Daily Market Outlook, October 13th, 2021

Overnight Headlines

  • Fed’s Bullard: Taper Purchases Quickly In Case Hikes Needed
  • Fed’s Bostic: Inflation Surge Likely Last Longer Than Expected
  • Fed’s Quarles Steps Away From Chief Watchdog As Term End
  • House Clears Short-Term Debt-Cap Increase, Moves To Biden
  • US Revises EU Steel Proposal With Tariff-Increase Date Looms
  • White House Official: Embark On ‘Aggressive’ Tack For Crypto
  • China Report Progress On US Dispute Before Biden-Xi Summit
  • China’s Exports Climb 20% In September Despite Energy Crisis
  • EU Set To Scrap Post-Brexit Goods Checks Entering NI Border
  • UK Sunak To Urge G7 Counterparts To Help On Supply Issues
  • Apple Set To Cut iPhone Production Aims Due To Chip Crunch
  • SAP Lifts Full-Year Outlook As More Customers Shift To Cloud

The Day Ahead

  • Given the current market focus on inflation, today’s September update for US consumer price inflation may be the key economic release of the week. The August data provided some tentative indications that inflation was peaking. However, the recent rise in commodity prices and in particular energy prices suggests that it has further to rise. The September data may be too early to show the full impact of the latest moves but nevertheless we see a risk that headline inflation will climb to 5.4% from 5.3% in August. Core inflation continues to show elevated goods price inflation reflecting the impact of rising commodity prices and supply disruptions, while services inflation has been more subdued. A key issue going forward will be whether the latter remains low given reports from services of labour shortages and consequent upward pressure on wages.
  • Eurozone industrial production is expected to have fallen by 1.5% in August. Data for the largest countries in the region show a big fall in output in Germany of 4% and smaller declines in Italy and Spain but French production rose by 1%. Similar concerns to elsewhere that supply constraints are impeding production are rife in the Eurozone.
  • With market pricing pointing to a likelihood of a rise in UK interest rates before the end of this year, comments from Bank of England officials will command even more attention than usual. There is now only just over 3 weeks until the next policy update and so policy makers only have a very limited opportunity left if they want to shape expectations ahead of that. Monetary Policy Committee member Cunliffe is scheduled to speak today but judging by the title of his speech he may not touch on the near-term policy outlook.
  • Meanwhile, in the US the minutes of the last Federal Reserve policy meeting will be released, and these may provide further detail on discussions about tapering of asset purchases. Also Fed policymaker Lael Brainard, who some are tipping to be the next Fed Chair, will speak.

G10 FX Options Expiries for 10AM New York Cut

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

  • USDJPY - 113.00 645m.
  • EURUSD - 1.1710/20 993m. 1.1580/1.1600 501m. 1.1550/60 705m. 1.1500/10 674m.
  • AUDUSD - 0.7350 450m. 0.7240 417m.
  • NZDUSD - 0.6900 668m.
  • USDCAD - 1.2740 608m. 1.2660/70 798m.
  • EURGBP - 0.8700 584m.
  • EURJPY - 127.70 670m.
  • USDMXN - 20.75 495m.
  • USDCNH - 6.60 1.00bn (P). 6.48 1.53bn (857m C). 6.45 1.01bn (P). 6.42 1.00bn (P).

Technical & Trade Views

EURUSD Bias: Bearish below 1.17 Bullish above

  • Recovers some ground in Asia on short – covering
  • EUR/USD opened 0.20% lower at 1.1530 after USD broadly strengthened
  • Early weakness in USD/JPY helped to underpin EUR/USD in Asia
  • It traded up to 1.1555 and is settling around 1.1550 into the afternoon
  • Resistance is at the 10-day MA at 1.1570 and break eases downward pressure
  • Support is at the 50% retracement of the 1.0636/1.2349 move at 1.1492
  • Buyers are tipped ahead of 1.1500 to buffer any attempts lower
  • Fed minutes and US CPI later today could decide short-term direction

GBPUSD Bias: Bearish below 1.37 Bullish above.

  • Big day for sterling, GDP, IP and EU Brexit proposals
  • +0.2% with the USD softer on profit taking into key US CPI Wednesday
  • Trades towards the top of a 1.3578-1.3616 range with sporadic interest
  • Heavy data schedule, led by GDP and IP, plus EU N Ireland protocol proposals
  • Charts; momentum studies, 5, 10 & 21 daily moving averages conflict
  • 21 day Bollinger bands contract - neutral setup but primary trend is lower
  • Targets another test of 1.3419, 38.2% of the May 2020 to June 2021 rise
  • 1.3629 21 DMA caps, close above 1.3630 targets 1.3817 upper 21 day Bolli

USDJPY Bias: Bullish above 111.50 Bearish below

  • USD/JPY, JPY crosses off some from fresh highs overnight
  • USD/JPY 113.35-61 range after move up to 113.78 fresh high of year o/n
  • Flatter US yield curve, move down in Tsy 10s cited, 10s @1.587% now
  • Higher commodity prices, global recovery main concerns however
  • Support from area of hourly Ichi kijun at 113.39, to 113.00
  • Options supportive this week, most expiries below, today 113.00 $645 mln
  • DTCC data showed large 113.70 traded last 12 hours, expiry November 9

AUDUSD Bias: Bearish below 0.75 Bullish above

  • Moves a bit lower in Asia as AUD/JPY slips from highs
  • AUD/USD opened 0.7351 after holding up despite equity and commodity weakness
  • After trading 0.7353 first up it moved lower when Tokyo arrived
  • Light AUD/JPY selling on profit taking pushed the AUD/USD down to 0.7331
  • AUD/JPY fell as low as 83.15 after opening around 83.50
  • Aus 10-year yield eased to 1.68% from 1.73% to weigh on AUD/JPY
  • Bids around 0.7330 held and the AUD settled around 0.7340 into the afternoon
  • AUD/USD support at the 10-day MA at 0.7300 and break eases upward pressure
  • Resistance comes in at yesterday's 0.7384 high and 100-day MA at 0.7419