Daily Market Outlook, January 22, 2021
Most Asian equity markets are lower this morning. Northern Ireland has announced an extension of its lockdown until 4th March. PM Johnson said it was too early to say when the lockdown would end in England. The UK government is reported to be considering paying people who test positive for Covid-19, £500 to self-isolate.
US President Biden issued a series of executive orders on his first day in office. These included an extension of requirements to wear face masks and other measures to combat the virus. The lower chamber of Congress is set to vote on a fiscal stimulus bill in the first week of February.
UK December retail sales rose by a less-than-expected 0.3%, bouncing back from November’s lockdown induced decline of 4.1%. The GfK measure of UK consumer confidence dipped modestly to -28 from -26 in December. Public finance data showed a further sharp rise in borrowing to £33.4bn more than six times the level at the same point a year ago.
The key data for the rest of the day are the preliminary January manufacturing and services PMIs. In the UK, December readings showed rises in both measures, although services stayed below the 50 level that signals expansion. The services index is likely to have fallen in January given the further tightening in restrictions. However, the fall may be less than is generally expected, look for a slip to 48.5 from 49.4 in December. Last month’s manufacturing number, the highest level since early 2017, seemed to have been boosted by preparations for post-Brexit disruptions and also expect a modest fall this month to 56.0.
In the Eurozone, the December reading for manufacturing climbed to 55.2, its highest since mid-2018. Services also rose but only to 46. 4, the second lowest reading since last May and well below the key 50 level. Both are expected to show falls this month with manufacturing down to 54.5 and services to 45.5 due to the further tightening of restrictions. Those moves would continue a pattern of the former, which is directly impacted by restrictions, looking stronger.
The US PMI data tends to be less closely watched than the more established ISM surveys. However, that will not be available for two weeks and in the meantime the PMIs will provide timely updates at a time of growing evidence that US economic activity has stalled. Last month, the manufacturing index rose to 57.1 (a six-year high), while services slipped to a still elevated 54.8 from 58.4. Expect declines in both measures for January but both are likely to hold above 50. Existing home sales for December will also be released and are expected to fall (by 2.0%) for the second consecutive month.
G10 FX Options Expiries for 10AM New York Cut
EUR/USD: $1.2100(E758mln), $1.2160-70(E432mln-EUR puts), $1.2275(E1.95bln)
USD/JPY: Y103.25-30($801mln), Y103.40-50($1.0bln-USD puts), Y103.80-00($666mln)
AUD/USD: $0.7630-35(A$820mln-AUD puts), $0.7765-80(A$770mln-AUD puts)
AUD/JPY: Y78.75(A$660mln-AUD calls), Y79.00(A$456mln-AUD calls)
USD/CAD: C$1.2600($569mln), C$1.2700($672mln-USD puts), C$1.2900-10($644mln)
USD/CNY: Cny6.50($655mln-USD puts)
----------------
Larger Option Pipeline
EUR/USD: Jan25 $1.2230-40(E1.2bln), $1.2245-55(E936mln); Jan27 $1.2250(E1.45bln); Jan27 $1.2250(E1.45mln)
USD/CHF: Jan29 Chf0.8800($1.3bln-USD puts)
AUD/USD: Jan25 $0.7550(A$2.8bln), $0.7650(A$1.4bln); Jan27 $0.7500(A$1.2bln)
USD/CNY: Jan25 Cny6.57($1.0bln); Jan27 Cny6.42($1.0bln); Jan29 Cny6.50($1.4bln)
Source: DTCC
Technical & Trade Views
EURUSD Bias: Bearish below 1.2265 targeting 1.2050
EURUSD From a technical and trading perspective, failure below 1.22 opens a retest of bids to 1.2050, only a close back through 1.2265 would suggest a false downside break. Downside target achieved expect profit taking pullback to test offers at 1.2150/1.22
Flow reports suggest topside offers through the 1.2180 area through to the 1.2220 area with weak stops on a move through the level into the 1.2250 area before stronger offers start to increase through into the 1.2300 level increasing into the 1.2320-30 areas before strong stops appear for a move higher. Downside bids light through to the 1.2100 level with weak stops very light through the 1.2080 with stronger bids appearing on any dip through the 1.2050 area into the 1.2000 level, stronger stops likely through the 1.1980 area and opening a deeper move.
GBPUSD Bias: Bullish above 1.35 targeting 1.39
GBPUSD From a technical and trading perspective, as as 1.35 supports then prices can extend higher to test wave 5 upside objectives to 1.3910/80 area
Flow reports suggest topside offers through the 1.3750 area are more profit taking than anything else however, any further move higher testing the 1.3800 likely to see resistance to the move through to the 1.3820 area with an old trendline in the area, weak stops opening up the market for further gains with resistance around the 50’s and 00’s area to the 1.4100 area before stronger offers really start to dominate, Downside bids light through the 1.3700 level and into the 1.3650 with only minor congestion through the level, the move to the 1.3600 area with stronger congestion from there through to the 1.3550 areas.
USDJPY Bias: Bearish below 104.50 targeting 101.20
USDJPY From a technical and trading perspective, as 104.20/50 contains upside attempts look for the next leg lower to target 101.20
Flow reports suggest light offers through the 104.00 area and increasing a little through to the 104.20 area, weak stops on the move level and light congestion running through to the 104.50 area and increasing offers then through to the 104.80-105.00 level and stronger offers. Downside bids through 103.50 area where stronger bids appear a push through the level and stronger bids then into the 103.00 level and weak stops through the 102.80 areas.
AUDUSD Bias: Bullish above .7600 bullish targeting .8000
AUDUSD From a technical and trading perspective, as .7600 now acts as support, look for target wave 5 upside objective towards .8000. Note .7800 is an interim measured move upside objective that may prompt a profit taking pullback before the uptrend resumes from.7450 trend support
Flow reports suggest light bids through to the 0.7660 area where support stiffens and the bids continue with only a little weakness to the 0.7620 area with strong stops on any dip through the 0.7580 area before stronger bids again appear in the 0.7550 area. Topside offers through the 0.7750 level and then thickening as the market tests towards the 0.7780 area with weak stops on a move through the 0.7820 areas, stops may cause some problems however, congestion is likely through the 0.7850 area and increase again through the 0.7900 areas
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.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
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!