Daily Market Outlook, April 13, 2021

Asian equity market performance is mixed this morning. China’s trade surplus for March was smaller than expected despite a 30.6% annual rise in exports due to a 38.1% surge in imports over the same period. In the UK, the British Retail Consortium’s measure of like-for-like sales was 20.3% higher in March than a year ago, signaling a much faster growth rate after disappointing sales in the first two months of the year.

The just released estimate of February UK GDP posted a rise of 0.4% over the month, slightly below expectations. Construction, manufacturing and services activity rose, but services output growth was weaker than forecast. However, the contraction in January GDP was revised down to 2.2% from 2.9%. Although it seems very likely that growth picked up further in March, GDP for Q1 appears likely to be down by around 2% from Q4 last year. Nevertheless, the acceleration through the quarter shows momentum heading into Q2 when restrictions are scheduled to be eased more significantly.

The data release of most interest today, given concerns about a potential sharp rebound in inflation, is US CPI for March. The CPI is not the Federal Reserve’s preferred inflation measure. That is the consumer expenditure deflator. However, as that will not be out for another couple of weeks, the CPI will provide a timely update.

The annual rate of inflation is forecast to jump to 2.5% in March, from 1.7% in February largely on the back of higher energy prices and base effects relating to this time last year. That would be consistent with a move in the Fed’s preferred measure above its inflation target. However, the ‘core’ rate should rise more modestly, to 1.6% from 1.3% in February, signaling that underlying inflationary pressures are muted.

The Fed has been predicting this acceleration in annual inflation and sees it as temporary and not something that requires a policy response. Today’s Fed speakers are likely to reiterate that view and confirm that the data won’t induce a near-term change in monetary policy.

Meanwhile, in the Eurozone, the Germany ZEW survey will provide one of the first indications of economic trends in April. As it is a measure of the expectations of financial analysts it can sometimes be unreliable but it is timely and the expectation reading has often proved prescient. Both the current conditions and expectations components are forecast to have risen further this month.

US bond yields have moved slightly higher ahead of today’s important US inflation data. UK gilt yields were also slightly up yesterday. There have been some tentative signs in the performance of US and UK bonds over the past two weeks that they are stabilising after their sharp sell-off over recent months, so the reaction to this week’s US data will be particularly interesting. In currency markets, sterling is up against both the US dollar and the euro taking back some of last week’s losses.

G10 FX Options Expiries for 10AM New York Cut

(Hedging effect can often draw spot toward strikes pre expiry if nearby)

EUR/USD: 1.180-05 (0.5bln), 1.1900 (0.46bln), 1.1965-75 (0.5bln)

USD/JPY: 109.50 (0.5bln)

AUD/USD: 0.7595-00 (0.75bln), 0.7630 (0.4bln)

Technical & Trade Views

EURUSD Bias: Bearish below 1.1880 bullish above

EURUSD From a technical and trading perspective, as 1.1880 contains upside corrective moves, bears target a test of 1.16. A close through 1.19 would relieve downside pressure opening a retest of 1.20 offers

Flow reports suggest topside offers into the 1.1920 level again and possible weak stops on a move through to the 1.1930 area and the market then likely to see increasing offers through the 1.1940-60 area and then the 1.1980-1.2000 level with strong stops likely on a move through the 1.2020-30 area. Opening only a limited move higher, downside bids light through to the 1.1820 area with weak stops on a move through to the 1.1780 level with limited bids through to the 1.1700 area and only light congestion through the 1.1750 level.

GBPUSD Bias: Bullish above 1.3910 bearish below

GBPUSD From a technical and trading perspective, as 1.3910 contains upside attempts there is a window to test the downside equality objective at 1.3550. A close through 1.39 would suggest the current correction is complete opening a retest of 1.40 offers

Flow reports suggest topside offers light through the 1.3750 area and then increasing on a move through to the 1.3800 area, weak stops on a move through the level with increasing offers through to the 1.3850 level building towards the 1.3900 area before stronger stops on a move through, downside bids light into the 1.3650 area and then increasing on a move to the 1.3600 area with stronger stops on a dip through but again strong congestion on a move to the 1.3550 level and increasing into the 1.3500 area

USDJPY Bias: Bullish above 109 targeting 112

USDJPY From a technical and trading perspective, as 109.50 continues to attract support bulls will look for a test of 112. A loss of 109.30 opens a retest of bids at 108.50

Flow reports suggest topside light congestion through to the 110.80 level before weak stops then weakness through to the stronger offers around the 111.80 area matching the highs from the beginning of the previous two years at the same period of time, a break of the 112.30 area is likely to see strong stops appearing and the market opening for further push beyond the last couple of years highs. Before running through to the 112.50 area and another set of stronger offers appearing continuing through to the 112.80 level and likely continue seeing strong offers, downside bids light through to the 109.00 area, with weak stops through the 108.80 area likely to run into stronger bids through the 108.40-60 area and then into the 108.20-107.80 before stronger stops appear.

AUDUSD Bias: Bearish below .7700 targeting .7453

AUDUSD From a technical and trading perspective, as 7700 contains upside advances bears will target a test of the downside equality objective at .7453 before trend resumption may develop

Flow reports suggest light offers through the 0.7700 area with weak stops through the level and the market opening to the 78 cents area before stronger offers through to the 0.7840-60 area and then increasing offers onwards through 0.7900, with the offers likely to continue through to the 0.7950 area and likely increasing resistance through to the 0.8000 levels, downside bids into the 76 cents level with strong bids likely through to the 0.7580 area, weak stops are likely to be few and far between with stronger bids likely into the 0.7550 level and likely stronger congestion through to the 0.7500 area.

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