Daily Market Outlook, May 07, 2021

Asian equity markets are mostly higher, but China is down this morning. China’s Caixin services PMI rose to 56.3 in April from 54.3 previously. In Germany, industrial production was reported as up 2.5% in March. The US Federal Reserve, in its latest Financial Stability Report, warned of potential risks to the economy “should risk assets fall” and the Fed’s Brainard noted that “vulnerabilities associated with elevated risk appetite are rising”.

The first results from yesterday’s UK elections have started to emerge overnight. In particular, it was confirmed that the Conservatives have won the parliamentary by-election in Hartlepool, taking what had previously been a long-held Labour seat. Counting will only start this morning for some of yesterday’s elections and, in some cases, the results may not be known until Saturday. That will probably include some of the seats in the Scottish parliament and so it may not be clear until then whether the SNP have won an overall majority.

Today’s US monthly labour market report which, as always, will be seen as a key barometer of economic conditions. The last print, 916k gain for March, was the biggest rise for seven months and was seen as a signal that employment conditions are improving as the US economy strengthens into spring. Since then we have had further good news including falls in new jobless claims in each of the past four weeks. Consequently, another big employment rise is expected for April. Look for a 925k increase along with a further fall in the unemployment rate to 5.7% from 6.0%.

However, even if the report does provide further evidence that the labour market is picking up in a significant way, the Federal Reserve seems unlikely to veer for now from its position that there is no need to consider an early change in monetary policy. Fed policymakers are likely to still focus on the fact that employment remains several million below where it was prior to the pandemic and so conclude that there is ample slack to allow for further growth.

In the UK, the construction PMI report for April will provide further evidence on the extent to which economic conditions are improving as restrictions are eased. The March data showed the headline index rise sharply to its highest since September 2014 as all areas of construction activity improved. In particular, it was noted that projects previously delayed by the pandemic were now starting to open up. However, less positively, further significant rises in costs and lengthening supply chains were also noted. Given the extent of March’s gain, it would be no big surprise if the April reading was down modestly. However, its level should still be consistent with strong growth in the sector.

G10 FX Options Expiries for 10AM New York Cut

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

EUR/USD: 1.2000 (537M), 1.2025-35 (1.8BLN), 1.2040-50 (1.4BLN)

1.2100 (1.4BLN), 1.2130-35 (618M)

USD/CHF: 0.9250 (210M). NZD/USD: 0.7175-80 (296M)

GBP/USD: 1.3800 (471M), 1.3900 (861M), 1.3920-25 (565M), 1.4000 (342M)

EUR/GBP: 0.8650-60 (845M). AUD/NZD: 1.0800 (351M)

AUD/USD: 0.7730-35 (442M), 0.7745-50 (491M), 0.7800 (1.2BLN)

USD/CAD: 1.2195-1.2205 (560M)

USD/JPY: 109.00-10 (1.2BLN), 110.00 (407M)

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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