Daily Market Outlook, April 30, 2021

Asian equity markets turned lower, purportedly due to Chinese restrictions on tech firms and despite the positive close on Wall Street. China’s official PMIs also missed expectations, with the manufacturing and non-manufacturing indices falling to 51.1and 54.9, respectively. Yesterday, US GDP figures showed a strong gain of 6.4% (annualised) in Q1, with potentially an even stronger outturn anticipated for Q2, while initial jobless claims fell to a new low since the start of the pandemic. The recovery theme is also evident in the UK, with the Lloyds Business Barometer, released earlier this morning, showing the overall confidence index rising 14 points to 29% in April, above the long-term average for the first time in two-and-a-half years.

Eurozone GDP and CPI inflation figures will likely dominate attention this morning. Ahead of Eurozone GDP at 10:00BST, Germany, Italy and Spain will be among countries to report first-quarter growth. France already posted growth of 0.4%q/q earlier this morning, above expectations for a flat print. Expect the Eurozone economy to have contracted by 0.8%q/q, with the decline primarily centred in those areas of the service sector most directly impacted by containment measures. That would be the second consecutive quarterly fall, meaning that the economy was in recession for the second time in twelve months. More positively, though, the April PMIs suggest that GDP will rise in Q2, helped by progress in vaccine deployment and scope for a gradual easing of restrictions.

In terms of Eurozone inflation, look for an increase in headline CPI to 1.6%y/y in April from 1.3% in March. That is expected to be mostly because the sharp monthly fall in energy prices a year ago is not repeated this April. Core inflation, however, remains subdued, expect it to edge down to 0.8% from 0.9%. The Eurozone unemployment rate for March is expected to stay at 8.3%.

In the afternoon session, US personal spending and income figures for March, as well the PCE deflator (the Fed’s preferred inflation measure) will be the main focus. Personal income is forecast to have jumped up by 20% as a result of the stimulus from the American Rescue Plan. Expect spending to have risen by 5.2%, consistent with a 10.7% annualised surge in Q1 reported in yesterday’s GDP release. The PCE deflator is forecast to rise to 2.4% from 1.6% in February, mirroring the sharp rise in CPI inflation. The University of Michigan consumer sentiment index for April could also be revised higher to 87.5 from 86.5 in the final reading, with progress in the vaccine rollout and an improving labour market supporting confidence.

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)

EUR/USD: 1.2030-50 (1.4BLN), 1.2075 (690M), 1.2100 (2.1BLN), 1.2125 (600M), 1.2150 (985M)

USD/CHF: 0.9050 (310M)

GBP/USD: 1.3900 (671M), 1.4000 (560M), 1.4095-1.4100 (410M)

EUR/GBP: 0.8600 (775M), 0.8625 (200M)

AUD/USD: 0.7650 (460M), 0.7775-0.7800 (700M)

NZD/USD: 0.7200 (682M), 0.7300 (397M)

USD/CAD: 1.2335-50 (330M), 1.2400 (1BLN)

USD/JPY: 108.00-20 (900M), 108.50 (838M), 109.25-30 (1.1BLN)

Larger FX Option Pipeline

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

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

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