Daily Market Outlook, January 13, 2021
Asian equity indices were mostly higher and US 10‑year Treasury yields edged lower as markets assessed the latest comments from US Federal Reserve speakers. In contrast to other recent remarks, regional Fed Presidents Bullard and Rosengren pushed back against talk of an early ‘tapering’ of bond purchases. Bullard said that rising yields are an encouraging sign for economic prospects, but the immediate focus is to get through the pandemic first.
US Vice-President Pence has said he will not invoke the 25th amendment to remove President Trump from office. Instead, the US House of Representatives is expected to vote on impeachment proceedings later today.
There are no major UK economic data releases today, with attention instead on Friday’s November GDP figures. In the early hours of Thursday, there is the release of the RICS housing survey, which is an early indicator of activity and prices in the sector. The survey’s house price balance (the net percentage of agents reporting higher prices) was 66% in November, the second highest level for over two decades, boosted by the stamp duty holiday. The consensus forecast is for a slight moderation to 61%. Speculation continues over whether the Bank of England will reduce interest rates below zero. MPC member Tenreyro on Monday reiterated her support for the policy as an option, although Governor Bailey yesterday said that “there are a lot of issues” with negative interest rates.
In the Eurozone, there seems to be significant upside risks to November industrial production forecast, judging from the national figures that have been released. The focus, however, will be on ECB President Lagarde who will participate in an online Q&A at 9am. The ECB expanded its Pandemic Emergency Purchase Programme (PEPP) to €1.85 trillion last month, but noted that downside economic risks were ‘less pronounced’. Since then, however, containment measures in some countries, including Germany, will be in place for longer than had been anticipated due to the new variant of Covid.
Given the rise in US long-term Treasury yields, especially since the start of the year, there will be considerable attention on Fed speakers, which today comprise Fed Governors Brainard and Clarida, and regional Fed Presidents Bullard and Harker. Fed officials have indicated that the rise in yields reflects better economic growth prospects and some have indicated that a ‘tapering’ of bond purchases may even begin late this year or in early 2022. The Fed will also release its Beige Book this evening, which will provide an anecdotal update on economic conditions. Meanwhile, US annual CPI is expected to rise to 1.3% in December on the back of higher energy prices, but it will still be below the Fed's target.
G10 FX Options Expiries for 10AM New York Cut
EUR/USD: 1.2200 (766M), 1.2350 (656M)
USD/JPY: 103.00 (1.4BLN), 103.75 (675M), 104.00 (458M), 104.15 (915M)
GBP/USD: 1.3550 (427M). AUD/USD: 0.7750 (830M)
USD/CAD: 1.2730 (300M), 1.2765 (500M)
Huge EUR/USD strikes Tues 19 Jan - EUR 7-bln between 1.2190-1.2250
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 topside offers through the 1.3700 level with weak stops likely on a move through the 1.3720 area to quickly test through to the 1.3750 area and some limited offers likely and increasing offers through to the 1.3800 area and stronger congestion likely from there on, downside bids light back through the 1.3600 level with weak stop light through the level and light bids through the sentimental levels before stronger bids appear around the 1.3450 level.
USDJPY Bias: Bearish below 104.50 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 0.7700 area and then a little patchy through to 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 0.7780 area likely to be quite strong through to the 0.7820 area before option barriers are likely to be cleared and break out stops join weak stops for a strong move through to the 0.7850 area however, congestion is likely to kick in from there through to the 0.7880 area and increasing into the 79 cents level before the topside opens up for a move towards the 80cents level, downside bids light through the 77 cents area with weak stops likely through the 0.7680 area and opening weakness through to the 76 cents where congestion is likely to be waiting to slow any descent, stronger bids through to the 0.7550 likely to be limiting
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