Daily Market Outlook, January 20, 2021

US equity markets closed at all-time highs and their Asian counterparts are mostly positive, as investors anticipate additional US fiscal stimulus under the new Biden administration and a Democrat-controlled Congress. The positive risk tone is expected to follow through in early European trading. There was little market reaction to the Bank of Japan’s decision to leave policy unchanged, which was widely anticipated.

The CBI industrial trends survey this morning, including more detailed quarterly questions, will give an early read on UK manufacturing sentiment. Yesterday, Bank of England Governor Bailey reiterated his view that the impact of negative interest rates is “much less clear”, suggesting that such a policy move is not imminent. He also said that the economy is adapting to lockdown measures, hence the impact of current restrictions will be “quite pronounced”, but less severe than last spring.

The main focus today is the European Central Bank, although it is expected to leave monetary policy unchanged. Attention will be on the press conference with President Lagarde at 1.30pm. Additional stimulus measures were already announced in December, including an expansion of the Pandemic Emergency Purchase Programme (PEPP) by €500bn to €1.85tn (which is expected to last through Q1 2022) and an extension of cheap funds for banks via TLTRO3. President Lagarde said last week that she felt the ECB’s December projections were “still plausible”, but it will be interesting to see to what extent the view on economic developments has evolved in response to additional Covid restrictions. Germany, for instance, extended lockdown rules until at least 14 February.

There will also be significant focus on US weekly initial jobless claims, given the sharp rise in last week’s figures to 965k, signalling weakening labour market conditions. This week’s data also cover the January payrolls week. Expect a fall in initial claims to 850k, just above the four-week average, although the consensus forecast is for a more moderate decline to 935k. US housing data (starts and permits) and the Philadelphia Fed manufacturing survey will also be released.

In the early hours of Friday, UK GfK consumer confidence is forecast to fall to -29 in January from -26 in December, partly on concerns about the impact of the new variant of the virus, but that would still be above November’s -33 reading. At 7am tomorrow, December retail sales and public finances figures will be released. Retail sales declined in November for the first time since May as the impact of the lockdown was felt. Another drop of around -0.5% is likely to have occurred in December. That will leave sales close to flat for Q4, but that follows a rise of over 18% in Q3.

G10 FX Options Expiries for 10AM New York Cut

EUR/USD: 1.2000 (1.7BLN), 1.2100 (572M)

USD/JPY: 103.25 (940M), 103.50 (900M), 103.65-75 (1.2BLN)

104.00 (816M), 104.25 (595M)

AUD/USD: 0.7750 (721M)

USD/CAD: 1.2550 (612M), 1.2600 (555M), 1.2715 (1.9BLN)

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 psych 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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