Daily Market Outlook, December 15, 2020

Asian equity markets are mostly down this morning as news of new lockdowns in Europe raised concerns about the economic impact of Covid-19. In China, November industrial production was up 7.0% year on year and retail sales up 5%, both grew in line with expectations.

The UK government yesterday moved London and some other parts of the South East of England to the highest level of regional restrictions. Germany and the Netherlands also announced new measures. New York Governor Cuomo warned that New York may see a second full lockdown. Meanwhile, as EU-UK trade talks continue, the EU’s chief negotiator said that he still believes a deal is possible.

The UK labour market report for the three months to October showed a smaller-than-expected fall in employment of 143k and the unemployment rate rose to 4.9% from 4.8% in October. That still leaves unemployment well below levels in the Eurozone and the US but a further rise is expected in coming months despite the support to the labour market that is being provided by the government’s furlough scheme.

In the US, industrial production for November and the New York Federal Reserve manufacturing survey for December will provide updates on the factory sector. Concerns are growing that US economic growth is slowing in the wake of a sharp rise in Covid-19 cases heading into year end. However, factory activity, as it is in many other economies, seems to be holding up rather better than services as it is less directly impacted by social distancing.

Today’s data for industrial production is expected to show a slowdown in growth in November to 0.3% compared to the 1.1% rise seen in October. In contrast, the Fed Empire State survey is forecast to have rebounded in December after a sharper-than-expected November deceleration, which was out of step with other surveys.

Early Wednesday, November UK CPI data are likely to show annual inflation down to 0.6% from 0.7% in October. The ‘core’ rate (excluding food and energy prices) is also predicted to slip to 1.4% from 1.5%. If confirmed, that will be the third successive month that headline inflation has been more than 1% point below the 2.0% target. It means that Bank of England Governor Bailey will need to write a letter to the Chancellor of the Exchequer explaining what action he intends to take. However, as the BoE’s previously published forecasts suggests that it was already expecting something close to that outturn the news will not necessarily point to any new policy moves at Thursday’s update.

Today’s Options Expiries for 10AM New York Cut

  • EUR/USD: 1.2000 (1.2BLN), 1.2100 (1.1BLN), 1.2135 (548M), 1.2175 (1BLN)
  • GBP/USD: 1.3300 (260M)
  • AUD/USD: 0.7550 (250M), 0.7600 (430M)
  • USD/JPY: 102.90 (501M), 104.00 (559M), 104.50-55 (1BLN), 104.00 (400M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.20 targeting 1.23

EURUSD From a technical and trading perspective, 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 1.2080 area before weak stops appear for a chance at a quick move through to the 1.2060 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 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: 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 strong offers on the move into the 76 cents area with likely weak stops in the usual 0.7620-30 area however, congestive offers likely to continue through to the 0.7750 areas with sentimental areas likely to be very strong, downside bids light back through the 75 cents area with weak stops on a dip through the 0.7480 area and the market then opening through to the 74 cents with very light bids.

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