Daily Market Outlook, June 11, 2021

Overnight Headlines

  • Fed to announce QE taper in Aug or Sept on rising inflation concerns – Reuters poll • Bipartisan group of U.S. senators says it has a deal on infrastructure framework • White House says questions need to be addressed about infrastructure deal • U.S. Treasury’s Yellen says Congress needs to fund debt relief programs • Fed balance sheet tops $8 trillion for first time • U.S. May budget deficit shrinks to $132 bln as revenues rise sharply • America may be 'back' at G7, but allies' doubts about U.S. democracy linger • Foreign CB US debt holdings +$11.517 bln to $3.547 tln Jun 9 week • Treasuries +$11.611 bln to $3.107 tln, agencies -$316 mln to $350.608 bln • Investment grade funds see US$3.232bn inflow week-ended June 9- Lipper • U.S., Taiwan officials discuss trade, plan meeting 'in coming weeks'-USTR • Japan considering downgraded emergency state until Games start -Mainichi • British PM hails Biden as 'a big breath of fresh air' • BoC Lane – Inflation could remain hot if pressures persist, notes concerns over strong CAD • IMF sees legal, economic issues with El Salvador's bitcoin move
  • Looking Ahead – Events, Other Releases (GMT) • 08:30 UK ChancExch Sunak, BOE Gov Bailey, other officials speak at London BIS event • 12:00 German FinMin Scholz speaks at Berlin virtual business event • 12:00 ECB Fernandez-Bollo at University of Bologna event

G10 FX Options Expiries for 10AM New York Cut

(Hedging effect can often draw spot toward strikes pre expiry if nearby)

EUR/USD: 1.2100 (2.3BLN), 1.2150-55 (2.3BLN), 1.2190-1.2200 (2.5BLN)

EUR/GBP: 0.8500 (285M), 0.8550 (230M), 0.8565-75 (300M), 0.8660 (280M)

AUD/USD: 0.7740-55 (1.2BLN), 0.7800 (557M)

USD/CAD: 1.2080-85 (1.2BLN), 1.2090 (1.65BLN), 1.2100 (496M)

1.2150 (1.3BLN)

USD/JPY: 108.90-109.10 (2.3BLN), 109.75-80 (1.2BLN), 110.00 (1.7BLN)

Technical & Trade Views

EURUSD Bias: Bearish below 1.2150 bullish above

Overnight trade: Edges higher in Asia as US yields pressured • EUR/USD opened unchanged at 1.2176 after whippy US session • Break lower in US yields offset dovish ECB and hotter US CPI • EUR/USD traded in a 1.2171/91 range and is near high into the afternoon • USD weighed down by US 10-year yield remaining at cycle low around 1.43% • EUR/USD resistance is at top of pennant at 1.2236 with sellers above 1.2200 • Support is at bottom of pennant at 1.2133 and break eases upward pressure

Flow reports topside offers congested through to the 1.2220 area before weak stops appear and the market opens for a renewed push to the 1.2300 level with weak stops limited through the 1.2320 area and long term trend line around the 1.2345 area likely to see strong offers before weak stops opening the topside to further gains through the 1.2400 level. Downside bids into the 1.2140-60 level likely to be light and then increasing through the 1.2120 level to 1.2080 before weak stops appear and open up a deeper move through to the 1.2000 level with very little congestion until that point.

GBPUSD Bias: Bullish above 1.41 bearish below.

Overnight trade: remains bid in Asia but still heavy pre-1.4200 • Cable remains bid in Asia, range 1.4170-79, very quiet • Flows few and far between ahead of weekend, G7 summit in UK • Market still digesting overnight news – strong US data vs lower yields • UK beneficiary of lower yields however with BoE seen more hawkish • Resistance/offers from @1.4180, trails up to 1.4200, 1.4190 high Wed • Stops seen likely 1.4200+, break projects test of 1.4250 on June 1 • EUR/GBP heavy in Asia, 0.8589-99, Ichi daily cloud 0.8601-32 above • Some not so large option expiries on 0.85, may help support

Flow reports suggest topside offers light through the 1.4250 area with some congestion increasing on any move to the 1.4300 and stronger offers in the area, a break above the 1.4310 area will likely see weak stops and breakout stops coinciding and the topside open to a quick squeeze through the 1.4350 level and an attempt on the possibly weak 1.4400 area and stronger stops again through the level. Downside bids likely to increase on a move through to the 1.4100 with a couple of weeks of congestion building up in the area with weak stops on a break through the 1.4090-80 area and opening to the 1.4000 level with very little support other than limited sentimental bids, however, the move through will then start to see stronger bids into the 1.3950-1.3900 area limiting any further loses

USDJPY Bias: Bullish above 108 targeting 112

Overnight trade: above 55-DMA despite USD remaining broadly offered • USD on back-foot on broad front, USD/JPY heavy, Asia 109.30-45 EBS • That said, support still from area of 55-DMA, today at 109.23 • 55-DMA support held throughout week, Ichi daily cloud 108.40-109.00 below • Though little action today, Japanese importer-investor bids still on dips • Japanese exporters, for their part, look to continue to sell rallies • Massive nearby option expiries today again help contain action • 108.90-109.10 total $2.3 bln, 109.75-80 $1.25 bln, 110.00 $1.7 bln • Expirations to drop off considerably next week though • Most US yields lowest since March, Treasury 10s @1.434%, a weight

Flow reports suggest downside light through the 109.20-00 with increasing bids into the 108.50 this opens the market to a new test of the 108.00 level, stronger bids into the 107.80 however, a break through the level is likely to see weak stops and breakout stops appearing and the market free to quickly test 107.50 and an old trendline then nothing until closer to the 107.00 area where stronger bids start to appear but the downside opening to Feb levels, topside offers through to the 110.00 level with light congestion through the figure level and weak stops possibly limited and stronger offers likely increasing on a move higher towards the 111.00

AUDUSD Bias: Bearish below .7790 bullish above

Overnight trade: Pivots around 0.7750 as US yields remain pressured • AUD/USD opened 0.27% higher at 0.7752 after fall in US yields underpinned • It traded 0.7746/57 and was unchanged at 0.7750/55 into the afternoon • AUD/USD underpinned by falling US yields and 10-year yield is at 1.43% low • Resistance is at the 50% of the 0.7891/0.7646 move at 0.7768 • It has failed above 0.7760 4 straight days – with sellers ahead of 0.7770 • A break above 0.7770 targets the 61.8 of the move at 0.7797 • Buyers are tipped ahead of 0.7700 with support at June 3 low at 0.7646

Flow reports topside offers into the 0.7800 area with weak stops through the 0.7820 before opening for a new run higher and strong offers likely through the 0.7840-60 area to build for the 79-cent level. Downside bids into the 0.7700 level with weak stops on a move through the 0.7680 area however, stronger bids then start to show through into the 0.7650 and ultimately the 0.7600 area and likely to continue in that fashion through to the 0.7550 area.