Daily Market Outlook, January 12, 2021

Asian equity market performance is mixed after Wall Street fell yesterday for the first time in five sessions. Republican politicians blocked Democratic attempts yesterday to remove President Trump from office but a vote to impeach him may still go ahead in Congress on Wednesday.

PM Johnson warned that Britain was in “a race against time” to roll out vaccines and said there may be tougher restrictions. Meanwhile, Chancellor Sunak said the economy is going to get worse before it gets better. The British Retail Consortium’s measure of retail sales rose 4.8% year on year in December after 7.7% in November.

The rest of today’s data calendar is light with nothing of note in the UK or the Eurozone. In the US the NFIB small business survey for December will provide a timely update on an important part of the economy particularly as many small businesses are coming under renewed pressure as a result of the increase in Covid-19 cases. The headline reading is expected to have slipped from November. The JOLTS survey of labour market turnover will also be released. However, as it is for November and so a month behind last Friday’s employment release which showed an unexpected decline, it will probably be seen as out of date.

Ben Broadbent, one of the members of the Bank of England’s Monetary Policy Committee (MPC), will speak this morning. Yesterday external MPC member Silvana Tenreyro said that negative interest rates in other countries had generally had a positive impact on economic developments. Moreover, while confirming that the BoE had not yet completed its feasibility study, which suggests an interest rate cut as early as February is unlikely, she strongly hinted that she might be in favour of such a move.

Tenreyro’s probable support for negative rates was unsurprising as it is consistent with previous comments. In contrast Broadbent has in the past pointed out the downside of such a move and in particular its potential negative impact on the banking sector. As a permanent BoE employee his views may be seen as closer to the official position and so it will be interesting to see whether he has anything new to add today. His assessment of the economic impact of the latest restrictions will also be followed closely.

A number of US Federal Reserve policymakers are also scheduled to speak today. Fed officials, in contrast to their BoE equivalents, have been more willing to rule out a move to negative rates. Consequently, markets are not expecting US rates to drop below zero and indeed longer-term US interest rates have moved up this year. That possibly reflects a combination of hopes that a Covid-19 vaccine will eventually lead to better economic conditions and that President Biden will introduce more fiscal stimulus. With the Fed’s January policy meeting fast approaching, markets will be interested in any comments on these trends.

G10 FX Options Expiries for 10AM New York Cut

EUR/USD: 1.2150 (1.1BLN), 1.2200 (1.4BLN), 1.2230 (632M), 1.2250 (1.4BLN)

GBP/USD: 1.3600 (290M), 1.3700 (288M)

AUD/USD: 0.7650 (508M), 0.7750 (828M)

USD/CAD: 1.2750 (615M)

USD/JPY: 103.00 (519M), 103.20 (565M), 104.00 (1.2BLN)

Source: DTCC

Technical & Trade Views

EURUSD Bias: Bearish below 1.2265 targeting 1.2050

EURUSD From a technical and trading perspective, failure below 1.22 opens a retest of bids to 1.2050, only a close back through 1.2265 would suggest a false downside break

Flow reports suggest topside offers light through the 1.2200 area and continuing lightly through to the 1.2250 area where the market starts to thicken a little on the offer and the closer the market moves to the 1.2280 area the stronger the offers, a push through the 1.2300 area will likely see stronger offers building with short term sellers likely joining the queue with weak stops on a strong push through the 1.2320-30 areas opening only to the 1.2350 areas. Downside bids getting stronger the closer the market gets to the 1.2120 area with likely stronger congestion through the area and strong stops on a push through the 1.2080 area with very limited bids to support the market through to the 1.20 handle.

GBPUSD Bias: Bullish above 1.35 targeting 1.39

GBPUSD From a technical and trading perspective, as as 1.35 supports then prices can extend higher to test wave 5 upside objectives to 1.3910/80 area

Flow reports suggest light topside offers into the 1.3550 area and then increasing into the 1.3600 areas with weak stops above the level however, likely to be light and stronger offers building above the 1.3650 area onwards and likely to be through the 1.3700 area. Downside bids light through the 1.3500 level through to the 1.3450 area where stronger bids start to appear

USDJPY Bias: Bearish below 104 targeting 101.20

USDJPY From a technical and trading perspective, as 104.20 contains upside attempts look for the next leg lower to target 101.20

Flow reports suggest topside congestion around the 104.40-60 area and then increasing into the 104.80 level with strong offers through the 105.00 area, Downside bids light through to the 103.00 level before stronger bids start to appear and increase through to the 102.50 area with very little in the way of stops on a dip through with likely increasing bids to the 102.00 areas and likely to see stronger bids continuing from importers

AUDUSD Bias: Bullish above .7600 bullish targeting .8000

AUDUSD From a technical and trading perspective, as .7600 now acts as support, look for target wave 5 upside objective towards .8000. Note .7800 is an interim measured move upside objective that may prompt a profit taking pullback before the uptrend resumes from.7450 trend support

Flow reports suggest light bids into the 0.7660-40 area with stronger bids on a move through to the 0.7620 level with weak stops likely through into the 0.7580 area and the market then congested through sentimental levels. Topside offers into the 0.7750 area likely to slow the market but not stop it and stronger offers then appear on a push through the 0.7780 area through to the 0.7820 area before strong stops appear with option barriers appearing in the area.

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