Daily Market Outlook, October 7th, 2021

Overnight Headlines

  • Dems Take Short-Term Debt Fix Offer, New December Deadline
  • Biden, Xi Plan Virtual Meeting Before End Of Year, US Says
  • US Considers Releasing Emergency Oil Reserves
  • King Dollar Not Yet Ready To Abdicate, Say FX Strategists
  • ECB Said To Study New Bond-Buying Plan For When Crisis Tool Ends
  • EU Energy Chief Says Gas Price Surge Has No Quick Fixes
  • Olaf Scholz Considering German ‘Traffic Light’ Coalition
  • France’s Foreign Minister: Differences With Britain Getting Bigger
  • BoJ's Kuroda: Consumer Inflation To Perk Up On Rising Energy Costs
  • 'Kishida Shock' To Stocks Shows Fear Japan Will Slide On Reforms
  • Dollar Holds Near 14-Month High To Euro On Inflation Fears
  • Oil Retreats From Multi-Year Highs After U.S. Stock Build

The Day Ahead

  • Ahead of tomorrow’s US labour market report, there will be some market attention on today’s ECB minutes and a number of central bank speakers, including the ECB’s chief economist Philip Lane. The minutes may provide further detail about the announcement at the September meeting to conduct bond purchases under the pandemic emergency purchase programme (PEPP) at a ‘moderately slower pace’ in the final months of the year.
  • President Lagarde has denied that the ECB is ‘tapering’ its asset purchases. As noted above, reports suggest the ECB may consider a replacement for PEPP when it winds down next March, with a decision that will potentially be announced by the end of the year. In contrast to the UK and the US, markets have not priced in a rise in official interest rates until 2023 despite Eurozone inflation rising to 3.4% in September.
  • The US Federal Reserve’s Mester is also due to speak today, which may attract interest as she will be part of a panel talking about inflation dynamics. US weekly jobless claims data will be released, look for a decline to 335k from 362k.
  • Overnight sees the release of Chinese Caixin services PMI which is forecast to move up but still be below the 50 growth/contraction level. The Caixin manufacturing PMI moved up to 50.0 from 49.2, with supply shortages continuing to constrain activity.

G10 FX Options Expiries for 10AM New York Cut

(Hedging effect can often draw spot toward strikes pre expiry if nearby)

  • USDJPY - 111.50 762m. 111.20/30 840m. 111.00 865m. 110.10/20 474m. 109.00 467m.
  • EURUSD - 1.1510/20 560m.
  • AUDUSD - 0.7240/50 510m.
  • USDCAD - 1.2850/60 815m.
  • GBPJPY - 152.10 414m.
  • USDMXN - 20.98 1.08bn (C). 20.70 806m. 20.00 662m.
  • USDCNH - 6.45 653m

Technical & Trade Views

EURUSD Bias: Bearish below 1.17 Bullish above

  • Steadies above 1.1550 quiet Asian trading
  • EUR/USD opened -0.35% at 1.1556 after trading to fresh 2021 low at 1.1529
  • Asia was risk-on, as AXJ equity index rose 1.3%, but EUR/USD didn't move
  • It traded 1.1551/61 and was unchanged around 1.1555 into the afternoon
  • EUR/USD trending lower as 5, 10 and 21-day MAs in a bearish alignment
  • Resistance is at the 10-day MA at 1.1620 and break eases downward pressure
  • The next level of support is at the 50% of the 1.0636/1.2349 move at 1.1492

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • Primary trend still lower amid Brexit fallout
  • Flat with risk bid as the U.S. may avert an Oct debt default
  • Traded in a tight 1.3587 - 1.3596 range with only modest interest in Asia
  • Intel not considering a UK factory due to Brexit - BBC
  • EZ far larger market - offshore industrial investment likely price of Brexit
  • Charts; momentum studies, 5, 10 & 21 daily moving averages conflict
  • 21 day Bollinger bands slide - bias remains lower while 1.3670 21 DMA caps
  • Targets another test of 1.3419, 38.2% May 2020 to June 2021 rise
  • Sustained 1.3670 break would target a test of the falling 1.3913 upper Bolli

USDJPY Bias: Bullish above 109 Bearish below

  • USD/JPY, JPY steady to better bid in Asia ahead of US jobs report tomorrow
  • USD/JPY 111.32-51 EBS, offers from @111.80, trail up, 112.08 high 9/30
  • Japanese institutional investors again better buyers on dip, with importers
  • Large option expiries in area today and tomorrow, to help contain action
  • Today 111.00 $865 mln, 111.25-35 $890 mln, 111.50 $762 mln, 111.70-112 $561
  • Tomorrow 111.00 $2.5 bln, 111.10-50 total $782 mln, 111.75-112.00 $1.5 bln
  • Relatively firm US yields supportive, Treasury 10s @1.538%
  • Nikkei rebounding after recent falls, +1.7% @27,990, 27,293 low yesterday

AUDUSD Bias: Bearish below 0.75 Bullish above

  • Moves higher as buoyant equity markets support
  • AUD/USD opened -0.22% at 0.7273 after recovering from 0.7226 in NY
  • After trading at 0.7269 it moved higher on move up in Asian equities
  • E-minis gained 0.60% while the AXJ equity index soared 1.3% higher
  • AUD/USD traded to 0.7290 before settling around 0.7280/85
  • AUD getting support from move up in Aus 10-year yield and LNG strength
  • AUD/USD resistance is at 0.7310/20 where daily highs and 55-day MA converge
  • Support is at the 10-day MA at 0.7258 and yesterday's 0.7226 low