Daily Market Outlook, September 24, 2020

Asian equity market is a sea of red on concerns about the economic outlook. Fed Chairman Powell said yesterday that further economic support was likely to be necessary, while other Fed members reiterated the need for more fiscal stimulus. Futures markets point to a weaker start to the European trading session.

Chancellor Sunak has cancelled the Autumn Budget and is scheduled to update the House of Commons today at around 12:30pm on a new jobs scheme. He will outline plans to protect jobs through the winter after the Coronavirus Job Retention Scheme closes at the end of October. Reports suggest that the Chancellor has been considering a replacement to the furlough scheme along the lines of those in place in parts of Europe, where wages for workers on reduced hours are topped up by the government. Such a proposal would likely be significantly less expensive than the current scheme and would also facilitate necessary adjustments in the economy by not supporting jobs that might no longer exist.

The German IFO business survey is the main economic release this morning. Expect a further improvement in the September headline business climate index to 93.4 from 92.6, suggesting that the recovery remains on track. That would be a fifth consecutive monthly increase, and is expected to be aided by rises in both the current assessment and the expectations components. The business climate index, however, is still predicted to be below pre-Covid-19 levels, although the gap is closing.

Separately, the central banks of Switzerland and Norway are forecast to leave policy unchanged. ECB chief economist Lane is also scheduled to take part in a Q&A event. Back in the UK, the CBI distributive trades survey will provide an early glimpse into retail activity this month. Bank of England Governor Bailey is scheduled to speak to the North East Chamber of Commerce at 3pm.

The early hours of Thursday sees the release of the GfK consumer confidence report, while latest monthly public finance figures are due at 7am tomorrow.

For the US, attention will be on Fed Chair Powell who, alongside Treasury Secretary Mnuchin, will brief a Congressional Committee on the effectiveness of the policies enacted to combat the economic effects of Covid-19. Markets may look for hints as to whether further fiscal stimulus measures are likely in the near term. US data releases include weekly initial jobless claims, look for a fall to 840k from 860k which would signal further recovery in the labour market. However, concerns remain that the recovery may be losing momentum, thus necessitating further support

Today’s Options Expiries for 10AM New York Cut (notable size in bold)

  • EURUSD: 1.1600-10 (1.7BLN), 1.1625 (525M), 1.1650-60 (500M), 1.1675 (325M) 1.1700-10 (1.2BLN), 1.1725-30 (800M), 1.1750 (1.1BLN)
  • USDJPY: 104.45-55 (1.1BLN), 104.90 (830M), 105.00 (1.7BLN), 105.10 (844M), 105.25 (570M), 105.70-75 (1.4BLN)
  • GBPUSD: 1.2400 (806M), 1.2705 (250M), 1.2900 (360M)
  • AUDUSD: 0.7100-10 (1.7BLN), 0.7135 (660M), 0.7180 (735M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.1750

EURUSD From a technical and trading perspective,test of 1.1750 trendline attracted fresh bids, as 1.18 now acts as interim support look for a test of offers and stops above 1.1950 UPDATE as 1.1700/50 acts as support expect continued rotation in 1.17/1.19 range, a breach of 1.17 would suggest a deeper correction underway to challenge bids at 1.16. UPDATE as 1.1750 now acts as resistance look a challenge of bids and stops below 1.16

Flow reports suggest downside bids limited through the 1.1650 area opening the downside through to the 1.1480-1.1500 level in the short term, limited congestion around the 1.1650 level likely to give way with similar limited congestion through the figure and onwards Topside offers light through the congested 1.1800 area and the market then building above the 1.1860 area and through into the 1.1900 level with weak stops through the level but limited stops likely to leave the topside vulnerable to reversals through the area.

GBPUSD Bias: Bearish below 1.2850

GBPUSD From a technical and trading perspective, test of the pivotal primary trendline support at 1.2830/50 stalls downside for now, however as 1.3000 acts as resistance look for renewed downside to target 1.2650 next UPDATE as 1.2810 acts as resistance look for a test of bids to 1.26/1.2570

Flow reports suggest downside congestion through the 1.2700 level with limited potential for stops with a stronger supportive area on a dip to the 1.2650 level and increasing through to the 1.2630 area and possibly to the 1.2600 area before weak stops appear, any push through the level will likely to find stronger bids into the sentimental handles through to 1.2500 and possibly stronger key area. Topside light through to the 1.2800 level with limited offers only just starting to build in the area, a push through the 1.2850 area opens up the chance of a short squeeze through the 1.2900 level before stronger offers start to increase through to the 1.30000.

USDJPY Bias: Bearish below 105.50 Bullish above

USDJPY From a technical and trading perspective, as 106.50 acts as resistance look for another test of support at 105.50 failure to find sufficient bids here will expose 104.18 again. UPDATE as 105.50 now acts as resistance look for a test of bids towards 103.80 as the next downside objective. NOTE Massive 3-billion USD/JPY between 104.90-105.10 expire Thursday NY cut

Flow reports suggest offers light through to the 105.50 level with some weak stops likely on a break through and opening the market through to the slightly stronger 106.00 area with stops on a break through the 106.20-30 area, offers remain into the 107.00-20 area with congestion likely to be mixed with weak stops on a break of the level and that congestion likely to continue on any move into the 107.60 area where stronger offers are likely to appear, maybe another round of stops before stronger offers then appearing through to the 108.00 level. Downside bids into the 104.20 light and then increasing on any dips to the 104.00 level and stronger stops through the 103.80 level, any break here opens the chance of a deeper move through to the 103.00 level before stronger bids start to appear with possible option related buyers

AUDUSD Bias: Bullish above .7150 Bearish below

AUDUSD From a technical and trading perspective, as .7220 now acts as support, look for a test of psychological .7500. Only a daily closing breach of .7220 would concern the bullish thesis opening a retest of .7100. UPDATE as .7220 now acts as resistance look for a test of bids to .7050 UPDATE as .7150 acts as resistance lok for a test of bids and stops below .7000

Flow reports suggest downside light bids through to the 0.7020 area with stronger bids starting to make an appearance and possible option related bids coming into play, a push through the 0.6980 level should see weak stops appearing and the market running into congestion on any push to the sentimental 0.6950 area and likely to continue through to 69 cents area, Topside offers light through the 70 cents handle with stronger offers starting to build for any move through to the 0.7100 with weak stops on a push through the 0.7120 area and opening to the 0.7160 level before sufficient offers appear to slow any further rise however, strong offers through to the 72 cents level are likely to stymie any further movement.

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