Daily Market Outlook, February 19, 2021

Market risk sentiment looks to be ending the week on a soft note, with equity markets across the Asia Pacific region broadly trading lower this morning. This comes amid the recent rise in US Treasury yields and latest US jobless claims picking up more than expected. US Treasury secretary Janet Yellen has reiterated the need for the US fiscal stimulus package to be big.

In the UK, consumer confidence posted a much sharper increase this month, rising to -23 from -28 previously. Much of the rise was due to improved expectations for the coming 12 months; in particular, confidence around the economic outlook rose to its highest level since last March. The near-term challenges, however, were highlighted by this morning’s UK retail sales report for January. Headline sales fell sharply, -8.8% m/m as the latest lockdown took its toll. The latest lockdown in the UK is now well into its second month and much of the Continent has been shutdown for a similar length of time. Survey data for January suggested that economic activity has probably fallen again in response to those developments. However, the declines were smaller than during the first lockdown and more confined to services industries most exposed to social distancing measures.

February data will undoubtedly again be subdued. For the UK, expect today’s manufacturing PMI to slip to 52.0 from 54.1, while the services PMI is expected to stay below the 50 mark, albeit rise modestly to 43 from 39.5. Overall, that would add up to a second month of weak activity and support expectations of a fall in Q1 UK GDP. More positively, the forward-looking aspects of the report are likely to again show expectations buoyed by positive vaccine developments.

In the Eurozone, expect the manufacturing PMI measure to slip modestly and the services index to rise but remain well below the 50 expansionary level. Overall, the Eurozone data also point to a decline in Q1 GDP. Similar to the UK, there are hopes of a spring rebound although the slow progress of the vaccine rollout does seem to be affecting confidence.

In the US, the PMIs are less-closely followed than the ISM surveys, however, both the manufacturing and services surveys are predicted to stay well above the 50 level signalling expansion. Elsewhere, Fed members Barkin and Rosengren are due to speak. In the UK, focus will be on the publication of a speech by BoE policymaker, Gertjan Vlieghe, which will be delivered on Monday. In previous commentary, Vlieghe has expressed support for additional stimulus to support the UK recovery, including potentially cutting Bank Rate below zero. In light of recent developments, particularly the strong start made to the vaccine rollout campaign in the UK, it will be interesting to see if that remains the case.

G10 FX Options Expiries for 10AM New York Cut

EUR/USD: $1.2000-15(E525mln-EUR puts), $1.2040-50(E496mln-EUR puts)

USD/JPY: Y104.90-105.00($527mln), Y105.40-50($1.1bln)

AUD/USD: $0.7650(A$671mln), $0.7690-00(A$652mln), $0.7900(A$911mln)

USD/CAD: C$1.2720-35($1.3bln-USD puts)

USD/CNY: Cny6.37($1.3bln), Cny6.38($970mln), Cny6.41($777mln), Cny6.45($2.1bln), Cny6.46($640mln), Cny6.50($613mln), Cny6.60($1.3bln)

USD/TRY: Try6.60($950mln), Try7.10($850mln)

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Larger Option Pipeline

EUR/USD: Feb23 $1.2135-55(E2.0bln-EUR puts); Feb24 $1.2090-1.2100(E1.1bln), $1.2170-85(1.1bln-EUR puts)

USD/JPY: Feb24 Y103.70-80($1.6bln), Y105.00(E1.25bln), Y105.65-80($2.6bln), Y107.00-05($1.0bln)

GBP/USD: Feb26 $1.3900(Gbp923mln), $1.4030(Gbp952mln), $1.4060(Gbp889mln)

EUR/GBP: Feb26 Gbp0.8600(E1.0bln), Gbp0.8665-75(E998mln-EUR puts), Gbp0.8750-65(E1.0bln-EUR puts)

AUD/USD: Feb24 $0.7700-15(A$1.2bln), $0.7800(A$1.1bln), $0.7865-75(A$1.4bln); Feb26 $0.7770-80(A$1.2bln), $0.7900(A$2.5bln)

USD/CAD: Feb24 C$1.2690-1.2700($1.1bln); Feb25 C$1.2750-60($1.0bln)

USD/CNY: Feb25 Cny6.7295($1.25bln)

USD/MXN: Feb26 Mxn19.70($1.2bln)

USD/TRY: Feb25 Try7.00($955mln-USD puts), 7.10($1.5bln-USD puts), Try7.25($1.0bln-USD puts)

Technical & Trade Views

EURUSD Bias: Bullish above 1.2050 targeting 1.2350

EURUSD From a technical and trading perspective, the closing breach of 1.21 and the descending trendline is a bullish development opening a retest of prior highs at 1.2350, only a move back through 1.2040 would suggest further consolidation

Flow reports suggest topside offers into the 1.2150 area and then after a brief weak period increasing into the 1.2180-1.2220 level with weak stops above the level and increasing on any push above the 1.2250 level with possible strong offers into the 1.2300 level Downside bids light through to the 1.2080 area and possible weak stops appearing through the level and opening the chance of a test to the 1.2000 level in the short term with stronger bids into the 1.1950.

GBPUSD Bias: Bullish above 1.3750 targeting 1.40

GBPUSD From a technical and trading perspective, look for profit taking pullback to test 1.3750 as support as this level attracts fresh demand bulls will target 1.40 next.

Flow reports suggest topside offers into and likely through the 1.4000 area with option barriers and strong sentimental offers in the area, a push through is likely to see a small squeeze higher through to the 1.4050 area before further congestion is likely to appear again building through to the 1.4100 areas, downside bids light back through the 1.3900 area with weak stops moving up towards the level and opening weakness through to the 1.3850 area before stronger bids start to appear through to the 1.3800 levels.

USDJPY Bias: Bullish above 104.50 targeting 107

USDJPY From a technical and trading perspective, as 104.50 supports there is potential for a further squeeze higher to test offers towards 107. A loss of 103.50 would negate further upside and suggest a resumption of trend

Flow reports suggest topside offers around the 106.50 area and stronger offers through to the 107.00 areas with stronger stops through the level. Downside bids light through to the 105.00 level and weak stops light through the 104.80 area and then stronger bids likely to appear below the 104.50 areas and continuing into the 104.00 level.

AUDUSD Bias: Bullish above .7560 bullish targeting .8000

AUDUSD From a technical and trading perspective, as the major trendline support at .7560 now acts as support, look for target wave 5 upside objective towards .8000. A closing breach of .7730 of the internal descending trendline will encourage the bullish thesis.

Flow reports suggest offers through the 0.7800 area and then likely to see increasing offers through to the 0.7820 area before congestive offers then start kicking in on any move through the area into the 0.7850-60 areas. Downside bids light back through the 77 cents level and weak stops on a dip through the 0.7680 area and limited bids through to the 0.7620 level and increasing through to the 0.7580 level before stops appear.

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