Daily Market Outlook, May 14, 2021

Asian equity markets are mostly higher, following the first positive end to US trading this week, a sentiment likely to be extended to the European open. Singapore markets, however, fell on renewed increases in Covid cases in the country and new lockdown measures imposed. Markets have been volatile as inflation worries weighed on global risk sentiment. US Federal Reserve officials maintained their view that the inflation spike is likely to be transitory, because there remains significant spare capacity in the economy, although they said they would act if it proves otherwise. BoE Governor Bailey said the Bank is watching inflation “very carefully”. Meanwhile, UK PM Johnson has expressed concern about the spread of the new Covid-19 variant from India, but the timetable for the reopening of the economy remains on track.

Financial markets will continue to assess the implications of the unexpectedly big surge in US inflation figures released earlier this week. Today’s attention will also be on this afternoon’s US retail sales report for April. There is some uncertainty regarding the forecast after the near-10% surge in March, fuelled by the Biden stimulus. Look for an increase of 1.0% in April on the basis that there is a further stimulus effect. Also expect a 1.3% rise in April industrial output, fuelled by strong orders growth, although markets will also be looking for any sign that supply constraints and, in particular, reports of a worldwide shortage of semiconductors are impacting on the sector. Another increase in the preliminary University of Michigan consumer sentiment index to 90.0 for May, aided by the fiscal stimulus and the further opening up of the economy. Dallas Fed President Kaplan takes part in a moderated discussion this evening (6pm).

There are no major UK or Eurozone data releases today. The principal focus will be on the ECB’s account of its last monetary policy meeting on 22 April, to be released at 12.30pm. The ECB made no policy changes last month, although President Lagarde noted that services activity appeared to be ‘bottoming out’, reaffirming the forecast return to GDP growth in Q2. Markets will parse the account of the meeting for clues on whether the ECB at the next policy meeting in June might decide to reverse the acceleration in the pace of purchases announced in March. Indications are that policymakers may be split, with more hawkish members favouring slower purchases, but others preferring to maintain current stimulus levels to foster the economic recovery.

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 (715M), 1.2050 (388M), 1.2100 (507M)

GBP/USD: 1.3850 (483M), 1.3950 (209M), 1.4000 (500M), 1.4100 (218M)

EUR/GBP: 0.8590-0.8600 (381M)

AUD/USD: 0.7750 (1.3BLN), 0.7850 (282M), 0.7900 (239M)

USD/CAD: 1.2100 (343M), 1.2125 (365M), 1.2140-45 (412M)

USD/JPY: 109.30 (250M), 109.50 (1.1BLN), 110.00 (831M)

EUR/JPY: 131.00 (328M)

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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