Daily Market Outlook, February 25, 2021

Asian equity markets recovered following the stronger performance on Wall Street, partly helped by reassuring comments on policy accommodation by Fed Chairman Powell. He reiterated that monetary policy will need to continue to support the economic recovery, especially with unemployment remaining elevated. That view was echoed by Fed Vice Chairman Clarida. Risk tone was also supported by positive vaccine news, including the high efficacy of the Pfizer jab in Israel. Earlier this morning, Germany reported a rise in consumer confidence to -12.9 in March from -15.5.

Today sees further Fed speakers, including St Louis Fed President Bullard who is scheduled to talk about the economy and monetary policy. Central banks in the Eurozone and UK have given similar messages to the Fed with regard to monetary policy. In particular, policymakers insist that rising inflation in the next few months due to energy should not be conflated with strengthening domestic inflation pressures. The signal that policy will remain accommodative to support the recovery was broadly reflected in comments by Bank of England Monetary Policy Committee members yesterday testifying to the Treasury Select Committee.

This morning’s Eurozone economic confidence reading is forecast to have edged up to 92.0 in February from 91.5, helped by stronger consumer and industrial confidence on vaccine optimism and hopes for a recovery. That would be considerably above last April’s low but still below the long term average. EU leaders will hold a summit starting today. One of the key topics will be the Covid-19 pandemic and the EU’s vaccine rollout.

Later on in the US, expect Q4 GDP growth to be confirmed at 4.0% (annualised) in the second estimate, although markets see the chance of a slight upward revision to 4.2%. Looking ahead, on balance, the data point to a better near-term growth performance in the US than the UK and Eurozone, partly because restrictions are currently less onerous. Durable goods orders and weekly jobless claims data will also be released today.

Overnight on Friday, the Lloyds Business Barometer will provide an update on UK business confidence for February. Confidence rose sharply in December on the vaccine news, but then edged slightly lower in the New Year on concerns about new variants of the virus. Overall, the vaccine news had outweighed worries about new strains

G10 FX Options Expiries for 10AM New York Cut

EUR/USD: $1.2000(E863mln), $1.2095-1.2115(E906mln), $1.2130-50(E1.3bln)

USD/JPY: Y104.25-30($775mln), Y105.00($623mln), Y105.40-50($551mln), Y106.65-80($718mln)

EUR/GBP: Gbp0.8600(E891mln-EUR puts)

AUD/USD: $0.7910(A$1.3bln), $0.7950(A$503mln)

NZD/USD: $0.7400(N$1.1bln)

USD/CAD: C$1.2624-25($1.0bln), C$1.2750-60($1.0bln)

USD/CNY: Cny6.4685-00($575mln), Cny6.7295($1.25bln)

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

USD/MXN: Mxn20.00($522mln)


Larger Option Pipeline

EUR/USD: Feb26 $1.2175(E1.3bln-EUR puts); Mar01 $1.2200(E1.1bln), $1.2245-55(E1.6bln); Mar02 $1.2045-65(E1.1bln); Mar03 $1.1900(E1.0bln), $1.2000(E1.4bln), $1.2300(E1.0bln)

USD/JPY: Feb26 Y105.80-00($1.2bln); Mar01 Y105.55-57($2.0bln), Y106.20-25($1.5bln), Y106.45($1.65bln); Mar02 Y105.75-80($1.0bln), Y105.90-10($1.7bln); Mar03 Y105.40-60($2.1bln)

GBP/USD: Feb26 $1.3900(Gbp1.3bln), $1.4030(Gbp2.3bln-GBP puts), $1.4060(Gbp1.2bln-GBP puts)

EUR/GBP: Feb26 Gbp0.8600(E1.5bln), Gbp0.8665-75(E1.6bln-EUR puts), Gbp0.8750-65(E1.2bln-EUR puts); Mar03 Gbp0.8600(E1.9bln-EUR puts)

AUD/USD: Feb26 $0.7590-0.7600(A$1.2bln), $0.7770-80(A$1.6bln-AUD puts), $0.7850(A$1.7bln-AUD puts), $0.7900(A$5.2bln-AUD puts), $0.7975(A$2.2bln-AUD puts)

NZD/USD: Mar01 $0.7350(N$1.6bln-NZD puts)

USD/CAD: Feb26 C$1.2530($1.4bln), C$1.2630($1.45bln); Mar01 C$1.2500($1.25bln)

USD/CNY: Feb26 Cny6.45($1.1bln)

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

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 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, as 1.40 now acts as support bulls will target a test of 1.44 as the next upside objective. Below 1.40 opens a retest of 1.3750 pivotal trend support.

Flow reports suggest topside offers light through to the 1.4250 level with light stops quickly reappearing above the 1.4200 level but possibly matched through to the sentimental level, congestion through to the 1.4300 level and likely to be a harder task to grind through to the 1.44 levels if the M&A action is over with, downside bids light through to the 1.4100 level although the further into the day we go the more the bids will move up, a dip through the 1.4100 level is likely to see some weak stops and the market opening to the 1.4050/1.4000 level with possibly stronger bids into the lower end however, a move through to those levels will likely undermine the market opening a deeper move with a lack of buying following through the past weeks run

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 weak offers through to the 0.7950 area stronger offers kick in with possible option barriers into the strong sentimental 80 cents level and strong stops on a move through to likely challenge the 0.8050 level quickly, downside bids light through the 79 cents level with weak stops opening a chance of a deeper run as people are squeezed with better bids likely on any move into the 0.7800 areas.

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