Daily Market Outlook, June 1, 2020 

The United States announced the start of the procedure to revoke the special status treatment of Hong Kong, but no further economic sanctions against China have been taken. President Trump announced that he has initiated procedures for revoking the special status granted to Hong Kong and sanctioned relevant officials in mainland China and Hong Kong who undermine Hong Kong ’s autonomy. "People's Daily" published a commentator's article, saying that Hong Kong affairs are China's internal affairs, and the hegemonic actions of external forces that grossly interfere in China's internal affairs will not succeed, and China will resolutely resist

The continued wave of demonstrations in many major cities  in the United States continues to escalate in protest against the police killing of George Floyd, and some regions have declared a state of emergency. Trump said he is coordinating work with local law enforcement agencies across the country.

The impact of ongoing US-China geopolitical tensions on market sentiment, especially in relation to the latter’s new security law in Hong Kong, will continue to spar with global recovery optimism as economies reopen. However, US President Trump stopping short of announcing specific new sanctions over China on Friday, has left markets optimistic that the ‘phase one’ trade deal between the two may not be abandoned. This has provided a supportive backdrop to markets this morning with all the major equity indices across the AsiaPacific region registering strong gains. This also comes after the ‘unofficial’ Caixin China manufacturing PMI rebounded strongly in May, rising to 50.7 from 49.4, to join the official China PMI measures in recording outturns above the 50-mark, a level consistent with economic expansion. 

For today, final readings for the May manufacturing PMIs in both the UK and Eurozone are expected to confirm the meaningful improvements seen in the flash readings from the April lows. In the UK, expect a modest upward revision from 40.6 to 40.8 based on later returns taking into account the easing in lockdown restrictions. Crucially, however, the headline balances are expected to remain well below the 50 mark that separates expansion from contraction. 

Similarly, in the US, the manufacturing ISM for May is expected to show a recovery from April’s outturn, as many states eased lockdown restrictions during the month. Our forecast is for a rise from 41.5 to 43.8, providing further evidence that the worst of the downturn may be in the past. Meanwhile, overnight, the Reserve Bank of Australia is expected to keep its policy rate unchanged at 0.25%. However, following recent comments from RBA Governor Lowe, the overall assessment of the economic outlook is expected to be less downbeat than at the previous policy meeting.

This week’s CFTC data reflect a reversal of the recent trend that had shown a retreat in aggregate bearish USD positioning—breaking a four-week streak of declines in net shorts. The overall USD short position against the major currencies we track rose by USD1.2bn in the week through Tuesday to USD7.8bn—nearly matching the USD8bn net short two week prior. The vast majority of the week-to-week increase in speculative FX net shorts against the USD was centred on the EUR and JPY, with net longs of these currencies against the greenback rising by USD419mn and USD835mn, respectively. On the flip side, net shorts in the GBP rose by USD262mn to their largest point since early-December as investors continue to turn bearish on Cable amid no-trade-deal Brexit risks.

Today’s Options Expiries for 10AM New York Cut (notable size in bold)

  • EURUSD: 1.1000 (3BLN), 1.1025 (250M), 1.1050 (385M), 1.1065 (500M), 1.1075 (364M), 1.1100 (1.7BLN), 1.1125 (438M)
  • USDJPY: 107.00 (260M), 107.40 (525M), 107.80 (820M), 108.05-10 (1.4BLN), 108.25-30 (1BLN)
  • AUDUSD: 0.6780 (290M), 0.6790 (230M)
  • GBPUSD: 1.2210-20 (900M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.10 targeting 1.1235

From a technical and trading perspective, as 1.10 now acts a s support bulls will target a test of the equality objective at 1.1235, which also represents the monthly R1 and weekly R1, from here expect profit taking for another test of 1.10.

GBPUSD Bias: Bearish below 1.2475 targeting 1.20

GBPUSD From a technical and trading perspective, price looks poised to test symmetry swing resistance sighted at 1.2475, as this area contains the current advance, watch for bearish reversal patterns to set up a final leg of downside correction to test and hold 1.20. From here we could see a more meaningful base develop 

USDJPY Bias: Bearish below 108.50 targeting 1.0465)

USDJPY From a technical and trading perspective, as 1.0850 contains the upside drift, look for a move back through 1.07 to develop downside momentum,however, a topside breach of 108.50 would delay downside objectives opening a retest of range resistance above 109 before lower again

AUDUSD Bias: Bearish below .6800 targeting .6600)

AUDUSD From a technical and trading perspective, price testing offers and stops towards .6800 as this area contains the squeeze higher look for a corrective move back to test ascending trend channel support towards .6600. Sustained price action above .6800 will likely see the grind higher persist opening a test of the psychological bit figure at .7000

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