Daily Market Outlook, January 7, 2021

The storming of Capitol Hill by Trump supporters had limited impact on financial markets, and the business of ratifying Biden’s victory subsequently resumed. Markets instead focused on the Democrats winning both of Georgia’s seats and therefore control of the Senate, raising the prospect of larger fiscal stimulus. Asian equity markets are higher in overnight trading and European stocks are set to start their session on a positive footing.

The start of the year has seen mixed Eurozone data. Yesterday’s downward revision to December services PMI to 46.4 suggests a greater pace of contraction than the initial ‘flash’ estimate of 47.3 implied. On the other hand, strong (and admittedly dated) German retail sales figures for November point to upside risks to this morning’s Eurozone retail sales figures.

Timelier Eurozone economic confidence survey and the CPI inflation ‘flash’ estimate will perhaps receive more attention The forecast for the all-encompassing economic sentiment index is for a rise to 89.5 in December from 87.6, aided by improvements in industrial and services confidence on the back of vaccine hopes for the 2021 outlook. Nevertheless, the index will remain well below the long-term average and will probably not have captured the more recent concerns about the new variant of the virus. As for Eurozone CPI, the headline measure was ‑0.3%y/y in November, expect it to remain in negative territory at ‑0.2%y/y in December, with a risk it stays at ‑0.3%y/y, reinforcing concerns about persistent low inflation in the single currency area.

In the UK, following an expected fall in GDP in Q4 of last year, the latest lockdown measures mean that economists will be anticipating a further contraction in the current quarter, led by weaker in-person services activity. Recent restrictions have affected other sectors less, with construction PMI this morning expected to remain in expansion territory.

In the US, there were further signs yesterday that jobs growth is stalling, with the ADP measure showing an unexpected fall (the first since April) in private sector employment of 123k in December due to tighter Covid restrictions. It suggests downside risks to Friday’s official nonfarm payrolls. Today’s weekly initial unemployment claims may show little change at the start of the year from the prior week’s 787k, but the four-week average has been edging higher. Meanwhile, the predicted fall to 54.5 from 55.9 in the December services ISM survey still signals expansion, albeit at a slower rate.

G10 FX Options Expiries for 10AM New York Cut

EURUSD: 1.2250 (727M)

GBPUSD: 1.3500 (274M), 1.3520 (216M)

USDJPY: 102.60 (440M), 103.20 (569M), 103.70 (670M), 104.00 (1.2BLN)

Source: DTCC

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 Offers into the 0.7840-60 area with congested offers then continuing through to the 79 cents level and possible light options to impede the movement higher, 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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