Daily Market Outlook, June 30, 2020 

Most Asian equity markets are up this morning following gains yesterday in Europe and the US. China June PMIs beat expectations with manufacturing rising to 50.9 (from 50.6 in May) and non-manufacturing at 54.4 from 53.6. The US has announced retaliatory measures against China’s passing of its Hong Kong national security law. 

The EU issued a list of 14 countries whose citizens are deemed safe to enter the bloc. The list did not include the US or China. 

The Lloyds Business Barometer rose by three points in June to its highest in three months but firms’ expectations about their own position fell modestly. The decline in Q1 UK GDP has been updated to 2.2% from 2.0% previously. 

UK PM Johnson is scheduled to speak today about his plans for boosting economic growth as lockdown restrictions are eased. Reports suggest that despite the big rise in the budget deficit in recent months he will announce a boost to government spending particularly on infrastructure projects. Chancellor Sunak is expected to provide an update on the economy next week. 

Today’s speech from Bank of England policymaker Haldane may also receive a lot of market attention. He was the only member of the BoE’s Monetary Policy Committee not to vote for a further increase in asset purchases at the June meeting. There will be interest in the reasons behind his dissent and in any reaction to BoE Governor Bailey’s recent comments that he favours starting to run down the Bank’s asset holdings before considering an interest rate hike. 

The Eurozone CPI inflation dropped from 1.4%y/y in January to 0.1% in May. However, already released data for Spain and Germany point to a modest rebound in June. Look for a rise to 0.3%, which would still leave it well below the European Central Bank’s target of close to but below 2%. The fall and likely rebound has been primarily due to moves in the oil price, but ‘core’ inflation has also posted a modest decline. 

In the US, the June Conference Board consumer confidence measure is forecast to show an improvement in sentiment about both current and future conditions. Canadian April GDP is likely to have fallen sharply due to lockdown restrictions. In the US, Federal Reserve Chair Powell and Treasury Secretary Mnuchin will testify to a Congressional Committee about the effectiveness of measures to combat the economic impact of the pandemic. They will also probably be asked whether further measures are likely to be enacted. 

Early Wednesday, the June Caixin manufacturing PMI will provide a further indication of the strength of the post lockdown rebound in China. The consensus estimate is for it to slip slightly to 50.5 from 50.7 in May

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: 1.1175 (350M), 1.1185 (1.6BLN), 1.1200-10 (700M), 1.1220 (400M) 1.1240-50 (2.4BLN), 1.1290-1.1300 (1.8BLN).
  • AUDUSD: 0.6845-50 (700M)
  • USDJPY: 106.50-60 (350M), 106.80-107.00 (700M), 108.00 (430M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.1150 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. A close today through 1.1250 will encourage bullish sentiment flipping the daily VWAP bullish and setting an interim equality objective at 1.1372. Failure to defend 1.1150 would open a move to test the downside equality objective at 1.1092

 

GBPUSD Bias: Bullish above 1.2324 Bearish below

GBPUSD From a technical and trading perspective, 1.2324 equality downside objective achieved, buyers have stepped in again as of writing to defend the equality objective. On the day only a close back through 1.2440 would suggest a more meaningful low is in place for another attempt to take out stops above 1.28. A failure below 1.23 would open a move to test 1.21 UPDATE a second failure at 1.2250 will open a move to test bids back towards 1.21, however, if bulls can defend yesterday’s lows then there is a window to mount a corrective move back to test 1.2450 from below

USDJPY Bias: Bullish above 106.75 Bearish below

USDJPY From a technical and trading perspective, as 106.75 supports there is a window for price to extend higher to test the equality objective at 108.13, watch for bearish reversal patterns in this area to see another test of 106 enroute to a pivotal 105 test

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 last week’s Chart Hit as .6830 attracts buyers there remains scope to retest and break prior cycle highs en route to a .7150 test. UPDATE failure to defend .6830 today will open a downside equality objective sighted at .6700

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