Daily Market Outlook, December 4, 2020

Asian equity markets are mostly up this morning, and UK and US futures point to those markets opening higher. In the US, President-elect Biden pledged to deliver a Covid-19 vaccine, called for a fiscal stimulus bill to be passed and urged China to play by ‘international rules’. California announced plans to impose stay-at-home orders on a regional basis. Italy also announced some increases in restrictions from 16th December to 6th January. OPEC agreed to gradually ease oil output cuts next year. Pfizer said that it now expects to ship only around half the number of Covid-19 vaccine doses originally planned by the end year due to supply chain issues. Reports suggest that the UK will now receive 800,000 doses this year. The UK government announced new quarantine exemptions for foreign travel to and from England including for business travellers.

UK-EU trade negotiations have been a key focus for markets all week. With the last EU summit of the year due towards the end of next week, it was widely expected that a deal needs to be agreed imminently in order to leave time for sign off. However, reports on progress this week have been decidedly mixed. Early hopes that talks may be advanced enough to move into the ‘tunnel’ signalling a deal was very close, gave way to comments from both sides that the key sticking points (including fishing rights) were yet to be resolved. The mood yesterday seemed more positive with suggestions that a deal may be finalised over the weekend, although one UK government source said that hope was “receding”.

Today’s construction PMI data for November is expected to have slipped to 51 from 53 in October. That would still leave it above the key 50 level that signals expansion, as construction should have been less directly impacted by the latest lockdown in England than many other sectors. So far, November UK PMI has been mixed. The services indicator signalled a decline in activity, albeit less marked than in the spring lockdown, but the manufacturing measure was up from October helped in part by pre-Brexit stock building.

The US labour market report for November will, as usual, be seen as a key bellwether of conditions. Employment growth surprised on the upside in October but nevertheless concerns persist that the labour market recovery from the spring lockdown is stalling. The ADP measure of US private sector employment, released earlier this week, disappointed for the second month in a row and the decline in jobless claims seems to have levelled off. However, neither of those are infallible indicators of the official payrolls data. Look for a 600k rise in employment and another modest downward move in the unemployment rate. That would be a positive surprise, but it is unlikely to alleviate concerns about downside risks for the economy as long as Covid-19 cases continue to rise.

Today’s Options Expiries for 10AM New York Cut

  • EURUSD: 1.2000 (661M), 1.2115 (206M), 1.2200 (390M)
  • USDJPY: 104.00 (3.4BLN), 104.45-50 (1.5BLN), 105.00-10 (1BLN)
  • GBPUSD: 1.3200 (400M), 1.3450 (208M)
  • AUDUSD: 0.7385 (200M)

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 offer increasing through the 1.2180 level and continuing to the 1.2220 level where weak stops are likely to appear however, having broken through the 1.2120 area the congestion only starts to appear once the market reaches for the 1.2250 level and increasing into the bottom of the early 2018 ranges, downside bids light through into the 1.2100 area with weak stops on a break of the 1.2080 area opening a deeper move to the 1.19 handle again, with weak bids on the break through the 1.2000 area

GBPUSD Bias: Bullish above 1.3250 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 topside light offers through to the 1.3500 level and the high from last year round this time, optimism?, a push through the 1.3520 area is likely to see weak stops and the market then opening only to the 1.3550 area where light offers are likely to continue building into the 1.3580-1.3600 area with stronger stops on a move through the level and opening the market for a larger move higher, Downside bids light through the 1.3400 level with weak stops on a move through the level and opening quickly to the 1.3350 with stronger bids starting to accumulate on any move through to the 1.3300 level and stronger stops below the areas.

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 downside bids light through the 74 cents area with weak stops likely on a dip through the 0.7380 areas before congestive bids into the 0.7360-40 level, stronger bids into the 0.7320-00 with weak stops mixed with weak bids through to the 0.7250 area. Topside offers through to the 0.7460 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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