Daily Market Outlook, February 8, 2021
Market sentiment has started the week on a positive note, with most Asian equity indices trading higher along with US and European stock futures. In part, this reflected positive news on the vaccine front, with the rollout picking up pace in a number of countries – including the US and the UK. Meanwhile, social distancing rules were eased in South Korea – after it reported its lowest daily rise in new cases since November, while Japanese equities surged after it was said to be considering lifting its state of emergency in some regions.
The prospect of additional fiscal stimulus also continues to buoy markets. Late on Friday, the US House of Representatives gave final approval to a budget approval that would allow President Biden’s $1.9 trillion stimulus plan to be fast tracked. Over the weekend, US Treasury Secretary, Janet Yellen touted the relief package as having the potential to return the US to full employment in 2022.
In the UK the relatively speedy distribution of vaccines is raising hopes of an easing of lockdown restrictions. As of Saturday, more than 12 million in the UK have received a first dose of an approved vaccine, with 15 million in the top four JCVI priority groups targeted by the middle of the month and all nine priority groups, including over 50s, by the start of May.
The UK government has promised to detail a ‘roadmap’ on the easing of restrictions on 22 February, with schools in England potentially reopening on 8 March (possibly earlier in Scotland and Wales) and speculation that containment measures will start to be eased in the spring.
Assumptions about the rate at which restrictions are eased back will play an important role in the economic assessment made by central bank speakers today. Notably, ECB President Lagarde is due to speak at the European Parliament today (16:00 GMT). Previously Ms. Lagarde has suggested that the Euro area economy will pick up from the summer. However, with the vaccine rollout programme proving slow across the bloc, particularly relative to the UK, it will be interesting if a more cautious tone is adopted.
Elswehere, ECB’s Villeroy and US Fed’s Mester are also due to speak about their respective economies. Domestically, BoE Governor Andrew Bailey faces questions from a Treasury Select Committee on his previous role as CEO of the FCA when London Capital and Finance failed. Therefore his comments are unlikely to focus on UK monetary policy. Meanwhile, today’s data focus is limited to the Eurozone Sentix survey for February, which is expected to pick up from 1.3 to 2.0.
CFTC Data
USD short-covering has clearly been a theme for investors over the past couple of weeks. Last week’s CFTC data showed the first reduction in aggregate USD shorts in seven weeks; this week’s data reflects a further, larger week-over-week reduction in overall USD shorts. The still big, bearish position was clipped back by nearly USD4bn, to USD30.9bn.
Net EUR longs were slashed USD 4.5bn as gross shorts rose and gross long positions were trimmed back. The decline,the equivalent of 28.3k contracts, was the largest one-week reduction in net EUR longs since mid2018 when the EUR was depreciating rapidly from the early year peak (then) above 1.25. As has been the case more often than not in recent months, the EUR positioning shift is pretty much the whole story of this week’s report.
Net GBP and CHF longs persist and increased modestly this week, to offset some of the overall impact of EUR long liquidation. Net JPY longs, still the second largest position reflected in these data, saw some very light (USD114mn) trimming.
The commodity currencies saw little net change in overall exposure. Net CAD longs rose modestly (USD175mn), although both gross long CAD and gross short CAD positions declined this week. Speculative sentiment, as reflected by the size of the position, is not especially committed, however, it would seem. Limited net NZD long exposure was reduced this week while net AUD positioning is neutral.
G10 FX Options Expiries for 10AM New York Cut
EUR/USD: $1.1900-10(E613mln), $1.2000-05(E1.25bln, E1.15bln of EUR puts), $1.2035-50(E1.2bln), $1.2090-00(E606mln), $1.2150-65(E986mln)
USD/JPY: Y103.00-25($1,1bln)
AUD/USD: $0.7600-05(A$1.1bln), $0.7650(A$1.0bln), $0.7815-30(A$1.1bln)
USD/CAD: C$1.2700-10($586mln), C$1.2790-00($541mln)
USD/CNY: Cny6.45($1.8bln-USD puts)
USD/MXN: Mxn20.25-26($975mln-USD puts)
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Larger Option Pipeline
EUR/USD: Feb10 $1.1920-30(E1.36bln), $1.2300(E1.1bln); Feb12 $1.2000-05(E1.0bln), $1.2170-85(E1.3bln)
USD/JPY: Feb11 Y105.75($1.7bln); Feb12 Y104.95-105.00($2.4bln), Y106.00-10($2.1bln), Y106.30-35($1.0bln)
AUD/USD: Feb10 $0.7550(A$1.4bln-AUD puts)
AUD/JPY: Feb11 Y80.73-75(A$1.0bln)
USD/CAD: Feb09 C$1.2960($1.2bln)
USD/CNY: Feb09 Cny6.50($2.1bln), Cny6.55($1.2bln); Feb10 Cny6.4350($1.0bln)
Technical & Trade Views
EURUSD Bias: Bearish below 1.2050 targeting 1.1895
EURUSD From a technical and trading perspective, the closing breach of 1.20 opens a move to test the equality objective at 1.19 unless fresh demand develops here bears will target a test of the yearly pivot back towards 1.17. A close through 1.21 and the descending trendline would be a bullish development opening a retest of prior highs at 1.2350
Flow reports suggest downside bids scattered around levels 1.1950 and through to the 1.1900 level with stronger bids likely until the 1.1880 breaks and weak stops appear. Topside offers into and through the 1.2080 area continuing to the 1.2120 area before weakness appears and light weak stops open the 1.2150 area for a test, from there though topside offers start to increase into the 1.2200 level and above to limit any sudden moves.
GBPUSD Bias: Bullish above 1.35 targeting 1.3830/60
GBPUSD From a technical and trading perspective, as as 1.35 supports then prices can extend higher to test interim wave 5 upside objectives to 1.3830/60 area
Flow reports suggest topside offers increasing on a move through the 1.3760 area and into the 1.3800 area before weak stops open up through the 1.3820 area before stronger congestion through the level into the 1.3850 area before weakness starts to appear and the market opens up for a longer term move through to the 1.4100 levels. Downside bids light through to the 1.3600 level and weak stops through the level before stronger sentimental bids appear into the 1.3550 areas.
USDJPY Bias: Bullish above 104.50 targeting 107
USDJPY From a technical and trading perspective, 105.50 target achieved anticipate a profit taking pullback to develop ahead of 106 to retest bids back to 104.50. As 104.50 supports there is potential for a further squeeze higher to test offers towards 107. A loss of 103.50 would negate further upside and suggest a resumption of trend
Flow reports suggest topside offers into the 106.00 area with congestion through the level with weak stops likely on a move through to the 106.20 area and then further strong congestion into 106.50 area, increasing offers through the 106.70 area and continuing into the 107.00 level with stronger offers on a further test higher into the 107.50 area. Downside bids light back through the 105.00 level with increasing bids into the 104.50 level with bids beginning to fill the market around the level and stronger bids into the 104.00-20 areas and stronger bids below the 103.60 levels.
AUDUSD Bias: Bullish above .7560 bullish targeting .8000
AUDUSD From a technical and trading perspective, as the major trendline support at .7560 now acts as support, look for target wave 5 upside objective towards .8000. A closing breach of .7730 of the internal descending trendline will encourage the bullish thesis.
Flow reports suggest downside bids light through to the 0.7560 area and bids likely to be strong through to the 0.7550 areas and increasing on any move into the 0.7500-0.7480 area with strong stops through the level and opening stronger downside potential, topside bids light through the 0.7650 area and limited build of offers around the 77 cents level sees limited stops and the market then starting to increase resistance on any move through the 0.7750 level.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!