Daily Market Outlook, October 14, 2020

Asian equity markets are mostly down this morning following signs that negotiations between US politicians over further fiscal stimulus have stalled ahead of the November elections. Markets may also have been hurt by news that Eli Lilly has had to pause its Covid-19 vaccine testing. China’s President Xi in a speech this morning talked about the country being at a ‘critical’ stage of its economic transformation. Meanwhile in the UK, media reports suggest that PM Johnson is under pressure to consider a half-term lockdown as Labour Leader Starmer joined some scientists in lobbying for a ‘circuit break’.

Eurozone industrial production is forecast to have risen by 0.6% in August. Already released country data painted a decidedly mixed picture. In Germany, output fell by 0.2% the first decline in four months and growth in Spain also disappointed. However, French output rose by 1.3% and Italian by 7.7%. Any signs of a marked slowdown in the factory sector, which should be less impacted by social distancing measures than many other parts of the economy, will add to concerns that the initial post-lockdown rebound in growth is now rapidly fading.

Today’s data calendar is otherwise light with no releases of note in the UK. In the US, annual PPI is forecast to have accelerated modestly to 0.2% in September from -0.2% in August. That is unlikely to be seen as an indication that high inflation will be a problem anytime soon.

There are a lot of central bank speakers scheduled for today particularly in the US. Of most interest may be Bank of England Chief Economist Haldane. He is the member of the Monetary Policy Committee who has sounded most upbeat about recent economic developments. He was the only one to vote against the BoE’s latest decision to boost asset purchases and he has subsequently called for businesses to boost investment spending. Consequently his reaction to last week’s disappointing August GDP data and the recent pickup in Covid-19 cases and increase in lockdown restrictions will be of key interest.

Early Thursday, the September Australian labour market update is expected to be less upbeat than August when employment growth surprised significantly on the upside. It is probably too early to expect an impact from last month’s expansionary Federal budget. Nevertheless, with summer approaching and lockdown restrictions starting to ease in some states some improvement in economic conditions will be expected over the next few months.

Today’s Options Expiries for 10AM New York Cut (notable size in bold)

  • EURUSD: 1.1750 (1.2BLN), 1.1885-1.1900 (850M)
  • USDJPY: 105.00 (585M), 105.15-20 (1.2BLN), 105.50-55 (750M) 105.75 (500M), 106.00 (1.4BLN)

Technical & Trade Views

EURUSD Bias: Bullish above 1.1750 bearish below

EURUSD From a technical and trading perspective, as ascending trendline support at 1.1750 is defended look for a test of projected trend channel resistance to 1.19. Note - DTCC flagged Tuesday's massive 1.1800 strike EUR/USD option expiry last week It's grown to EUR 2.5-billion now, and set to dominate today. Option players try to neutralise any exposure by trading cash around strike Called delta hedging, it can often contain FX rate if nearby, like it is now. Another EUR 2.5-billion of 1.1800 strikes are spread between Thursday-Friday. Options price risk of more EUR gains, but potentially limited. UPDATE a close through 1.1720 would negate the near term bullish thesis opening a broader correction to test bids back to 1.620

Flow reports suggest topside offers through the 1.1800 levels with weak stops on a push through the 1.1820 level with offers around the 1.1850 area with increasing offers through to the 1.1900 level, downside bids into the 1.1700 level with weak stops on a break through the 1.1680 level and limited bids through to the 1.1620 area where stronger bids seem to appear however, a break here opens a deeper move through to the 1.1500 area.

GBPUSD Bias: Bullish above 1.29 bearish below

GBPUSD From a technical and trading perspective, as

1.2950 is defended intraday look for further upside extension to target projected trend channel and predicted daily range resistance to 1.3150. UPDATE Breach of 1.29 invalidates near term bullish thesis focus shifts to pivotal 1.2850, failure here would open a quick test of 1.28

Flow reports suggest topside offers light through to stronger offers around the 1.3000 area with strong stops through the level and the market then opening for further gains. Downside bids light through the 1.2800 area with weak stops on a move through likely to be light and quickly absorbed on any dip through to the congested 1.2750 areas with stronger bids into the 1.2700 level.

USDJPY Bias: Bullish above 105.20 targeting 106.30

USDJPY From a technical and trading perspective, as 105.20 supports look for a move to test offers and stops to 106.30

Flow reports suggest offers strong into 106.00 area with stops on a break through the 106.20-30 area, offers remain into the 107.00-20 area with congestion likely to be mixed with weak stops on a break of the level and that congestion likely to continue on any move into the 107.60 area where stronger offers are likely to appear, maybe another round of stops before stronger offers then appearing through to the 108.00 level. Downside bids into the 104.20 light and then increasing on any dips to the 104.00 level and stronger stops through the 103.80 level, any break here opens the chance of a deeper move through to the 103.00 level before stronger bids start to appear with possible option related buyers.

AUDUSD Bias: Bullish above .7150 bearish below

AUDUSD From a technical and trading perspective, as .7190/50 area continues to attract bids look for a grind higher to test ascending projected trend channel resistance and the equality objective at .7300. UPDATE failure through .7140 exposes .7100 bids and stops.

Flow reports suggest ownside light bids through to the 0.7020 area with stronger bids starting to make an appearance and possible option related bids coming into play, a push through the 0.6980 level should see weak stops appearing and the market running into congestion on any push to the sentimental 0.6950 area and likely to continue through to 69 cents area, Topside offers strong offers through to the 72 cents level are likely to stymie any further movement however, weak stops through the 0.7220 level could help it run a little higher.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 76% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.