Daily Market Outlook, October 20, 2020

Risk sentiment was cautious during the Asian trading session, following on from the weaker close in the US. Markets continued to eye prospects for a US fiscal stimulus package. House Speaker Pelosi and Treasury Secretary Mnuchin “continued to narrow their differences”, according to reports. Meanwhile, global Covid-19 cases have reached 40.3 million and deaths exceeded 1.1 million.

Bank of England MPC member Gertjan Vlieghe’s speech entitled “Assessing the Health of the Economy” will be published at 10.30am. He has previously indicated that the initial economic rebound may not be a good guide to the longer term. In his view, the risk is that it will take several years – longer than current BoE central forecasts – before the economy returns to full capacity. At the weekend, Governor Andrew Bailey said that economic risks are skewed heavily to the downside. UK September inflation figures will be released at 7am tomorrow. Expect headline CPI inflation to increase to 0.6%y/y from 0.2% in August, following the end of the government’s ‘Eat Out to Help Out’ scheme. That would still be well below the 2% target. More focus will be on September retail sales and the October flash PMI survey estimates, both due on Friday.

Some US housing data (starts and permits) will be released this afternoon. Underlying activity remains strong, while yesterday’s NAHB survey showed homebuilder sentiment rising to a record high. Attention in the rest of the week will be on the Fed’s Beige Book release tomorrow, weekly jobless claims on Thursday and the final Presidential debate on Thursday evening (Friday 2am UK time).

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

  • EURUSD: 1.1745 (1.4BLN), 1.1790-1.1800 (1.3BLN), 1.1850 (250M) 1.1865-75 (600M)
  • USDJPY: 105.00 (760M), 105.60 (885M), 105.90 (420M)
  • AUDUSD: 0.7015 (370M), 0.7050 (643M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.1750 bearish below

EURUSD From a technical and trading perspective, as 1.1750/60 now acts as resistance look for a test of 1.1650 next UPDATE 1.17/1.18 range for now, breach of 1.18 opens 1.1840, below 1.17 opens 1.1630

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, broad range trade persists 1.3050/1.29, play range or wait for breach and retest

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 bearish below

USDJPY From a technical and trading perspective, 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, .7050 test should see another move to retest .7120/30 as resistance, setting up another leg lower to test .7000

Flow reports suggest topside offers light through the 71 cent area with limited stops through the 0.7120 area, stronger offers likely on a move through to the 0.7150 area and likely to increase on a move through the 0.7180 area and into the 72 cents level before stronger stops appear above the 0.7220 area. Downside bids into the 0.7020-00 level with weak stops likely through the 0.6980 level with stronger support into the 0.6950 area and congestion thereafter.

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