Daily Market Outlook, January 20, 2021
Risk sentiment was more positive in Asia, partly on US fiscal stimulus hopes, with the incoming Biden administration proposing an additional $1.9tn on top of the $900bn package passed by Congress late last year. Treasury Secretary nominee and former Fed Chair Janet Yellen yesterday urged lawmakers to “act big” on the next fiscal package. She also signalled some hard-line policies on China would continue.
UK December CPI inflation, released earlier this morning, rose slightly more than expected, but it remained below the Bank of England’s 2% target. Headline CPI increased to 0.6% from 0.3%, while core inflation moved up to 1.4% from 1.1%. Later today, BoE Governor Andrew Bailey and Financial Stability Director Alex Brazier will respond to questions from the Bank’s citizens’ panel.
Today’s inauguration will signal the start of Democrat Joe Biden’s Presidency. He has already signalled that a key near-term priority will be to ensure the economy’s rebound from its current pandemic-induced malaise. Biden will want to get new fiscal measures through Congress as quickly as possible. The two election wins in Georgia, which gave the Democrats marginal control of the Senate, have increased the chances of that happening. However, most immediately the Senate now seems likely to be focused on President Trump’s impeachment trial, which may delay other business.
There are central bank policy decisions due today from the Bank of Canada and overnight on Thursday from the Bank of Japan. Neither central bank is expected to change their policy settings. The BoC last month reiterated that a potential rise in interest rates is not expected to happen until “into 2023”. There is even some speculation of a small rate cut from the current 0.25% level. The BoJ, meanwhile, may tweak its economic forecasts, potentially lowering growth for the current fiscal year (ending on 31 March) due to Covid restrictions.
In the Eurozone, the ECB policy decision will be announced tomorrow (again, no change expected). Today’s final reading of December CPI is expected to reaffirm headline inflation remaining negative at ‑0.3%. Inflation may start to move higher in the next few months, but it is expected to remain below the ECB’s goal of ‘below but close to 2%’ for a considerable period.
G10 FX Options Expiries for 10AM New York Cut
EUR/USD: 1.2185-90 (512M), 1.2300 (966M)
GBP/USD: 1.3700 (387M)
AUD/USD: 0.7690-0.7700 (1BLN).
NZD/USD: 0.6900 (913M)
USD/CAD: 1.2500 (900M), 1.2700-15 (1.1BLN), 1.3000 (540M)
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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