Daily Market Outlook, October 21, 2020

Risk appetite was a little firmer in Asia, with equity markets broadly higher with the exception of Chinese stocks. Markets reacted to comments from US House Speaker Pelosi that she is hopeful for a fiscal stimulus deal by the end of the week. At the same time, Senate Majority Leader McConnell indicated he might not favour a deal before the election on 3 November.

UK inflation figures released at 7am this morning showed September headline CPI rising to 0.5%y/y from 0.2% in August, following the end of the government’s ‘Eat Out to Help Out’ scheme. The data was slightly lower than forecast. More focus will be on September retail sales and the October flash PMI survey estimates, both due on Friday. While retail activity may have remained firm, the PMI is expected to show clouds gathering for the economic outlook, with slowing demand likely to maintain downward pressure on inflation.

For the rest of the day, central bank speakers pepper the calendar, including US Federal Reserve’s Loretta Mester and Lael Brainard who will discuss monetary policy at separate events, and Bank of England MPC member Sir Dave Ramsden.

Ramsden will give a speech at the Society of Professional Economists (SPE) entitled “UK Monetary Policy: Issues and Outlook” which will be published at 1.10pm. Unlike some of his fellow MPC members who appear more supportive of a move to negative interest rates (if and when it is warranted), Ramsden recently indicated that he thought the effective lower bound on interest rates has already been reached. Brainard will also speak at the SPE event on monetary policy from a US perspective.

Meanwhile, the Fed will release the latest Beige Book this evening, which will provide an update of current economic conditions based on its anecdotal sources. Given concerns about the recovery losing some momentum, the Beige Book will be afforded more attention than usual.

Today’s Options Expiries for 10AM New York Cut

  • EURUSD: 1.1760-65 (510M), 1.1780 (301M), 1.1800 (1BLN), 1.1850-60 (600M)
  • USDJPY: 105.00-10 (1.9BLN), 105.50 (1.3BLN), 105.90-106.00 (2.3BLN)
  • AUDUSD: 0.6900 (847M), 0.7220 (600M)
  • GBPUSD: 1.2900 (312M), 1.3050 (231M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.1687 targeting 1.19

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 UPDATE the topside breach of 1.18 puts the equality objective at 1.19 firmly in site, intraday support at 1.18

Flow reports suggest topside offers around the 1.1850 area with increasing offers through to the 1.1900 level, downside bids into the 1.1800 level with weak stops on a break through the 1.1780 level and limited bids through to the 1.1720 area where stronger bids seem to appear however, a break here opens a deeper move through to the 1.1600 area.

GBPUSD Bias: Bullish above 1.2861 targeting 1.3266

GBPUSD From a technical and trading perspective, broad range trade persists 1.3050/1.29, play range or wait for breach and retest UPDATE price contain within monthly weekly and daily pivots, as 1.2950 supports intraday look for a test of 1.3080 next

Flow reports suggest topside offers light through to stronger offers around the 1.3050 area with strong stops through the level and the market then opening for further gains. Downside bids light through the 1.2860 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: Bearish below 105.75 targeting 104.67

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: Bearish below .7243 targeting .6907

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 enroute to the equality objective at .6907

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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