Daily Market Outlook, April 29, 2021

Fed Chair Powell reiterated that now is not the time to talk about tapering yet and it is likely to be some time before substantial progress is made to achieve the Fed’s goals. However, US equity markets pared initial gains after Powell acknowledged that “some of the asset prices are high” and parts of the market are a “bit frothy”.

The S&P 500 touched a record high during the day but closed down 0.08% with VIX was also lower at 17.28. Apple, Facebook and AMD also reported strong earnings, while Alphabet announced a buyback boost. The UST bonds turned higher with the 10-year yield at 1.61% after Powell reiterated that a taper is not on the cards yet as the recovery remains “uneven and far from complete”. Meanwhile, the ADB upgraded its growth forecast for developing Asia from 6.8% to 7.3% for 2021 and 5.3% in 2022, but trimmed Southeast Asia’s 2021 growth forecast from 5.5% to 4.4% due to a projected decline in Myanmar (-9.8%). Separately, S&P has warned that India’s second Covid wave poses downside risks to GDP which could impede its pace and scale of recovery and will have implications for its sovereign credit rating.

The USD dipped post-FOMC and amid month-end flows, after staying largely supported in Asia and early LDN. Commodity currencies outperformed as a whole, with the oil-linked NOK and CAD gaining the most after another leg higher in the crude complex. The EUR took out the high seen earlier this week, while the USDJPY retreated from the 109.00 handle to close little-changed on the day. Commodity currencies, as a bloc, have outperformed amid the Risk-On tilt, and with the commodity up-cycle resuming. For now, there may still be legs to run, so long as equities continue to hold up (note however the “signs of froth” comment from Powell and Gundlach saying equities overvalued).

CITI: Month-end FX Hedging prelim

The preliminary estimate of month-end FX hedge rebalancing flows points to a greater than average USD selling need this month.

· US equities and bonds have out-performed in April, meaning that foreigners’ needs to hedge gains in US assets will likely dominate this month-end’s rebalancing. Both bond and equity investors are likely to be USD sellers, although equities hedge rebalancing contributes 86% to the signal.

· The signal exceeds 1.5 standard deviations in all crosses except GBP where good performance of UK equities and bonds creates some offsetting GBP selling needs.

· Average signal strength across all USD crosses measures 1.7 standard deviations. Signals of this magnitude have occurred only 5% of the time since 2004.

· There are plenty of data releases and central bank speakers scheduled for Friday, 30 April, albeit most of them fall hours ahead of the 4pm Ldn fix.

G10 FX Options Expiries for 10AM New York Cut

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

Larger FX Option Pipeline

EUR/USD: Apr29 $1.1850(E1.5bln), $1.1875-85(E1.1bln), $1.1890-1.1905(E1.4bln-EUR puts)

USD/JPY: Apr29 Y106.25($1.3bln), Y106.60-70($1.5bln-USD puts), Y106.85-107.00($1.5bln), Y108.45-50($1.2bln-USD puts), Y109.00($1.0bln-USD puts)

EUR/JPY: Apr29 Y129.85-95(E1.1bln-EUR puts)

GBP/USD: May03 $1.3700(Gbp1.3bln)

USD/CHF: Apr29 Chf0.9200($1.1bln-USD puts)

AUD/USD: May04 $0.8000(A$1.1bln)

AUD/JPY: Apr29 Y81.00(A$1.1bln-AUD calls)

AUD/NZD: May04 N$1.0855-65(A$2.0bln-AUD puts)

USD/CAD: Apr29 C$1.2550($1.15bln-USD puts)

USD/MXN: Apr30 Mxn19.50($1.4bln)

USD/ZAR: Apr29 Zar14.20($1.0bln-USD puts)

Technical & Trade Views

EURUSD Bias: Bearish below 1.1990 bullish above

EURUSD From a technical and trading perspective, as 1.1990 supports look for a test of trendline resistance at 1.2125. UPDATE>>Target achieved expect profit taking pullback as 1.2080 supports bulls target a 1.22 test. A close sub 1.2080 would warn of deeper corrective cycle

Flow reports suggest topside congestion through to the 1.2160 level from the highs and then while there maybe some weak stops just beyond stronger offers are likely through the level to the 1.2200 area with weak stops again appearing but very limited and the 1.2250 again seeing the stronger offers through to the 1.2300 level with the market then having the ability to test this year’s highs, downside bids light through to the 1.2000 area and then weak stops on a move through the 1.1920 level opening the market to the 1.1850 area where stronger congestion appears.

GBPUSD Bias: Bullish above 1.39 bearish below

GBPUSD From a technical and trading perspective, as 1.3960 contains upside attempts look for a test of range support towards 1.37. UPDATE>> Through 1.3960 exposes offers and stops above 1.40 again.

Flow reports suggest topside offers into the 1.4000 area and likely weak stops on a push through the 1.4020 level however, light congestion around the sentimental levels 1.4050, 1.4100 area likely to be a little stronger with long time trend line in the area then opening to weak sentimental to the 1.4200 strong offers with break out stops likely through the 1.4250 area.

USDJPY Bias: Bullish above 108 targeting 112

USDJPY From a technical and trading perspective, as 107.50 acts as support there is potential for a test of the pivotal 108.50, through here will open another look at 110. Failure below 107 would be a significant bearish development

Flow reports suggest downside bids into the 107.80 however, a break through the level is likely to see weak stops and breakout stops appearing and the market free to quickly test 107.50 and an old trendline then nothing until closer to the 107.00 area where stronger bids start to appear but the downside opening to Feb levels, Topside offers appearing through the 109.00 level light offers until the 109.40 area is likely to see strong congestion increasing through to the 110.00 level before stronger stops are likely to appear.

AUDUSD Bias: Bearish below .7700 bullish above

AUDUSD From a technical and trading perspective, the closing breach of .7730 has relieved downside pressure opening a move to test offers towards .7820

Flow reports suggest topside offers continue through the 0.7800 area with a break through the 0.7820 area likely to see weak stops and a test towards the sentimental 0.7850 area however, while there maybe some offers in the area the market looks to be fairly open through to the 79 cents level and ultimately ranges from the end of Feb, downside bids light through the 0.7700 level with weak stops likely on a move through the 0.7680 before stronger bids around the 0.7650 area and continuing through to the 0.7600 likely increasing in size, any further moves are likely to see strong support into the 0.7550 to calm the situation.

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