Daily Market Outlook, March 2, 2021

Asian equity markets are mainly down this morning despite sizeable gains yesterday in Europe and on Wall Street. Today’s falls seemingly followed warnings from China’s top banking regulator about asset bubbles. The Australian central bank left monetary policy unchanged but said it was committed to “maintaining highly supportive monetary conditions” until its inflation goal was achieved. German retail sales fell by 4.5% in January following a 9.1% December fall. Reports suggest that Chancellor Sunak will unveil £400mn in support for the Arts in his Budget. Meanwhile, the EU is reported to be considering a ‘digital pass’ to prove someone has had a Covid-19 vaccination in order to help boost tourism.

Today’s data calendar is sparse with nothing of note in the UK. In the Eurozone, the latest CPI data is expected to show the annual rate of inflation still well below the European Central Bank target of close to but below 2.0%. In January the headline rate jumped sharply to 0.9% from -0.3%. However, that was mainly due to the expiration of a temporary cut in indirect taxes in Germany and the rise in energy prices. Underlying inflationary pressures remained relatively subdued and already released data for France, Germany and Spain suggest that remained the case in February. Consequently look for overall inflation for the region to hold at 0.9% and the ‘core’ rate to fall to 1.1% from 1.4%. In Germany, expect the unemployment rate to have slipped to 5.9% in February from 6.0% in December despite ongoing restrictions that are impeding economic activity. Some of the decline may be due to discouraged jobseekers falling out of labour force. Nevertheless, as in the UK, the low rate of unemployment does at least partially reflect the effectiveness of government support schemes.

Financial markets remain focused on what central bankers make of the recent sharp rise in government bond yields. Last week they maintained a uniform front in saying that inflation was not a problem and that monetary policy would remain very stimulatory for a considerable time. However, there was less consensus on the shift up in yields with US and UK policymakers seeing it as a sign of improving economic conditions, while at least some ECB policymakers seem to see it as more of a concern. Fed officials Brainard and Daly who are scheduled to speak today seem to be among the most dovish of US interest rate setters. Consequently, it will be interesting to see if they are prepared to question the bond sell-off. However, previous recent comments from both suggest that they w on’t. Meanwhile, yesterday’s February updates for US and UK manufacturing pointed to sharp rises in costs due to higher input prices and supply chain bottlenecks, which suggest some inflationary concerns are genuine.

G10 FX Options Expiries for 10AM New York Cut

EUR/USD: $1.1900-20(E843mln), $1.2045-65(E1.5bln), $1.2085-90(E572mln), $1.2200-06(E595mln)

USD/JPY: Y105.75-80($1.0bln), Y105.85-90($690mln), Y106.00-10($1.2bln), Y106.30-50($1.5bln), Y107.00($552mln), Y107.50($600mln)

EUR/GBP: Gbp0.8630-35(E570mln)

USD/CHF: Chf0.9030($710mln)

AUD/USD: $0.7875(A$589mln)

AUD/NZD: N$1.0670(A$722mln)

NZD/USD: $0.7150(N$685mln)

USD/CNY: Cny6.4500($588mln), Cny6.4645($833mln)


Larger Option Pipeline

EUR/USD: Mar03 $1.1900(E1.0bln), $1.2000(E1.4bln-EUR puts), $1.2150-60(E1.0bln), $1.2300(E1.0bln)

USD/JPY: Mar03 Y105.40-60($2.1bln); Mar04 Y105.60-75($1.5bln); Mar05 Y105.45-50($1.2bln), Y106.40-60($1.4bln); Mar08 Y104.25-40($2.8bln), Y105.50-55($1.7bln)

EUR/GBP: Mar03 Gbp0.8600(E1.9bln-EUR puts)

NZD/USD: Mar03 $0.7300(N$1.1bln-NZD puts)

USD/CAD: Mar05 C$1.2500-20($1.0bln), C$1.2620($1.0bln)

USD/CNY: Mar08 Cny6.45($1.5bln)

Technical & Trade Views

EURUSD Bias: Bullish above 1.20 bearish below

EURUSD From a technical and trading perspective, the closing breach of 1.21 and the descending trendline is a bullish development opening a retest of prior highs at 1.2350, only a move back through 1.20 would suggest further downside opening a potential test of 1.17 yearly pivot

Flow reports suggest topside offers 1.2180-1.2220 level with weak stops above the level and increasing on any push above the 1.2250 level with possible strong offers into the 1.2300 level Downside bids into the 1.2000 area with weak stops likely on a move through to the 1.1980 area congestion around the sentimental 1.1950 area before stronger bids are likely into the 1.1900 levels

GBPUSD Bias: Bullish above 1.3750 targeting 1.44

GBPUSD From a technical and trading perspective, as 1.40 now acts as support bulls will target a test of 1.44 as the next upside objective. Below 1.40 opens a retest of 1.3750 pivotal trend support.

Flow reports suggest downside bids into the 1.3850 area with likely weak stops on a move through before stronger bids likely into the 1.3800 level and increasing congestion possible to the 1.3750 area before weakness reappears to the downside, topside offer light through the 1.3900 level and 1.4000 with limited sentimental offers before weak stops appear and the market likely to be weak through to close to 1.4100 where the market sees stronger offers

USDJPY Bias: Bullish above 104.50 targeting 107

USDJPY From a technical and trading perspective, as 104.50 supports there is potential for a further squeeze higher to test offers towards 107. A loss of 103.50 would negate further upside and suggest a resumption of trend

Flow reports suggest topside offers through the 106.90 area increasing through the 107.00 level with weak stops likely on any break of the 107.20 areas with more offers into the 107.50 level. downside bids light through the 106.00 level and weak stops on a breakthrough the 105.80 area and limited congestion through to the 105.00 areas where stronger bids appear.

AUDUSD Bias: Bullish above .7560 bullish targeting .8000

AUDUSD From a technical and trading perspective, as the major trendline support at .7560 now acts as support, look for target wave 5 upside objective towards .8000. A closing breach of .7730 of the internal descending trendline will encourage the bullish thesis.

Flow reports suggest downside bids into the 0.7700 area and likely to be strong however, weak stops through the 0.7680 area with the market likely only to open a short distance before stronger bids again appear and the market struggles for any further downside movement, Topside offers light through the 78 cents level with weak stops likely above the level and the 79 cents level then likely to open quickly and very little to curb the push.

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