Daily Market Outlook, June 26, 2020 

Most Asian equity markets are up this morning following gains yesterday in Europe and the US market, although China and Taiwan were closed for holidays. 

The US recorded a record number of new Covid-19 cases for a single day, rising in 29 of the 50 states. A draft EU list of countries with which it plans to reopen borders is reported as including China and India but not Brazil or the US. US Federal Reserve policymakers Kaplan and George both warned that a rise in Covid-19 infections could delay the economy’s recovery. George also noted that it may be a while “before the dust settles” and the Fed is able to tell if more support for the economy is warranted. 

Bank of Japan Governor Kuroda said that the BoJ will wind back its extraordinary stimulus measures as the economy returns to normal but for now wouldn’t hesitate to offer further support. 

Today’s data calendar is rather light with nothing of note in the UK. In the Eurozone, M3 money supply data may show signs of the impact of the European Central Bank’s efforts to combat the economic impact of the Covid-19 pandemic. Over recent months annual growth in M3 has risen from 5.5% in January to 8.3% in April, possibly reflecting in part the liquidity injection by the ECB. The consensus expectation is for a further acceleration to 8.6% in May. In the US, the 17% rebound in May retail sales is predicted to translate into a sharp rise in overall consumer expenditure. Other areas of spending are likely to have been much weaker. In particular, many consumer service providers, which account for a large part of overall spending, continued to be locked down throughout May. Nevertheless, look for a big monthly rise of 9.0%. 

Today’s consumer update will also include the latest data for the consumer price deflator, the US central bank’s preferred inflation measure. Annual inflation has fallen, on this measure, from 1.8% in February to 0.5% in April, well below the Federal Reserve’s target of 2.0%. That is primarily due to a big fall in oil prices but ‘core’ inflation has also dropped to 1.0% from 1.8%. Inflation may have slipped modestly further in June. It may now be close to bottoming. However, as underlying pressures are subdued inflation is likely to remain below the Fed’s target for a considerable time. The final reading for June consumer sentiment from the University of Michigan may show a further improvement from the original outturn of 78.9. That was already a three-month high reflecting better readings on both current conditions and future expectations

CitiFX Quants  first estimate of June’s month-end FX hedge rebalancing flows points to a modest need for USD selling. The preliminary model estimate suggests a +0.5 historical standard deviation to sell USD vs all G10 pairs. The signal to sell USD is driven by the global equity investors’ need to increase their hedges as the gains in the US market are likely to have left them under-hedged. The EURUSD signal is the weakest due to the outperformance of the European equity and bond markets. These strong performances are likely to mean that global investors also need to sell EUR.

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

  • EURUSD: .1100 (756M), 1.1150 (820M), 1.1180 (630M), 1.1200 (2.2B), 1.1225 (433M), 1.1250 (764M), 1.1265 (480M), 1.1275 (476M), 1.1300 (782M).
  • AUDUSD: 0.6875 (357M), 0.6950-60 (536M)
  • USDJPY: 106.00 (641M), 107.00 (463M), 108.00 (390M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.1170 targeting 1.15

From a technical and trading perspective, as symmetry swing support at 1.1170 supports there is a window for fresh demand to take prices higher again to retest cycle highs above 1.14 enroute to an ultimate retest of year to date highs at 1.15. However, it is noteworthy that the daily volume weighted average price has flipped bearish as such a failure to hold support at 1.1170/50 would open a deeper corrective phase to rest bids back to 1.10 UPDATE prices have reversed from the equality support objective, printing a bullish key reversal candle yesterday opening a window for a retest of cycle highs above 1.14. UPDATE As yesterday’s highs cap there is the potential for a pullback to retest bids to 1.1250 before the next leg higher may develop UPDATE 1.1250 test underway, failure to attract sufficient demand here opens another test of the pivotal 1.1170 before another upside attempt

GBPUSD Bias: Bullish above 1.24 targeting 1.27

GBPUSD From a technical and trading perspective, 1.2324 equality downside objective achieved, buyers have stepped in and as this level is defended look for a move to test descending trendline resistance at 1.25. Bearish reversal patterns in this area would set up a move to retests and ultimately erode support at 1.2320 opening a move to test 1.21. On the day only a close back through 1.2510 would suggest a more meaningful low is in place for another attempt to take out stops above 1.28 UPDATE the daily chart has flipped bullish as per the volume weighted average price, expect some supply around the symmetry swing resistance at 1.2570 as 1.2450 continues to support bulls will target a test of offers and stops above 1.27 UPDATE 1.24 under threat again failure to defend this level will open another test of 1.2325

USDJPY Bias: Bearish below 107.25 Bullish above

USDJPY From a technical and trading perspective, sharp rejection above 109.50 suggests a return to range trade and a retest of support back to 107 UPDATE target achieved as 108 caps upside attempts bears will play for a test of year to date lows to 106 UPDATE target achieved as 107 symmetry swing resistance contains corrections look for a move to test the pivotal 105 next UPDATE as price consolidates above 107 there is a window for a retest of 108 before resuming attention on downside objectives

AUDUSD Bias: Bullish above .6830 targeting .7150)

AUDUSD From a technical and trading perspective, after the rejection from above the .7050 level and the subsequent failure to hold .6900 as support, anticipate a test of the corrective equality objective back to .6650. Only a close back through .6910 would reignite bullish spirits suggesting the current correction is complete opening another run to test offers and stops above .7050 UPDATE As discussed in today’s Chart Hit as .6830 attracts buyers there remains scope to retest and break prior cycle highs en route to a .7150 test

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