Daily Market Outlook, January 8, 2021

Sentiment in equity markets remains relatively positive with hopes of more US fiscal stimulus from the incoming government seemingly providing support. Asian equities are mostly up strongly on the day apart from across China, while European and US futures prices also point to gains. President Trump promised an ‘orderly transition’ on 20th January after Congress certified Democrat Biden’s presidential election victory.

England will require Covid-19 tests from all international visitors from next week. Other parts of the UK are expected to introduce similar measures. UK PM Johnson said that almost 1.5mn people have now be vaccinated. In Germany, an aide to Chancellor Merkel said that the country’s lockdown might need to be extended past the end of January.

The US labour market report is usually seen as a key bellwether of economic conditions and today’s release for December is likely to be no exception. US employment fell sharply during last Spring’s shutdown and the unemployment rate rose from a February low of 3.6% to a peak of 14.7% in April. Since the economy has opened up again, employment has picked up sharply but as of November, the unemployment rate was still a relatively elevated 6.7%.

The November US employment gains of 245k was the smallest since April and less than half the rise in October. Other data suggests that the declaration has gathered pace in December. We look for a rise in employment of 150k, which would be the smallest gain since April but there is a risk that the outturn may be even lower. Indeed, ADP estimates that private sector employment fell by 123k in December. Expect the unemployment rate to be unchanged with a possibility that it will rise.

A weak US jobs report may prompt speculation of further monetary policy easing from the Federal Reserve. However, the minutes of the Fed’s December policy meeting, which were released earlier this week, showed that it is already expecting economic growth to slow over the winter. Given the news that Democratic control of Congress may lead to more fiscal support, it seems unlikely the Fed will take more action for now. Nevertheless, today’s speech from Fed Vice Chair Clarida will be an interesting update on developments.

Elsewhere today’s data calendar is light. Already released data for November German industrial production showed a 0.9% rise but French industrial output is expected to have slipped after a big gain in October. Look for a modest fall in the November Eurozone unemployment rate to 6.3% from 6.4% in October. Concerns that Eurozone unemployment will rise over the next few months due to ongoing restrictions are however likely to persist.

G10 FX Options Expiries for 10AM New York Cut

EUR/USD: 1.2180 (550M), 1.2300 (922M)

USD/JPY: 103.90 (790M), 105.00 (420M)

GBP/USD: 1.3500 (293M). NZD/USD: 0.7175 (304M)

Bigger strike expiries early next week include

EUR/USD: Jan 11 - 1.2295-1.2315 (4.1BLN), Jan 12- 1.22 (1.3Bln), 1.23 (1BLN)

USD/JPY: Jan 12 104.00 (1.2BLN), Jan 13 103.00 (1.2BLN)

GBP/USD: Jan 11 - 1.3700-15 (1.1BLN), Jan 12 - 1.3995-1.4000 (1BLN)

AUD/USD: Jan 11 - 0.7625 (1.2BLN), 0.7725 (1.2BLN)

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. Failure below 1.22 opens a retest of bids to 1.2050

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 light offers through to the 1.3620 area with some light congestion likely to continue through to the 1.3650 area before some limited offers through to the stronger 1.3700 level and weak stops above the level with stronger offers then ahead. Downside bids through to the 1.3500 level likely to be a little light and improving into the figure with weak stops on a move below the figure before stronger bids around the sentimental 1.3450 area.

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 offers through the 104.00 level with likely weak stops on a move to the 104.20 area and the with congestion around the 104.40-60 area and then increasing into the 104.80 level with strong offers through the 105.00 area, Downside bids light through to the 103.00 level before stronger bids start to appear and increase through to the 102.50 area with very little in the way of stops on a dip through with likely increasing bids to the 102.00 areas and likely to see stronger bids continuing from importers

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 topside offers through the 0.7800 area with weak stops likely to be through the 0.7820-30 areas with light offers through to the 0.7850 area before better offers appear on any move for the 79 cents level, Downside bids light through to the 0.7740 area with some light weakness before stronger bids starts to appear through to the 77 cents level with weak stops on a break through the 0.7680 level.

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