Daily Market Outlook, May 21, 2020 

Risk tone in the Asian market was mixed after gains earlier in the week. That followed tweets from President Trump accusing China of a “disinformation and propaganda attack” on the US and Europe

Data wise, both Australia and Japan reported improvements in their May services PMI to 25.5 (from 19.5 in April) and 25.3 (from 21.5) respectively, but their manufacturing PMIs fell back to 42.8 (from 44.1) and 38.4 (from 41.9). Japan’s exports in April fell 21.9%y/y, although that was marginally better than the consensus forecast.

Markets will be looking for signs that major economies are past the trough, although the speed of any recovery remains uncertain. Today’s business survey data for the Eurozone, UK and US in May will generate particular interest. In the UK, expect sizable rebounds in the PMIs for both manufacturing (to 44.5 from 32.6 in April) and services (44.5 from 13.4), although the consensus forecasts predict smaller rises. UK and Eurozone PMIs are expected to remain below the key 50 expansion/contraction level, although the pace of decline is expected to have moderated compared with April as lockdown measures began to be lifted. The UK CBI industrial trends survey is also released today. 

The US Markit PMI data are also predicted to have picked up in May. Look for manufacturing to rise to 45.0 (from 36.1 in April) and services to 39.0 (from 26.7). The Philadelphia Fed industrial survey may also have rebounded. Market watchers forecast a rise in the headline measure to a still very weak -35.0 from -55.6 in April. Weekly jobless claims data will be watched for further timely indications that the pace of the rise in unemployment is slowing. In contrast, less timely April existing home sales are expected to show a very big fall. 

Central bank speakers today include the ECB’s Panetta and the Fed’s Williams, Clarida and Chair Powell. The latter will be making opening remarks at a ‘Fed Listens’ event. 

Early Friday (at 7am) sees the release of UK April retail sales and public finances figures. Market watchers predict a record month-on month fall in retail sales of 18% as solid grocery sales are offset by a slump in spending on most other categories. The budget deficit is also expected to show a big rise, reflecting the increase in government spending.

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

  • EURUSD: 1.0920 (300M), 1.1080 (1BLN)
  • USDJPY: 107.65-70 (600M)
  • GBPUSD: 1.2025 (623M), 1.2260 (200M), 1.2275 (400M), 1.2400 (320M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.09 targeting 1.1050

 From a technical and trading perspective, watch for continued reaction at the ascending trendline support towards 1.0750, a failure to defend this area would be a bearish development opening a move to test year to date lows. However if 1.0750 continues to hold look for a test of 1.09 interim equality objective and then onto a descending trendline resistance sighted at 1.0950 UPDATE A closing breach of descending trendline resistance encourages the bullish bias, as 1.09 now acts as support bulls target a test of the interim equality objective at 1.1050

GBPUSD Bias: Bearish below 1.2250 targeting 1.20)

GBPUSD From a technical and trading perspective, the momentum trendline failure forewarned of the price decline through 1.23 support, as this level contains upside attempts look for a move to test the pivotal support cluster to 1.20 UPDATE noteworthy demand has picked up for GBPUSD FX options that would allow holders to sell the pound at 1.2000 and below over coming weeks. There’s already been demand for early July downside options as concern grows over the June 30 Brexit deadline UPDATE if buying interest isn’t sufficient to defend 1.2150 then bears will press for a test of the await 1.20 target

USDJPY Bias: Bearish below 108.50 targeting 1.0465)

USDJPY From a technical and trading perspective, range contraction persists,albeit with a downside bias, a breach of 106.80 should inject downside momentum. A topside breach of 108.50 would delay downside objectives opening a retest of range resistance above 109 before lower again UPDATE Huge $934mln option expiry Wednesday, can help contain near term too. Option implied volatility continues falling to ever new crisis lows, shows that options aren’t yet expecting actual volatility to increase, falling implied volatility consistent with range trading view

AUDUSD Bias: Bullish above .6450 targeting .6700)

AUDUSD From a technical and trading perspective, price testing pivotal .6568 prior cycle highs area if sufficient supply is seen here look for another leg lower to test trend support back to .6330 before another attempt to base and make another run towards the .6700 primary upside objective UPDATE note considerable momentum divergence developing this will likely be addressed in a move to test range support back to .6400 before a final attempt to make the .6700 primary upside objective 


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