Daily Market Outlook, October 15, 2020

Asian equity markets are mostly lower this morning following declines yesterday in Europe and on Wall Street. The US Treasury said that a pre-election fiscal stimulus package is now unlikely. A number of European countries have reported significant rises in Covid-19 cases. France has ordered a curfew for nine cities. In the UK, Northern Ireland has announced new restrictions from Friday including the closure of schools and hospitality venues for two weeks. Reports suggest that extra restrictions in London may be imminent. In Australia the unemployment rate rose and employment fell by less-than-expected in September.

Today sees the start of the two day EU summit that will review the progress of the negotiations between the UK and EU on the future relationship. Comments in the run up to the meeting have suggested that while progress has been made some key sticking points remain including fishing rights and security. As a result EU chief negotiator Barnier has said that the talks are not yet ready to enter the so called ‘tunnel’ or final intensive phase. UK PM Johnson has previously threatened to walk away from the talks if sufficient progress has not been made, although comments yesterday suggested that such a move is not imminent.

The Summit will also discuss a range of other topics and the main one will inevitably be Covid-19. Leaders agreed on a fiscal support package at a previous meeting but some of the details are proving to be sticking points delaying progress on the final agreement in the EU parliament. So given growing concerns about the downside risks to growth they may want to give the process fresh impetus.

There are no data releases of note in the UK or Eurozone. In the US, the New York and Philadelphia Feds will release their latest surveys. So far the economy seems to have continued to grow despite concerns about the rise in Covid-19 cases through the summer. Today’s numbers will provide some first indications for October but bear in mind that these surveys are volatile. One area where the post-lockdown rebound has slowed is the labour market. Recent weekly jobless claims have been close to levelling off at almost three times the pre-pandemic rate. Today’s update is expected to show only another small fall.

There are a number of central bank speakers scheduled for today. Those from the US Fed are unlikely to say anything that is new about the monetary policy outlook. They will probably echo recent comments from Fed Chair Powell that the economy needs more fiscal support. Bank of England policymaker Cunliffe’s comments will be watched for anything further on the possibility of negative interest rates. He has previously said that all policy tools should be considered but that there are analytical and operational issues regarding a move to negative rates.

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

  • EURUSD: 1.1695-1.1700 (1BLN), 1.1725-30 (1BLN), 1.1750 (250M) 1.1800 (1.1BLN), 1.1820-30 (650M), 1.1835-45 (800M), 1.1850-60 (1.1BLN)
  • USDJPY: 104.85 (1BLN), 105.00-10 (1.7BLN), 105.20 (462M), 105.25 (2.2BLN) 105.30 (700M)
  • GBPUSD: 1.3100 (451M)
  • AUDUSD: 0.7000 (358M), 0.7220-30 (625M

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. 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 UPDATE 1.2850 probe saw sharp reversal, today look for 1.2950 support to stage a test of 1.31

Flow reports suggest topside offers through the 1.3080 level and likely to continue weakly through to the 1.3150 area with increasing congestive offers from that point onwards through to the 1.3200-20 area, Downside bids light back through the 1.3000 level with weak stops likely close through the level with very little around the 1.2950 area and increasing into the 1.2900 level, stronger stops on a break here will then see stronger bids starting to appear through to the 1.2800 area.

USDJPY Bias: Bullish above 105.20 bearish below

USDJPY From a technical and trading perspective, as 105.20 supports look for a move to test offers and stops to 106.30 UPDATE breach of ascending trend channel concerns bullish thesis as 105.50 caps upside look for a test of 104.90

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 UPDATE as .7170 caps upside look for a test of .7050 next

Flow reports suggest topside offers increase through the 0.7250 area and likely to find very deep congestion through to the 0.7340 area with minor stops likely to be absorbed easily, a push through the 0.7360 area though would likely see stronger tests appearing for a test of the stronger 74 cents level from the beginning of last month, downside bids into the 0.7100 area and stronger stops then opening a quick move through to the 70 cents levels and for today possibly a bit far.

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