Daily Market Outlook, May 06, 2021
.Asian equity markets are mixed this morning, as China formally suspended the strategic economic dialogue with Australia, in what seems to be a symbolic move. Elsewhere, Japanese stocks are higher as markets reopen after public holidays. In Europe, German factory orders beat expectations, rising 3.0% in March.
The Bank of England (BoE) policy decision at midday takes centre stage for sterling markets, but there will also be attention on Scottish, Welsh and English local elections. No changes in monetary policy are expected, with both Bank Rate and the target level for total asset purchases maintained at 0.10% and £895bn, respectively. However, the meeting is one of the occasions when economic forecasts are updated in the quarterly Monetary Policy Report. Governor Bailey will give a lunchtime press conference.
Since its last forecast in February, developments have been unequivocally positive. The fall in Q1 GDP is likely to be less than the previously projected 4.2% drop, while vaccinations have continued apace and there will also be a boost from measures announced in the March Budget including an extension to the furlough scheme. Overall, the BoE is likely to upgrade its expectations for near-term economic activity and lower its assumed peak for the unemployment rate. Expect it to revise up its growth forecast for this year from 5% predicted in February and to now say that the level of activity will return to its pre-crisis level by the end of this year, but it is likely to be more cautious over medium-term forecasts. Markets will also see whether the current £4.4bn weekly pace of asset purchases is scaled back, although that is less significant from an economic standpoint as the total amount of QE to be deployed this year is not affected.
The Scottish parliament election will probably be the most keenly watched by financial markets, although the full results may not be known until the weekend. There seems to be more or less evens market odds on whether the SNP, who favour another independence referendum, will win a majority. In England, we may get the results of the Hartlepool by-election tomorrow morning, a formerly solid Labour seat which the Conservatives hope to win.
Norway’s central bank is also expected to leave interest rates on hold today (at 0.0%), although it could start to raise them in the second half of the year. Data wise, look for a potential upward revision to UK April services PMI to 60.3 from 60.1. Eurozone retail sales for March are also due this morning, while tomorrow morning’s early releases include China Caixin services PMI and German industrial output.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD: 1.1950-60 (566M), 1.2000 (1.3BLN), 1.2015-25 (1.4BLN), 1.2035 (385M), 1.2050-55 (738M), 1.2075 (250M), 1.2100 (1BLN)
AUD/USD: 0.7715-20 (500M)
GBP/USD: 1.3800-10 (347M), 1.3860-70 (486M), 1.4000 (827M)
EUR/GBP: 0.8565 (300M), 0.8650 (636M), 0.8765-85 (300M)
USDJPY: 109.00-05 (1.1BLN), 109.30 (470M), 109.60-70 (560M), 109.75-85 (834M)
EUR/JPY: 129.95-130.00 (455M), 130.20 (223M)
AUD/JPY: 84.60 (366M)
EUR/NOK: 10.10 (476M)
USD/NOK: 8.4000 (750M)
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 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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