smaller drop in Germany (see chart). Early indicators for the current quarter have been rather mixed – Eurozone July retail sales fell, while German industrial output rose by less than expected and the PMI survey weakened in August compared with July.
Among the G7, UK GDP fell the most in the first half, but anticipate a strong bounce-back in Q3 (UK July GDP numbers are due on Friday).
The US returns from its Labor Day holiday, but the calendar is quiet. The NFIB small business optimism index was weaker than expected in July, falling to 98.8 from 100.6, the first decline since April. The consensus forecast for today’s August report is a marginal rise to 99.0, essentially little change. The most important US data this week are weekly jobless claims on Thursday and CPI on Friday, ahead of next week’s FOMC meeting.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: .1815 (511M), 1.1850-55 (770M), 1.1870 (590M), 1.1885 (321M) 1.1895 (552M), 1.1900 (1.9BLN)
- USDJPY: 105.20 (670M), 105.45-50 (500M), 106.00 (795M), 106.15 (433M) 106.95-00 (1.6BLN). EUR/JPY: 127.00 (323M)
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 negate the near term bullish thesis opening a retest of 1.3050 from above.
Flow reports suggest topside offers now beginning to build around the 1.3300 level having failed to penetrate the area over the past 24hrs, light offers for the moment increasing through into the 1.3350-1.3400 area with weak stops likely on any break of that topside. Downside bids into the 1.3100 area with weak stops on a move through however stronger bids are likely on any dip through the 1.3050 area and increasing through to the figure level with weak stops through the level mixed with strong 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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