Daily Market Outlook, September 1st, 2021

Overnight Headlines

  • Fed Reverse Repo Show No Sign Of Slowing Amid Imbalances
  • US To Unveil Steps Aimed At Easing Housing Supply Shortage
  • Biden Defend Afghan Exit Timing, Declaring It Saved US Lives
  • China Factory Activity Contract In First Time Since April 2020
  • BoJ’s Deputy Governor Warns Against Premature Tightening
  • Japanese PM Denies Dissolving Parliament Plans In Mid-Sept
  • Australia’s Q2 Economy Slow Ahead Of Lockdown Downturn
  • Australia’s Victoria Cases Rise As Lockdown Extension Looms
  • New Zealanders Venture Out As Curbs Eased In Most Region
  • SNB Warns Swiss Housing Correction As Bubble Risks Mount
  • OPEC+ Meets With No Sign of Deviating From Planned Hikes
  • Google Developing Own Processors For Chromebook Laptop

The Day Ahead

  • This morning’s UK and Eurozone manufacturing PMIs are final releases, and are expected to confirm earlier ‘flash’ estimates. The ‘flash’ UK manufacturing PMI fell slightly to 60.1 from 60.4 in July, driven by a marked fall in the output index to 54.1, as continued supply disruptions lead to lengthening supplier delivery times and backlogs of work.
  • The picture is similar for the Eurozone, with the ‘flash’ manufacturing PMI falling to 61.5 from 62.8, led by output and total orders, mainly linked to supply chain constraints, but the pace of expansion remains strong by historical standards. The August results for Italy and Spain will be released for the first time this morning. Separately, the Eurozone jobless rate is forecast to fall to 7.6% from 7.7%. Yesterday saw the Eurozone August ‘flash’ CPI rise unexpectedly strongly to a 13-year high of 3.0%y/y.
  • Meanwhile, Bundesbank President Jens Weidmann is scheduled to speak at 1pm. His comments could be interesting, given that he was reportedly not in favour of the ECB’s new forward guidance on interest rates, which basically raised the hurdle for the first increase.
  • The afternoon session sees some important US releases. The August ISM manufacturing survey could fall to 58.5, which could be the lowest this year, affected by continuing issues with supply chain disruptions and recruitment. However, that would still be well above the 50 ‘expansion/ contraction’ level. There will also be interest in the survey’s business prices index which remains very elevated but may be showing some signs of easing. July construction spending figures are also due, which we see rising by 0.5%.
  • Another key US release ahead of Friday’s official August employment report is the ‘unofficial’ ADP private sector jobs update. Last month, the US economy officially added 943k jobs, more than financial markets were expecting, with a significant proportion of those in leisure & hospitality reflecting the reopening of the economy. The ADP is not always a reliable guide to the official figures, look for an increase of 715k in today’s number.

G10 FX Options Expiries for 10AM New York Cut

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

  • USDJPY - 109.90/110.00 759m. 109.30/40 1.46bn (1.24bn P). 109.00 500m.
  • EURUSD - 1.1840 594m. 1.1820 1.05bn (882m C). 1.1700/20 1.33bn (1.18bn P). 1.1650/70 877m.
  • AUDUSD - 0.7230/40 404m.
  • USDCAD - 1.2700/20 777m. 1.2630/40 918m. 1.2600 418m. 1.2370/80 485m.

Technical & Trade Views

EURUSD Bias: Bearish below 1.1850 Bullish above

  • EUR/USD opened Asia 1.1809 and traded in a 1.1800/11 range
  • Bias is for higher, but it needs to close above 55-day MA at 1.1816
  • Sellers are tipped ahead of 1.1850 to slow any progress higher
  • Solid support is found at 1.1760 where the 10 & 21-day MAs converge
  • A break below 1.1760 would ease upward pressure for the time being
  • Market looking ahead to US non-farm payrolls - with ADP jobs out today

GBPUSD Bias: Bearish below 1.3830 Bullish above.

  • Touch softer in a 1.3619-1.3641 range with plenty of morning interest
  • UK house prices to climb on cheap cash, quest for space
  • Charts; momentum studies fall, 5, 10 & 21 daily moving averages slide
  • 21 day Bollinger bands expand - strong trending bearish setup
  • 1.3661 falling lower 21 day Bollinger band suggests oversold short term
  • Fall targets a test of 1.3572 July trend base, with 1.3452 2021 base below
  • 1.3783/90 10 day moving average and 200 DMA are pivotal resistance
  • UK retail sales lead data - polls - headline m/m +0.4%, ex fuel m/m +0.2%

USDJPY Bias: Bullish above 109 Bearish below

  • USD/JPY and JPY crosses better bid with focus squarely on global yields
  • US, Australia and NZ yields up in Asia, US Tsy 10s 1.316% to 1.344%
  • USD/JPY 109.99 to 110.23 EBS, moves above wafter-thin 110.09-11 Ichi cloud
  • Move up today also takes it back above 110.15 55-DMA, to pre-Powell levels
  • Up bias dependent on moves in US yields, resistance still pre-110.30
  • Number of daily highs to 110.80 on August 11 too
  • Japanese exporter offers trail up from 110.25, talk retail offers too
  • Option expiries today now below - 109.95-110.05 $744 mln, 109.30-40 $1.4 bln
  • Tokyo risk-on, Nikkei +1.2% @28,437, E-Minis +0.3% @4533.5
  • EUR/JPY buoyant, 129.89-130.11, GBP/JPY steady, 151.21-46
  • AUD/JPY 80.38 to 80.67, NZD/JPY 77.44 to 77.68, just under key resistance

AUDUSD Bias: Bearish below 0.7320 Bullish above

  • AUD/USD opened +0.26% at 0.7314 despite sluggish moves in risk assets
  • It traded up to 0.7324 early Tokyo on AUD/JPY demand before Aus GDP
  • It was trading at 0.7410 when Q2 Aus GDP came in better than expected
  • It traded to 0.7318 before easing back to 0.7310/15 into the afternoon
  • Market appeared to shrug off a 7% slide in Dalian iron ore futures
  • Support is at yesterday's low at 0.7288 with buyers tipped at 0.7285
  • A break below 0.7285 targets the 10-day MA at 0.7249
  • Resistance is at the 55-day MA at 0.7395 and 38.2 fibo at 0.7406