Daily Market Outlook, January 26, 2021

Asian equity markets are down this morning reflecting concerns about whether President Biden’s fiscal stimulus package will be able to pass through Congress. Biden said that the US should be able to vaccinate one million people a day within three weeks. Meanwhile, California eased lockdown restrictions as the number of Covid-19 cases and hospitalisations fell.

The EU is reported as planning restrictions on exports of Covid-19 vaccines, including to the UK, as concerns about shortages due to production difficulties mount. The UK health minister said it is difficult to put a timeline on easing lockdown measures. However, media reports suggest that primary schools may reopen after half term if cases continue to fall.

Today’s UK labour market release showed a fall in employment of 88k and a further modest rise in the unemployment rate to 5.0% (from 4.9% previously) in the three months to November. Although the unemployment rate is now at its highest level since August 2016, the rise is still relatively modest given the hit to economic activity from the pandemic. A key reason for that is the government’s furlough scheme, which raises the question on what will happen to unemployment when it ends.

The CBI retail survey for January will provide one of the first indications of whether retail sales have picked up after a disappointing Christmas. According to the official measure, sales only rose modestly in December after a dip in November during the second English lockdown. With the country now back in lockdown, sales may have slipped once again, although spending over the internet will probably have continued to rise.

In the US, the Conference Board’s measure of consumer confidence is forecast to have declined in January. An already released alternative measure of consumer confidence from the University of Michigan was down this month. That was principally due to a decline in current conditions, probably driven by the rise in Covid-19 cases, but expectations also slipped modestly despite the ongoing vaccine rollout. On a more positive note, confidence is still above the lows of last spring. The German consumer confidence measures will be released early tomorrow and is expected to show a negative impact from the latest tightening in restrictions.

The IMF will release an update of its global economic forecast this afternoon. It is likely to confirm that global output fell by a bit less in 2020 than it expected a few months ago although the decline was still very substantial. More pertinent looking forward is whether the start of vaccine rollout will have led it to raise its economic growth forecasts for this year and/or lower its emphasis on downside risks.

This week’s CFTC data reflect a further rise in aggregate USD short positions; the increase was relatively small overall USD456mn, but the boost was enough to take the total bearish position amassed against the USD to a new record of USD35.4bn. Net EUR longs rose by USD997mn, a little more than half the USD1.8bn increase seen last week. Gross EUR shorts are relatively stable and most of the positioning shift is being driven by an increase in gross EUR longs. The net long position of USD24.7bn (the equivalent of 163k contracts) remains below peak bullish sentiment seen at the end of August last year. As has been the case for weeks, positioning changes elsewhere were very mild. Investors added to net longs in the NZD, a small increase of USD76mn on the week and added (by an even smaller degree of USD62mn) to net GBP longs. Net JPY longs,the second largest bull bet reflected in the CFTC data, were reduced very marginally (USD69mn) in the week to total just over USD6bn. Net JPY longs remain close to a four-year high.

G10 FX Options Expiries for 10AM New York Cut

EUR/USD: 1.2100 (727M), 1.2230-50 (625M), 1.2300 (514M)

AUD/USD: 0.7700-15 (873M)

NZD/USD: 0.7225 (235M)

USD/JPY: 102.80 (360M), 105.00 (510M)

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Larger Option Pipeline

EUR/USD: Jan27 $1.2250(E1.45bln); Jan27 $1.2250(E1.45bln)

USD/CHF: Jan29 Chf0.8800($1.3bln-USD puts)

AUD/USD: Jan25 $0.7550(A$2.8bln), $0.7650(A$1.4bln); Jan27 $0.7500(A$1.2bln)

USD/CNY: Jan25 Cny6.57($1.0bln); Jan27 Cny6.42($1.0bln); Jan29 Cny6.50($1.4bln)

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 downside bids light through to the 1.3600 area with some stubborn bids in the area and weak stops likely on a dip through however, 1.3550 area likely to see stronger bids and likely to continue in mixed strength to the 1.3500 area. Topside offers light through the 1.3700 level with offers likely to continue through before stronger offers appear around the 1.3750 area and increasing to the 1.3800 area.

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 increasing through the 104.00 area and continuing 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 to the 103.00 area, a push through the level will likely see bids continuing until a break of the 102.80 area and then a similar pattern through on the 102 handle with 102.50 then providing support.

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 Bank holiday Australia Day sees a quiet session eventually turning into a slow decline through to the 0.7680’s for the low of the day to match yesterday's lows, weak bids into the 0.7650 level then steady bids through to the stronger 76 cents level and strong stops through to the 0.7580 level. Topside offers through the 0.7750 area and stronger offers then starting through the 0.7780-0.8020 level before weak stops and stronger offers again appearing this time through the 0.8040-60 level.

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