Daily Market Outlook, December 10, 2020

There was no breakthrough in post-Brexit trade talks and gaps still remained following the face-to-face meeting last night between Boris Johnson and European Commission President Ursula von der Leyen. Nevertheless, negotiations will resume in Brussels today, with a “firm decision” on whether to continue with talks to be taken by Sunday. Asian equity indices traded lower, with a US fiscal stimulus package remaining elusive. Technology stocks fell after reports Facebook will face US antitrust lawsuits.

The ONS reported that the UK economy grew by 0.4%m/m in October, above the consensus forecast for no change and our expectation for contraction. Growth slowed from 1.1% in September and 2.2% in August, and the economy is 8.2% smaller than a year ago. Despite the positive start to the quarter, GDP is set to contract in Q4, particularly as England was in national lockdown in November.

The European Central Bank (ECB) is set to announce additional policy stimulus today. Additional Covid restrictions are weighing on activity, with new projections likely to show the Eurozone economy contracting in the current quarter. And despite vaccine hopes, the forecasts may also show downward revisions to growth and inflation further out. Hence, a key message will be that ECB support for the economy will be maintained for a considerable period of time to come. While official interest rates are expected to be left unchanged, measures to ease credit conditions are likely to revolve around asset purchases and support for bank lending. The ECB is expected to announce an increase to the PEPP (Pandemic Emergency Purchase Programme) by €500bn to €1.85tn and to extend the programme until at least the end of next year. The TLTRO3 programme, which provides cheap loans to banks especially if lending targets are met, is expected to be extended until at the least the end of 2021. The other interesting aspect of today’s meeting is to what extent ECB President Lagarde is able to verbally push back on the euro’s recent appreciation towards $1.22, a level last surpassed in April 2018. The most recent rise in the currency has occurred after the likely cut-off date for the ECB’s new economic projections and, if sustained, would represent a tightening of monetary conditions. That might point to the risk of more policy stimulus today than central forecasts would suggest.

Key US data today include November CPI inflation and the latest weekly jobless claims. Expect headline CPI to decline to 1.1%y/y from 1.2%y/y, while initial claims are predicted to edge higher to 725k, but remain below the four-week average.

Today’s Options Expiries for 10AM New York Cut

  • EURUSD: 1.1900-05(1BLN), 1.2000(572M), 1.2045-60(1.1BLN)
  • USDJPY: 103.50-60 (1.3BLN), 104.00(836M), 104.25-35(898M) 104.90-105.00(1.2BLN), 105.35-40(661M)
  • AUDUSD: 0.7400-05 (1.1BLN), 0.7430(533M), 0.7495-00(771M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.20 targeting 1.23

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 UPDATE target achieved as 1.20 now acts as support bulls target primary ascending trendline resistance to 1.23

Flow reports suggest topside offers light through to the 1.2180 area where offers are likely to be thick to the 1.2220 area and stops appear for possibly a strong breakout if that is possible, downside bids light through the 1.2100 level and some bids into the 1.2080 area before weak stops appear for a chance at a quick move through to the 1.2000 level and stronger stops on any attempt through the 1.1980 areas and a failed topside opening up some further weakness through to the congestion around the 1.1900 areas

GBPUSD Bias: Bullish above 1.3175 targeting 1.39

GBPUSD From a technical and trading perspective, as as 1.3250 supports then prices can extend higher to test wave 5 upside objectives to 1.3910/80 area, failure below 1.3175 opens the pivotal 1.30

Flow reports suggest downside bids light through to the 1.3320-00 area with bids light through the level and weak stops likely on a dip through the level, light congestion through to the 1.3250 area with stronger bids likely on a move to the 1.3200-1.3150 areas. Topside offers light through to the 1.3450 area with some offers starting to form with stronger offers likely through to the 1.3500-20 area and weak stops on a move through

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: Bullish above .7230 bullish 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 stronger bids into the 0.7320-00 with weak stops mixed with weak bids through to the 0.7250 area. Topside offers through the 0.7480 area with increasing offers to the 0.7500 area and congestion beyond the level probably dated (old) however, likely to be in the area and negating much of the weak stops and only sentimental option levels to be concerned with, stronger offers then from the 0.7550 through to 0.7600 area and offers then likely to continue to increase

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