Daily Market Outlook, October 14th, 2021

Overnight Headlines

  • Fed Worried About Inflation Risk As Firmed Up Tapering Plan
  • Fed Bowman: Comfortable With November Taper, Sees Risks
  • Pres Biden Confronts Supply-Chain Crisis Stretching Past Grip
  • Biden Admin Asks Oil Industries For Help To Tame Gas Prices
  • US Hopeful Deals With EU On Metals Tariffs By End-October
  • Chinese Factory-Gate Inflation Surges To Highest In 26 Years
  • Evergrande Leaves China Developers Shut Out Debt Markets
  • Australia September Employment Tumbles As Delta Takes Toll
  • Erdogan Rid Turkey Interest-Rate Panel Of Opponents To Cuts
  • EU Holds Brexit Talks With UK To Avert Threats To Break Pact
  • UK Port Disruption Spreads, Pose Supply Threats To Christmas
  • UK Gas Shipping Company Stops Delivering To Retail Suppliers

The Day Ahead

  • US equity markets closed higher and Asian stocks mostly gained, despite yesterday’s further rise in US CPI inflation to 5.4%y/y and FOMC minutes indicating that officials see the start of tapering of asset purchases this year. Chinese equities were more mixed after a further increase in factory-gate inflation to 10.7%y/y.
  • Elsewhere, Australia reported another decline in employment due to lockdowns, although the unemployment rate rose by less than expected to 4.6%. The UK RICS housing survey showed the net balance of surveyors expecting higher prices still high, but edging lower to 68%. The UK government said it will study the EU’s proposals on the Northern Ireland Protocol seriously, with new negotiations expected to be held.
  • It’s a day with perhaps more focus on speakers than data. Aside from US producer prices and weekly jobless claims, there are no major releases from the UK or the Eurozone, although Swedish CPI inflation may interest Riksbank watchers. US annual PPI inflation is forecast to rise further, while initial jobless claims are predicted to edge down to 320k from 326k. The UK data focus will shift to next week’s updates for CPI inflation, retail sales, GfK consumer confidence and flash PMIs.
  • Before that, there will be attention on scheduled speeches from the Bank of England MPC’s Silvana Tenreyro and Catherine Mann. Tenreyro will give a lecture on “Dominant Currency and the Impact of Monetary Policy”, while Mann will speak about “Coping with the legacy of the Covid-19 crisis”. Deputy Governor Jon Cunliffe is also expected to talk about central bank digital currencies. There are also a number of US Fed speakers today, including Bullard, Bostic, Barkin and Harker. The ECB’s Knot (Dutch central bank governor) is also due to speak.
  • With UK inflation set to rise above 4% in the coming months and remain elevated for a period, financial markets expect the Bank of England to increase interest rates from 0.1% to 0.25% in December. The impact of the end of the furlough scheme is expected to be clearer by then. In contrast, markets anticipate a US rate rise only from late 2022, even though annual CPI could rise further, and they are also relatively dovish with respect to ECB interest rates

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 - 113.90/114.00 400m. 113.70/80 590m. 112.90/113.00 1.07bn (670m C). 112.50 680m. 112.20/30 641m. 111.80/90 652m.
  • EURUSD - 1.1790/1.1800 856m. 1.1740/50 2.00bn (1.16bn C). 1.1720 541m 1.1700 486m. 1.1610/20 981m. 1.1600 1.63bn (1.20bn P). 1.1580/90 701m. 1.1550/60 970m. 1.1500 667m.
  • GBPUSD - 1.3650 624m.
  • AUDUSD - 0.7340/50 634m. 0.7190/0.7200 792m.
  • USDCAD - 1.2680/90 597m. 1.2550/60 578m. 1.2490/1.2510 890m.
  • EURGBP - 0.8670 417m. 0.8510/20 1.20bn (656m P).
  • USDCHF - 0.9350/60 620m.
  • AUDJPY - 78.50 640m

Technical & Trade Views

EURUSD Bias: Bearish below 1.17 Bullish above

  • Consolidates around 1.1600 after strong rally
  • EUR/USD opened +0.56% at 1.1595 after USD fell in NY session
  • It consolidated in a 1.1589/1.1601 during a quiet Asian session
  • Close above 10-day MA (1.1577) suggests trend lower is exhausted
  • Resistance is around 1.1640 which is last week's high and 21-day MA
  • A weekly close above 1.1640 would complete a bullish outside week
  • Support is at the 10-day MA at 1.1577 and break would ease upward pressure

GBPUSD Bias: Bearish below 1.37 Bullish above.

  • Holds offshore gains, 1.3700 break beckons
  • Steady in a tight, busy 1.3659-1.3670 range, consolidating Wednesday's gain
  • G7 lay out guidelines for central bank digital currencies
  • Interesting to see if they replace or boost existing digital products
  • Charts; 5, 10 & 21 day moving averages conflict, 21 day Bolli's contract
  • Momentum studies edge higher - mixed signals favour range trading
  • Rejection lower 21 day Bolli in September then closed above 1.3623 21 DMA
  • Setup targets 1.3788 falling upper 21 day band as seen in July & August
  • Short-term factors suggest cable rebound can extend to 1.3788

USDJPY Bias: Bullish above 111.50 Bearish below

  • USD/JPY and JPY crosses bounce in Asia, former with long US yields
  • USD/JPY from 113.21 EBS early Asia to 113.54, US Tsy 10s 1.544-1.554%
  • Yield on US Treasury 10s as low as 1.526% overnight on flatter curve
  • USD/JPY bids thick towards 113.00, dip-buy strategies again back in play
  • Japanese players noted including importers, retail short at highs
  • Massive $1.1 bln option expiries 112.95-113.00 too, 113.75-114.00 $990 mln

AUDUSD Bias: Bearish below 0.75 Bullish above

  • Eases slightly after failure to breach 0.7400
  • AUD/USD opened 0.40% higher at 0.7380 after USD broadly sold off in NY
  • It moved higher in early Asia and traded to 0.7396 at one stage
  • Sellers ahead of 0.7400 capped and it is around 0.7375/80 into the afternoon
  • There was no reaction to Aus jobs data, which was near expectations
  • Resistance is at the 100-day MA (0.7415) which has held since mid-June
  • Support is at the 10-day MA at 0.7319 and break would ease upward pressure
  • Bias is for higher while the 10-day MA holds on dips