Daily Market Outlook, March 3, 2021

Signs of stabilisation in government bond markets after last week’s sell-off have provided support for risk sentiment this week, as markets refocused on hopes for a vaccine-led global economic recovery. Following positive outcomes in Europe and on Wall Street, Asian equity markets were higher.

The priority for UK Chancellor Sunak’s Budget (from about 12.30pm) is to continue supporting the economy, especially given the PM’s cautious roadmap out of lockdown. Some measures have already been pre-announced, including an extension of the furlough scheme until the end of September (with government contribution to wages falling from July) and more support for the self-employed. There will also reportedly be £5bn worth of grants to help businesses reopen in sectors such as hospitality and retail, and £400m for the arts sector. Businesses will be watching to see whether the business rates holiday and temporary VAT reduction for some sectors will be extended. The stamp duty holiday may be extended. The Chancellor has also indicated that he will ‘level’ with the public about putting the government’s finances on a more sustainable footing, given the surge in government borrowing over the past year. There is speculation of future tax rises, including potential increases in corporation tax and the freezing of income tax thresholds. Forecasts for economic growth and the public finances will be closely watched, but the medium-term outlook remains subject to significant uncertainty.

Key data releases include the final readings for UK and Eurozone services PMI, which are expected to confirm preliminary outturns of 49.7 and 44.7, respectively. Eurozone services activity is much further below the key 50 level than the UK, partly reflecting the slow vaccine rollout.

There will be a keen eye on the US ADP employment report ahead of Friday’s ‘official’ payrolls data as well as the ISM services survey. Look for February ISM services to continue to signal robust growth at 58.0, slightly lower than 58.8 in the prior month. The US labour market, however, appears slow to respond to economic growth, look for ADP private payrolls to rise by 160k, lower than outturns last autumn. Fed officials have appeared relatively relaxed about the recent rises in bond yields, seeing it as a reflection of economic recovery, a view echoed by the Bank of England’s Deputy Governor Ramsden. Others, including the ECB, have voiced more concern about them rising too quickly. A number of policymakers from the Fed and the ECB are due to speak today. The BoE’s Tenreyro is scheduled to discuss negative interest rates at an IMF seminar.

G10 FX Options Expiries for 10AM New York Cut

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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