Daily Market Outlook, January 19, 2021

Most Asian equity markets are higher this morning, although Chinese indices are down. In Italy, PM Conti won a confidence vote in the Chamber of Deputies. Meanwhile, an adviser for US President-elect Biden warned that that the new administration does not intend to lift EU travel restrictions.

The UK said that the Covid-19 vaccine rollout is being hampered by ‘lumpy’ manufacturing processes. Despite that, more than 4 million people are reported to have received a first dose of a vaccine. The EU is reported to be planning to tell members that they must vaccine at least 70% of their population by this summer.

The German ZEW survey will provide one of the first indications of Eurozone economic trends in January. Last month’s report was mixed as the current conditions measure dropped to a five-month low, but the expectations rose by more than expected. Expect similar prints this month as the further tightening in lockdown restrictions may lead to a further fall in current conditions, but hopes around the vaccine rollout may again support expectations. As a survey of financial analysts, the ZEW is generally less useful than the PMI data due on Friday, but the expectations component is often a good leading indicator.

Bank of England Chief Economist Andy Haldane will take part in an online conversation with former Guardian editor Alan Rusbridger. The session may produce some insights on economic developments. However, it seems unlikely to offer anything new on the topic of most interest to markets, which is whether the BoE will cut interest rates below zero. Comments last week from Bank of England Governor Bailey, which pointed to the potential downside risks of negative rates, were seen by markets as suggesting that near-term action is unlikely. Nevertheless, a move later in the year is still seen as a possibility. The BoE is expected to report on its discussions with banks on implementation issues next month.

The US Senate is supposed to return from recess today and top of its agenda will be determining the timetable for President Trump’s second impeachment trial. Meanwhile, President–elect Biden has pledged that he will move quickly to repeal some of Trump’s policies by ‘executive order’ which does not need Congressional support. However, his fiscal stimulus package will need to go through Congress, so an important issue will be whether the impeachment process will significantly delay it. Treasury Secretary nominee Janet Yellen will appear before a Senate confirmation hearing today with the package likely to be a key topic.

December UK inflation data will be released early Wednesday. Annual CPI inflation is forecast to have picked up to 0.6% from 0.3% in November. However, that would still leave it more than 1% point below the 2% inflation target.

G10 FX Options Expiries for 10AM New York Cut

Major FX expiry options for today's NY cut

EUR/USD: 1.2000 (1.1BN), 1.2100 (567M), 1.2190 (1.4BN), 1.2200 (2.7BN)

GBP/USD: 1.3535 (361M), 1.3600 (311M), 1.3700 (308M)

USD/JPY: 103.00 (1.4BN), 103.25 (735M), 103.50 (447M), 103.65 (390M), 104.00 (606M), 104.35 (362M)

AUD/USD: 0.7700 (1.2BN)

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. Downside target achieved expect profit taking pullback to test offers at 1.2150/1.22

Flow reports suggest downside bids into the 1.2050 area with increasing bids into the 1.2000 level with weak stops on any move through into the 1.1980 level with break out stops a possibility, Topside offers through the 1.2100 level light with the topside likely to remain weak through to the 1.2180 area before some stiffness appears through to the 1.2200 level with very little in stops until 1.2220 level and weak stops easily absorbed in stronger resistance.

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 into the 1.3700 area and weak stops likely through the level and stronger stops possibly above the 1.3750 area for a quick test to the 1.3800 area and limited congestion running through to the next sentimental area. Downside bids into the 1.3550 area likely to again be strong with interest likely to be holding around the 1.3500 area for the same sort of support, a break below the level is likely to see weak stops opening the downside bids likely through to the 1.3450 level and a weak supportive area with congestion then running to the 1.3400 level.

USDJPY Bias: Bearish below 104.50 targeting 101.20

USDJPY From a technical and trading perspective, as 104.20/50 contains upside attempts look for the next leg lower to target 101.20

Flow reports suggest Light offers through the 104.00 area and increasing a little through to the 104.20 area, weak stops on the move level and light congestion running through to the 104.50 area and increasing offers then through to the 104.80-105.00 level and stronger offers. Downside bids through 103.50 area where stronger bids appear a push through the level and stronger bids then into the 103.00 level and weak stops through the 102.80 areas.

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 through to the 0.7660 area where support stiffens and the bids continue with only a little weakness to the 0.7620 area with strong stops on any dip through the 0.7580 area before stronger bids again appear in the 0.7550 area. Topside offers through the 0.7750 level and then thickening as the market tests towards the 0.7780 area with weak stops on a move through the 0.7820 areas, stops may cause some problems however, congestion is likely through the 0.7850 area and increase again through the 0.7900 areas

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