Daily Market Outlook, January 6, 2021
Asian equity markets are mixed this morning as investors awaited the outcome of the two US senatorial run-off elections in Georgia. At the time of writing, and with around 98% of the votes counted, the Democrats’ Raphael Warnock has won one of the two elections, while his fellow Democratic member John Ossoff was in the lead in the other, and in a position to unseat the Republican incumbent, David Perdue. Should Ossoff also be successful, that would balance the Senate chamber at 50 seats for each party. Such an outturn would hand the vice-president-elect, Kamala Harris, the tiebreaker vote and effectively give the Democrats greater control to shape the Senate’s legislative program. Decision Desk HQ projects Democrats to take control of the Senate (50D-50R) with VP Kamala Harris casting the tie breaking vote.
While the continued rollout of a Covid-19 vaccine has injected an element of positivity into the outlook, governments around the world continue to face a tricky balancing act of trying to contain its spread whilst also managing the fallout from subjecting large parts of their economies to various restrictions. Last month in the US, rising rates of infections saw restrictions being widened out across more areas of the economy, particularly in the services sector. This is likely to have weighed on hiring activity and expect today’s release of the December ADP private payrolls report to show a sharp slowdown in employment. Look for a 175k rise, around half the rise recorded in November.
Across Europe, meanwhile, the data calendar is light. The final estimates of the Eurozone and UK Services PMIs for December are expected to be revised up modestly, to 47.5 (from 47.3) and 50.1 (from 49.9) respectively.
Notably, the UK reading is forecast to move slightly above the 50 mark, which separates contraction from expansion. However, such data would still be well below the long-term average of 54.5. Moreover, with restrictions having been tightened further across the UK this month, any rise above 50 could prove temporary. The impact of the recent tightening in restrictions is likely to be a key question faced by Bank of England Governor Andrew Bailey and his colleagues, during their appearance before the Treasury Select Committee. While the hearing is supposed to focus on last month’s Financial Stability Report, markets will be attuned to any comments that point to the likelihood of further stimulus measures from the BoE.
Elsewhere, the flash reading of German CPI is expected to show the headline rate of annual inflation remaining well below zero for a fourth consecutive month.
G10 FX options reflect view of continued USD demise
Price action in G10 FX options is consistent with continued USD demise. Most players already positioned for steady USD weakness in this derivative, more risk premium being pared as Georgia election run off passes. Implied volatility under renewed pressure - new weekly lows in most pairs, this reflects low actual volatility expectations, Risk on, USD pressure.
Technical & Trade Views
EURUSD Bias: Bullish above 1.22 targeting 1.24
EURUSD From a technical and trading perspective, as 1.22 now acts as support bulls target primary projected ascending trendline resistance to 1.24
Flow reports suggest topside offers through to the 1.2340-60 area with a little weakness above however, the market is likely to find increasing offers through the 1.2400 area with weak stops likely above the 1.2420 levels with heavy offers, downside bids light through to the 1.2200 area with limited bids in the sentimental areas before opening up only on a dip through the 1.2150 area but unlikely today.
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 strong offers start appearing the closer the market moves to the 1.3700 area, with barely a stop loss to be seen through to those levels, a break through the 1.3715-25 area will likely gain quickly to the 1.3750 areas before starting to grind for the 1.3800 level. Downside bids light through to the 1.3550 area again with bids in the area and likely to increase through to the 1.3500 area with weak stops likely immediately behind the level and opening a deeper move.
USDJPY Bias: Bearish below 104 targeting 101.20
USDJPY From a technical and trading perspective, as 103.80 contains upside attempts look for the next leg lower to target 101.20
Flow reports suggest bids through the 102.50 area likely to be substantial and continue appearing around the sentimental 00-20 and 80-00. Topside offers light through to the 103.40 level with some light congestion from there with offers increasing into the 103.80 level and continuing through the 104.00 area with weak stops above the 104.20 levels
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 towards the 0.7780 level is likely to see option barriers appearing for any attempt at the 78 cents area and then congestion quickly appearing through any break higher with weak stops likely above the 0.7820 area and limited offers into the 0.7840-60 area, downside bids into the 76 cents level with weak stops on a dip through the 0.7580-70 area to open the downside to the stronger 75 cents area.
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