Daily Market Outlook, December 1, 2020

Risk appetite turned positive during the Asian session, supported by vaccine optimism, including Moderna’s application for emergency authorisation in the US and Europe. China’s November Caixin manufacturing PMI also beat expectations, rising to a 10-year high of 54.9 from 53.6. The RBA, meanwhile, kept its cash rate and 3-year yield target unchanged at 0.1%. In the UK, Nationwide reported house prices rising 6.5% in November compared with a year ago, the highest since 2015.

This morning’s UK November manufacturing PMI is a final reading. The preliminary ‘flash’ estimate surprised on the upside, rising to 55.2, boosted by activity, including stockpiling and the delivery of orders, before the Brexit transition period ends on 31st December. Look for a modest upward revision in the final print to 55.5. Eurozone manufacturing PMI edged lower to 53.6 in November, according to the flash estimate, but it remains the bright spot relative to contraction in services activity. It was particularly strong in Germany (57.9), although French manufacturing PMI fell to 49.1. Today’s final release is expected to be unrevised and we will also have details of other Eurozone countries. The flash estimate of Eurozone November CPI inflation is expected to remain in negative territory. Look for a slight rise in headline CPI to -0.2%y/y, but yesterday’s national releases, most notably from Germany, point to downside risks and it may instead remain at -0.3%y/y. The ECB expects inflation to remain negative through to early next year, longer than previously foreseen.

Ahead of next week’s ECB policy decision, with more stimulus widely expected to be announced, President Lagarde will take part in a keynote conversation, which will include discussion of the path to recovery for the US and Europe.

In the US, the final manufacturing PMI is expected to be unrevised at 56.7. The separate ISM manufacturing survey is also expected to continue to show robust activity. Expect the headline index to edge down to 58.0 in November from 59.3 in October.

Fed Chair Powell and Treasury Secretary Mnuchin will testify to Congress about the effectiveness of policies designed to offset the economic impact of Covid-19. The transcript of Powell’s testimony has already been released. Notably that said “recent vaccine news is very positive for the medium term but there are significant challenges and uncertainties on vaccine logistics, timing, and efficacy”.

Today’s Options Expiries for 10AM New York Cut

  • EURUSD: 1.1900 (509M), 1.1950 (642M), 1.2000-10 (1BLN)
  • USDJPY: 103.00 (504M), 104.85-00 (1BLN)
  • GBPUSD: 1.3215-25 (500M)
  • AUDUSD: 0.7300 (215M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.1820 targeting 1.2120

EURUSD From a technical and trading perspective, as 1.1820 acts a support look for a retest of cycle highs at 1.20 anticipate a profit taking pullback on the initial test, while 1.1820 is defended then look for price to test the wave 5 upside objective at 1.2120

Flow reports suggest strong offers through the 1.1980 level and likely strong option interest in the area before weak stops and possible break out stops lining up above the figure level possibly around the 1.2020 area and opening the 1.2050 area depending on the balance of option interest, steady offers on the approach to the 1.2100 level with offers likely to continue through to the 1.2120 area but possibly limited stop interest. Downside bids light through the 1.1800 area with weak stops on a dip through the 1.1780 area and opening the market for a renewed challenge of the 1.1700 area with light support from there.

GBPUSD Bias: Bullish above 1.3150 targeting 1.3480

GBPUSD From a technical and trading perspective, as 1.3150 supports look for a test of prior cycle highs at 1.3480, from here expect a profit taking pullback as 1.31 supports then prices can extend higher to test wave 5 upside objectives to 1.3910/80 area

Flow reports suggest offers into the 1.3400 level with weak stops likely through the 1.3420 area before running into stronger offers from the 1.3440-50 area, a break here is likely to see stronger stops appearing and the market testing to the 1.3500 with stronger offers again reappearing however, a strong push through the level will allow the market over time to test to the 1.40-43 area, downside bids light through the 1.3300 area and weak stops likely to appear with limited congestion through to the 1.3200 level with again limited bids and stronger congestion on the move starting to appear to match off with any weak stops on a run to the 1.3150 and stronger bids.

USDJPY Bias: Bearish below 105 targeting 101.20

USDJPY From a technical and trading perspective,near term short covering to challenge offers to 105 descending trendline resistance, as this area contains upside attempts look for the next leg lower to target year to date lows at 101.20

Flow reports suggest congested through to the 104.80 level where offers are likely to be a little stronger with weak stops on a move through the 105.20 level before further offers into the 105.50 area and weakness through to the 106.00. downside Bids into the 103.50 level increasing on move through the 103.00 area with the stops likely to increase through 102.80, topside offers likely to increase through to the 106.00 area with weak stops through the 106.20 area and increasing congestion on a push above the 106.50 level and into the 107.00.

AUDUSD Bias: Bearish below .7230 bullish above targeting .7700

AUDUSD From a technical and trading perspective, as .7240/20 now acts as support look for a retest of offers and stops above .7400 from here anticipate a profit taking pullback towards .7200 again before price attempts to extend higher again to target wave 5 upside objective towards .7700

Flow reports suggest downside bids cleared through to the 0.7260 level yesterday but reforming with stronger bids likely through to the 0.7240 area, a move through the level is likely to see limited bids into the 0.7200 area with weak stops appearing on a move through the 0.7180 area opening a deeper move over several days to the 70 cents level. Topside offers through the 0.7350 area are likely to continue to be strong with increasing offers beyond the 0.7380 area through to the 0.7410-20 level before stops appear however, offers around the 0.7450 area are likely to increase beyond the level.

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