Daily Market Outlook, May 13, 2021

The unease in equity markets continued yesterday as Wall Street fell by about 2% after US CPI inflation posed a much stronger than expected rise of 4.2%. Some Asian markets are closed for holidays today, but those open are mostly down around 1-1.5 %. A number of European countries are also on holiday today. In the UK, the RICS housing index surged to 75% in April from 62% in March. New sales, new enquiries and prices all rose, signaling a strong response to the Chancellor’s Budget decision to extend the stamp duty cut.

The rest of today’s economics calendar is light, with no data of significance in either the UK or the Eurozone. In the US, the producer price report for April will provide some further insights into the inflation outlook after yesterday’s CPI release turned out to be much higher than expected. The PPI typically gets less attention from markets than the CPI, but it does provide a useful gauge of price pressures at an earlier stage of the production process. A combination of higher commodity prices and supply chain pressures are leading to cost rises, which at least some producers are trying to pass on as price increases, As a result annual producer price inflation has risen from 0.8% in January to 4.3% in March, expect a further rise to 5.8% in April. The increase in ‘core’ inflation (excluding food and energy prices) has been smaller, but that has also gone up from 2.0% to 3.1% over the same period, and we look for a further rise to 3.7% in April.

Also of interest in the US will be weekly jobless claims data. Last week, the US labour market report for April posted a smaller than expected rise in employment, which cast doubt on how quickly the jobs situation is improving. In contrast, however, unemployment benefit claims have been falling sharply in recent weeks, suggesting that the monthly report may prove to be an aberration. Another low print today would add further support to that view.

Fed policymakers speaking yesterday downplayed the significance of the big jump in consumer price inflation. Fed Vice-Chair Clarida said that, while they would not hesitate to react if inflation seemed to be getting out of control, his view was that the rise would be temporary. A similar message is likely from today’s Fed speakers, as it seems like it will take a lot of evidence to convince a move away from its current very loose monetary policy stance. Most other central banks seem to be taking a similar view, and Bank of England Governor Bailey’s comments may confirm to today that the BoE is in no hurry to shift its policy stance. However, one central bank that has taken a modest move in that direction is the Bank of Canada which recently started to cut back its asset purchases. So it will be interesting to hear today what BoC Governor Macklem makes of recent developments

G10 FX Options Expiries for 10AM New York Cut

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

EUR/USD: 1.1950-65 (3.7BLN), 1.1975-80 (700M), 1.2000 (410M)

1.2045-50 (681M), 1.2100 (1.3BLN), 1.2115-35 (1BLN), 1.2140-50 (1BLN)

1.2150 (711M), 1.2170 (2BLN)

USD/CHF: 0.9095 (1.1BLN). EUR/CHF: 1.10 (759M), 1.1040 (1.1BLN)

GBP/USD: 1.4000 (360M), 1.4100 (240M), 1.4200-05 (727M)

AUD/USD: 0.7690-0.7700 (1BLN), 0.7760-65 (1BLN), 0.7780 (695M)

0.7790-95 (1BLN). USD/CAD: 1.2110 (605M)

USD/JPY: 108.90-109.00 (1.6BLN), 109.50 (688M), 110.00-05 (500M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.2120 bullish above

EURUSD From a technical and trading perspective, the close through 1.2120 is constructive but bulls must defend 1.21 to set up a test of 1.2240/50. Failure to find sufficient support at 1.21 would suggest a false upside break opening a retest of 1.2050.

Flow reports suggest topside offers through the 1.2160 area and increasing into the 1.2200 level with weak stops likely to be absent and congestion through to the 1.2220 level before hopping any possibility of testing the highs of the year through 1.2300 and stronger stops still likely to slow any further movement. Downside bids light through to the 1.2020 area and then stronger bids starting to form in the area, weak stops on a move through the 1.1980 area opening a chance of a quick break back to the 1.1900 level before stronger bids appear.

GBPUSD Bias: Bullish above 1.40 bearish below

GBPUSD From a technical and trading perspective, as 1.3960 now acts as support, bulls will target a retest of 1.4230’s. Only a close back below 1.40 would concern the bullish thesis.

Flow reports suggest downside bids through the 1.4000 level quickly run into weak stops and congestive bids competing through to the 1.3950 area and increasing bids from there to the 1.3900 level and stops then beyond the area opening a deeper move, topside offers through to the 1.4150 level and increasing into the 1.4200 level with weak stops likely on a push through Feb’s highs around the 1.4220 area. Opening the market to the next leg through to the 1.4400 area

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 .7790 bullish above

AUDUSD From a technical and trading perspective, as .7790 now acts as support bulls will target a retest of prior cycle highs above .80 cents. The breach of .7790 refocuses attention on the downside as .7820 contains upside attempts look for a test of .7680.

Flow reports suggest topside offers light through to the 0.7880 area and likely to be strong offers continuing through to the 0.7920 area before weak stops appear and the market then running into further resistance once it starts projecting through the 0.7960 area with increasing offers the closer to the significant sentimental levels into 80 cents, downside bids into the 0.7700 area and weak stops on an extension through the 0.7680 area but quickly running into supportive bids into the 0.7650 area and continuing through to 0.7600 level with some possibly decent bids mixed with weak stops

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