Daily Market Outlook, September 17th, 2021

Overnight Headlines

  • ECB: FT Article On Inflation, Rates Outlook Isn't Accurate
  • China Formally Applies To Join Pacific Rim Trade Pact
  • N.Korea Expands Uranium-Enrichment Plant Satellite Images Show
  • U.S., Australia Concerned For Hong Kong, Will Boost Taiwan Ties
  • Biden Failed To Persuade Manchin On $3.5t Spending Bill - Axios
  • Biden Discusses Economic Plan, Debt Ceiling With Pelosi, Schumer
  • Sunak To Set Out New Fiscal Rules To Rein In UK Borrowing
  • Russian C.Bank Chief: Inflation Could Strongly Deviate From 4% Target
  • Spain, Unions Agree EU15 Increase To Minimum Wage
  • Dollar Holds Upper Hand After US Retail Sales Boost
  • PBoC Injects $13.9 Billion As Evergrande Debt Woes Roil Market
  • Bund Futures Drop On FT Report Of Unpublished ECB Inflation Est.
  • Silver Slumps To Lowest Since December As Treasury Yields Rise
  • Asian Shares Stabilise But Global Growth Fears Nag

The Day Ahead

  • UK official retail sales data, released this morning, showed an unexpected decline of 0.9%m/m in August. That was on the back of a sharp 2.8%m/m drop in July. Monthly retail sales moves are often erratic, but the recent falls follow big rises earlier in the year, and there are clear indications that spending has switched more into services. Overall, the outlook for UK consumer spending still looks positive, although there are some concerns that higher inflation will erode real wage growth.
  • Attention is likely to switch back to inflation today. Figures released earlier this week showed a sharp rise in UK CPI inflation in August to a near decade high of 3.2%. That has further fuelled speculation about an early rise in policy interest rates. In addition to the 15bps increase to 0.25% in May 2022, markets have moved to (more or less) price in a further quarter-point increase to 0.5% by the end of 2022. Economists, however, are generally more cautious about prospects for interest rate rises.
  • This morning’s Bank of England/Kantar update on inflation expectations for the next twelve months may therefore receive more attention than usual. UK households’ expectations for inflation in the year ahead has continued to drift lower, but it will be interesting to see whether it starts to move higher in the latest survey.
  • Eurozone August CPI inflation figures today are expected to confirm earlier ‘flash’ estimates showing an increase to 3.0%, the highest for a decade, while core CPI inflation rose to 1.6%. The ECB continues to expect the rise to be transitory and forecasts headline inflation to fall back below its 2% target next year.
  • In the US, figures also released earlier this week showed annual CPI inflation remaining elevated at 5.3% in August, also the month-on-month rise was softer than expected. US consumer inflation expectations have already begun to move higher this year, especially for one year ahead (at 4.6%), but also for 5-10 years ahead (2.9%). An update from the University of Michigan survey will be provided this afternoon. The survey’s headline consumer sentiment index will also be watched closely after falling sharply last month. Look for a partial retracement.

G10 FX Options Expiries for 10AM New York Cut

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

  • USDJPY - 109.70/80 618m. 109.50/60 517m.
  • EURUSD - 1.1970/80 1.42bn (1.25bn C). 1.1800/10 1.63bn (1.14bn P). 1.1770/80 634m. 1.1740/50 1.89bn (P).
  • AUDUSD - 0.7500 725m. 0.7310/20 1.27bn (918m P). 0.7300 1.09bn (P). 0.7230/50 914m.
  • AUDNZD - 1.0550 409m.
  • USDCAD - 1.2810/20 1.36bn (785m C). 1.2790/1.2800 1.12bn (840m C). 1.2760/70 625m. 1.2740/50 1.21bn (879m C). 1.2700 1.04bn (704m C). 1.2640/50 799m. 1.2620/30 547m. 1.2600/10 817m. 1.2490/1.2510 1.05bn (724m P).
  • EURJPY - 128.30 400m.
  • USDCNH - 6.43 702m

Technical & Trade Views

EURUSD Bias: Bearish below 1.19 Bullish above

  • EUR/USD heavy in Asia, bracketed by option expiries
  • EUR/USD doing little in Asia, 1.1759-69 EBS, heavy, low o/n 1.1751
  • Spot bracketed by option expiries - 1.1735-50 E2.1 bln, 1.1800-15 E1.6 bln
  • Little in way of flows, news to affect trade but risk seen down
  • Market seen heavy from @1.1765
  • Below 1.1750, support eyed at 1.1735 low August 27, below to 1.1700
  • EUR/JPY tad better bid with USD/JPY, 129.04-29, EUR/GBP, EUR/CHF inactive
  • Huge option strike expiries surround EUR/USD Fri, help contain...
  • Pandemic low implied volatility consistent with broader ranges holding
  • Risk reversals show tiny EUR put over call premium - EUR downside vulnerable
  • One-week implied volatility higher since capturing next weeks FOMC
  • Shows dealers not complacent about post Fed volatility Wed

GBPUSD Bias: Bearish below 1.39 Bullish above.

  • GBP/USD – Top in place, mixed signals into BoE next week
  • Touch softer in a 1.3784-1.3798 range with only occasional interest
  • Difficult BoE rate decision Sep 23rd amid lower growth and high inflation
  • Two MPC new members and end of furlough adds to uncertainty
  • Focus likely on forecasts and the tone of comments rather than policy change
  • Charts; momentum studies crest, 5, 10 & 21 DMAs coil - neutral setup
  • Tested 1.3900 Tuesday and retreated hard - suggests major 1.3910 resistance
  • 1.3757, 50% of August-September rise and 1.3727 Sep low are initial support
  • 1.3765 NY low and London 1.3841 high are initial support and resistance

USDJPY Bias: Bullish above 109 Bearish below

  • USD/JPY seeing some pep, looking to test 110.00?
  • USD/JPY on up-up in Asia ahead of Japan's long weekend
  • From 109.67 earlier to 109.92 EBS so far, plying through offers
  • Japanese exporters initially sold this morning at @109.80
  • More offers tipped at 109.90 and trail up to 110.20, some filled
  • USD/JPY back in 109.76-110.19 daily Ichi cloud, above 109.86 100-DMA
  • 55-HMA at 109.95 initial resistance above, then cloud top
  • Some option expiries today above 110.00, 110.05-20 $342 mln
  • US yields firm, supportive, Treasury 10s @1.341%

AUDUSD Bias: Bearish below 0.75 Bullish above

  • Dalian iron ore futures slide – 0.7176 test beckons
  • Steady in a 0.7282-0.7297 range, busy early, then a quiet afternoon
  • Dalian iron ore futures off 5% Friday, -25% this week - caps AUD
  • Australia's coal mines risk becoming stranded after 2030 - RBA...
  • RBA's assessment is in line with broad financial market forecasts
  • Charts; momentum studies, 5, 10 & 21 DMAs conflict, 21 day Bolli's contract
  • Neutral setup with the price back in the middle of August/September range
  • Thursday's close below 0.7323 21 DMA targets the 0.7176 lower Bollinger band
  • Asia's 0.7282 low and 0.7304 NY high initial support and resistance