Daily Market Outlook, May 04, 2021

Stock markets in Japan and China are closed for holidays today, while equities elsewhere in Asia-Pacific region are mixed. Notably, Australian stocks are trading higher following the conclusion of the RBA’s latest policy meeting, where policymakers upgraded the economic outlook and said that interest rates will remain at emergency levels until at least 2024. Domestically, UK PM Johnson said yesterday that the country was on track to scrap lockdown rules in seven weeks’ time.

The prospect of an uneven global recovery continues to provide a challenging backdrop for financial market participants. Last week’s US GDP report showed the economy expanded by 6.4% on an annualised basis in Q1, propelled by a 10.7% rise in personal consumption. Growth could be even stronger in Q2. In contrast, Eurozone Q1 growth reportedly fell by 0.6%, signalling a return to recession as Covid-19 containment measures were extended. Still, latest survey indicators point to rising business and consumer confidence, with vaccinations in Europe finally being ramped up, paving the way for a gradual reopening of the economy and a return to growth in Q2. However, concerns about rising infections rates in other parts of world, especially in India and other emerging economies, continue to cap market optimism.

Economic activity across the UK is also expected to have contracted over the first quarter. However, the rapid rollout of vaccines and the associated continued rolling back of restrictions means that a strong bounce back in activity from Q2 onwards is in motion. Today’s ‘final’ reading of the manufacturing PMI report for April is expected to confirm an ‘above 60’ reading. Elsewhere, Bank of England housing data are expected to show another robust outturn for mortgage approvals in March. Measures announced in the Budget aimed at stimulating mortgage activity are likely to take some time to feed through to mortgage approvals data. Hence, expect the March data to show a slight dip in the number of approvals, from 87.7k to 86.0k, before mortgage activity picks up again in subsequent months.

Outside of the UK, the calendar is relatively sparse. Following the preliminary US durable goods orders report for March, factory orders are expected to have rebounded by 1.0%m/m, following February’s decline. Meanwhile, US trade data are likely to show another wide deficit, reflective of strong consumer demand across the US. US Federal Reserve policymakers Kaplan and Daly are also due to speak at separate events.

G10 FX Options Expiries for 10AM New York Cut

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

EUR/USD: 1.2035 (1.1BLN), 1.2050 (300M) 1.2085 (238M)

GBP/USD: 1.3700 (291M), 1.3800 (1.1BLN), 1.3900 (642M), 1.4100 (200M)

NZD/USD: 0.7180 (201M)

AU/NZD: 1.0855 (298M), 1.0860 (1.5BLN), 1.0865 (200M)

USD/JPY: 108.50 (350M)

EUR/JPY: 130.00 (445M)

AUD/JPY: 84.50-60 (380M), 85.00 (470M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.2120 bullish above

EURUSD From a technical and trading perspective, the close sub 1.2080 warns of deeper corrective cycle to test support at 1.1990/60 failure here opens 1.1850

Flow reports suggest topside congestion through to the 1.2160 level from the highs and then while there maybe some weak stops just beyond stronger offers are likely through the level to the 1.2200 area with weak stops again appearing but very limited and the 1.2250 again seeing the stronger offers through to the 1.2300 level with the market then having the ability to test this year’s highs, downside bids light through to the 1.2000 area and then weak stops on a move through the 1.1920 level opening the market to the 1.1850 area where stronger congestion appears

GBPUSD Bias: Bullish above 1.39 bearish below

GBPUSD From a technical and trading perspective, as 1.3960 contains upside attempts look for a test of range support towards 1.37.

Flow reports suggest topside offers through the 1.3900 level light through to the 1.3940 area where offers are likely to be a little stronger with further offers likely to be into the 1.4000 area with stops likely through the 1.4020 area and opening a stronger move higher, downside bids strong into the 1.3800 with congestion likely to continue through the level and while there may be some stops that congestion is likely to continue through to the 1.3750 level, light bids through the level but increasing again into the 1.3700 level with congestion then continuing through the level.

USDJPY Bias: Bullish above 108 targeting 112

USDJPY From a technical and trading perspective, as 107.50 acts as support there is potential for a test of the pivotal 108.50, through here will open another look at 110.

Flow reports suggest downside 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 .7700 bullish above

AUDUSD From a technical and trading perspective, the closing breach of .7730 has relieved downside pressure opening a move to test offers towards .7820

Flow reports suggest topside offers continue through the 0.7800 area with a break through the 0.7820 area likely to see weak stops and a test towards the sentimental 0.7850 area however, while there maybe some offers in the area the market looks to be fairly open through to the 79 cents level and ultimately ranges from the end of Feb, downside bids light through the 0.7700 level with weak stops likely on a move through the 0.7680 before stronger bids around the 0.7650 area and continuing through to the 0.7600 likely increasing in size, any further moves are likely to see strong support into the 0.7550 to calm the situation.

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