Daily Market Outlook, November 18, 2020

Asian equity markets are mixed this morning after a modest decline in US markets yesterday. That follows big gains in most markets over the past two weeks. Several countries including Japan reported rises in Covid-19 cases. That prompted concerns that Japan may raise its Covid-19 alert to the highest level. In the US, the Republican leader of the Senate said he was open to talks on a small ($500bn) fiscal stimulus package. UK PM Johnson told the cabinet that an EU trade deal was possible but “far from certain”.

This morning’s UK inflation data for October showed annual CPI inflation at 0.7%, up from 0.5% in September. The ‘core’ rate, excluding food and energy, also rose to 1.5% from 1.3%. That still leaves inflation more than 1.0% point below the inflation target of 2.0%. If that is again the case next month, Bank of England Governor Bailey will have to write another letter to the Chancellor of the Exchequer explaining what he intends to do about it.

It is reported that UK PM Johnson will today unveil a £12bn package labelled the “green industrial revolution”. It is said to include a promise to phase out sales of new cars fuelled just by petrol or diesel by 2030.

The October CPI for the Eurozone is an update that is not expected to be revised from the original estimate of an annual fall of 0.3% That still leaves inflation, just as in the UK, well below the central bank’s target. In the US, housing starts and building permits for October are forecast to post a further improvement. October retail sales disappointed yesterday, but most US data continue to suggest that the economy’s rebound from the spring lockdown remains intact despite concerns about a renewed pickup in Covid-19 cases. Housing has been an important part of that story and we expect another rise in starts today.

There are a number of US Federal Reserve speakers today. Since the positive news that a Covid-19 vaccine may soon be available, central bank policymakers have generally sounded more upbeat about the economic outlook, while still noting that monetary policy will need to remain very loose for some time. Market expectations of further near-term US monetary policy moves has accordingly declined. However, two potential actions still being flagged are whether the Fed will extend the maturity of its Treasury bond purchases to hold down long-term interest rates and whether it will continue its emergency lending facilities past year end. Today’s speakers may have something to say about both.

Overnight, the October Australian labour market data will be watched for any signs that economic trends are improving as the country heads into summer. The consensus expectation, however, is for another fall in employment and rise in the unemployment rate.

Today’s Options Expiries for 10AM New York Cut

  • EURUSD: 1.1850 (563M), 1.1875 (343M)
  • EURGBP: 0.9000 (241M), 0.9045 (410M)
  • USDJPY: 104.45 (210M), 105.00 (370M)
  • AUDUSD: 0.7250 (288M), 0.7320 (404M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.1750 targeting 1.20

EURUSD From a technical and trading perspective, as 1.1750 acts a support look for a retest of cycle highs at 1.20, failure below 1.1750 opens a retest of range support at 1.16

Flow reports suggest topside offers through to the 1.1920 level, even there where you’re likely to see weak stops you will find the same type of congestion continuing to the 1.1950 before weakening a little and increasing for any move to the 1.2000 level. Downside bids light through the 1.1800 area with weak stops on a dip through the 1.1780 area and opens the market for a renewed challenge of the 1.1700 area with light support from there.

GBPUSD Bias: Bullish above 1.3150 targeting 1.3480

GBPUSD From a technical and trading perspective, as 1.3150 supports look for a test of prior cycle highs at 1.3480

Flow reports suggest offers into the 1.3300 level are likely to be a little light with limited congestion through to the 1.3400 level before stronger offers start to appear with weak stops on a break through the level to open the 1.3500 level for a second test of the year. Downside bids light back through the 1.3200 level with congestion forming around the 1.3150 and stronger to the 1.3100 level, weak stops on a move through the area and nothing special until the 1.3000 one suspects.

USDJPY Bias: Bearish below 104.30 bullish above

USDJPY From a technical and trading perspective, as 104.30 supports look for a test of descending trendline resistance at 105.50 UPDATE as 104.30 continues to attract buyers look for a breach of 105.50 to open a test of 106 next

Flow reports suggest downside bids light through the 104.50 level before beginning to thicken on any dip below the 104.00 level increasing on move through the 103.50 level with weak stops likely on a dip through the 103.00 area with the stops likely to increase through 102.80, topside offers likely to increase through to the 106.00 area with weak stops through the 106.20 area and increasing congestion on a push above the 106.50 level and into the 107.00.

AUDUSD Bias: Bearish below .7243 bullish above targeting .7400

AUDUSD From a technical and trading perspective, as .7240/20 now acts as support look for a retest of offers and stops above .7400

Flow reports suggest topside offers remain strong into the 0.7340 area and likely to continue through to the 0.7360 area before some weakness appears, however, the stronger offers are likely through the 74 cents area to 0.7420 before stops appear. Downside bids light through the 73 cents area and a push through the 0.7240 area is likely to see weak stops and the market opening to a move into the 0.7150 area.

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