Daily Market Outlook, January 15, 2021

Asian equity markets are lower as markets assess the ease with which President-elect Biden’s plan for a $1.9 trillion fiscal package will be passed by Congress. Potential obstacles include Republican opposition and the Senate’s focus on impeachment proceedings against President Trump. Meanwhile, Federal Reserve Chairman Powell pushed back on discussion about a potential ‘tapering’ of asset purchases, saying that “now is not the time to be talking about exit”.

The Office for National Statistics earlier this morning reported a fall in November UK GDP of 2.6%, the first month-on-month decline since April, although the data was not as weak as expected. England was in a second national lockdown during that month and services output fell by 3.4%. With a rebound (or even a flat) in December, the economy would avoid contraction in Q4 overall. However, with tighter containment measures in the New Year across the UK, a decline in GDP in the first quarter seems likely. The rollout of vaccines offers hope for an eventual move towards some semblance of pre-Covid normality.

The US data focus includes retail sales and the University of Michigan consumer sentiment survey. Industrial production, producer prices and the NY Fed Empire manufacturing survey are also due. Retail sales have fallen in the last two months after a strong summer and early autumn, primarily because of a slide in car sales. There are some tentative signs that they picked up in December, but look for overall sales to be flat.

In addition, concerns about the end-year acceleration in US Covid cases may have caused consumer sentiment to slide in the New Year despite the start of the vaccine rollout. Yesterday saw an unexpected jump in initial unemployment claims to 965k, the highest since August, which signals a further loss of momentum in the labour market. Look for the headline index for consumer sentiment in January to decline to 79.0.

G10 FX Options Expiries for 10AM New York Cut

EUR/USD: 1.20 (750M), 1.21 (777M), 1.2150 (965M), 1.22 (549M), 1.23 (529M)

GBP/USD: 1.3600 (288M), 1.3700 (453M), 1.3750 (210M), 1.3800 (336M)

EUR/GBP: 0.8845-55 (2.1-BLN)

USD/JPY: 103.00 (437M), 103.50 (643M), 104.00 (1BLN), 105.00 (749M)

NB: Tues Jan 18 sees EUR/USD 7-billion between 1.2190-1.225

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 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 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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