Daily Market Outlook, March 18, 2021
Risk sentiment was supported by dovish Fed signals last night, which strongly reinforced the position that US monetary policy is unlikely to be tightened for a considerable period of time, however, as European traders walk in US Yields are spiking through 1.7% pressuring global equity indices. Despite upgrades to growth forecasts and more Fed members leaning towards higher policy interest rates in the next couple of years, the median projection remained that the first rate rise would take place after 2023.
The Bank of England is set to leave monetary policy on hold at midday, including Bank Rate at 0.1% and the asset purchase programme at £895bn. There is no forecast update or press conference, but there will still be substantive commentary on recent developments in both the press statement and in the minutes. Much has happened since the February update including the continued vaccine deployment, the roadmap out of lockdown and the extension of support measures in the Budget. These factors should reinforce the Bank’s confidence of a decent economic rebound from Q2. In addition, January GDP fell less than expected. As a result, the Bank may point to upside risks compared to its previous forecasts, but these will be reviewed comprehensively in May. Despite increasing confidence in a strong economic rebound, the sizeable degree of economic slack means it is also likely to signal little concern over the inflation outlook at this stage, and therefore that monetary policy will remain very stimulatory for a long period of time. Similar to the Fed, it will probably be reluctant to say something more substantive about the recent rise in gilt yields. There have been some suggestions that the BoE may accelerate its near-term pace of asset purchases to help cap yields, but Deputy Governor Broadbent has said recently that there is high bar to changing the current weekly rate of £4.4bn. Nevertheless, the Bank may warn that this is a tool it can use if financial conditions become disorderly.
In contrast to the BoE, the ECB last week said it will accelerate asset purchases in the next quarter. ECB President Lagarde testifies at the European Parliament this morning. The Bank of Japan also delivers its policy verdict early tomorrow morning – no change is expected, but there is speculation that the results of a review may enable policy to be conducted more flexibly. Reports overnight suggest that the BoJ may widen the band around the 10-year government bond yield target of 0%.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD: 1.1900 (1.6BLN), 1.1950 (622M), 1.2000 (1.3BLN)
GBP/USD: 1.3950 (620M). USD/CAD: 1.2685 (1.2BLN).
EUR/GBP: 0.8500 (720M), 0.8600 (1.7BLN), 0.8625 (1.2BLN)
AUD/USD: 0.7750 (1.9BLN), 0.7850 (1.3BLN). AUD/NZD: 1.0770 (1.2BLN)
USD/JPY: 107.75 (587M), 109.30 (430M)
Larger Option Pipeline
USD/JPY: Mar23 Y107.95-108.00($2.3bln), Y108.12($1.8bln)
AUD/NZD: Mar23 N$1.0785-90(A$1.7bln)
NZD/USD: Mar22 $0.7080(N$1.1bln), $0.7400(N$1.0bln)
Technical & Trade Views
EURUSD Bias: Bullish above 1.20 bearish below
EURUSD From a technical and trading perspective, the failure to recapture 1.20 on the upside leaves the 1.1830 lows exposed, through here bears will press for a test of the yearly pivot at 1.1720. Only a move back through 1.20 would reduce downside pressure opening a test of the monthly pivot from below at 1.2085
Flow reports suggest congestion through the 1.1820-1.1780 area with weak stops possibly being cleared up quickly through to the 1.1750 and again stronger congestion and likely to continue through the 1.1700 level, topside offers light back through the 1.1920 area and weak stops possibly setting up a small short squeeze through to the 1.1980 area before stronger offers start to appear into the 1.2000 level. Topside offers light through to the 1.1950 area with offers then starting to increase through to the 1.2000 level with weak stops above the 1.2020 level before the offers return increasing into the 1.2040-60 level.
GBPUSD Bias: Bullish above 1.3750 targeting 1.44
GBPUSD From a technical and trading perspective,a retest of 1.3750 pivotal trend support has seen fresh demand develop as this level continues to attract support bulls will target a retest of cycle highs en route to 1.44 upside objective.
Flow reports suggest topside offers around the 1.4000 level and slightly stronger stops appear for the market to open to a move through to the 1.4050-1.4100 with patchy resistance until closer to the topside of that range and stronger offers thereafter, downside bids into the 1.3800 level with weak stops likely on a dip through the 1.3780-40 levels with congestion likely to soak up much of the selling through to the 1.3700 level with possibly strong congestion then around the 1.3700 level increasing into the 1.3650 level before being able to make a move to the 1.3600 area and strong bids again.
USDJPY Bias: Bullish above 107.30 targeting 109.85
USDJPY From a technical and trading perspective, as 108.30 continues to attract demand bulls will target a test of pivotal 109.85 ahead of the yearly R1 pivot at 110.
Flow reports suggest topside congestion is likely to soak up some of the weak stops above through to the 109.50 area where strong congestion is likely to appear and increasing offers into the 110.00 and like the previous spikes at the beginning of last year any move is likely to find resistance above and continuing through the 110.00 with break out stops likely to be a little more nervous, downside bids light through to the 108.00 level with weak stops on any retrace through the 107.80 level and opening a dip to the 106.00 area possible over the coming week
AUDUSD Bias: Bullish above .7560 bullish targeting .8200
AUDUSD From a technical and trading perspective, as /7820 contains upside attempts there is potential for a head & shoulders pattern to develop, a loss of pivotal .7560 would open a move to test trend support at .7400 next
Flow reports suggest topside offers through to the 0.7840-60 area and then increasing offers onwards through 0.7900, with the offers likely to continue through to the 0.7950 area and likely increasing resistance through to the 0.8000 levels, downside bids into the 76 cents level with strong bids likely through to the 0.7580 area, weak stops are likely to be few and far between with stronger bids likely into the 0.7550 level and likely stronger congestion through to the 0.7500 area.
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