Daily Market Outlook, June 25, 2020 

The Asian equity market is down this morning following big declines yesterday in Europe and the US, although some markets are closed for holidays. Reports link the declines to concerns about a further rise in US Covid-19 cases and the reintroduction of some lockdown measures in a part of Germany. In the UK, a human trial of a vaccine has begun. The UK government is reported to be planning to unveil a travel corridor plan next week covering 10 countries. US Fed policymakers commented that the economy is on course for recovery in the second half of 2020 but there continues to be “tremendous” risks. One Fed official said that a move to negative rates is unlikely. A Senate Committee is reported to be working on legislation to allow US citizens to sue China over Covid-19. The White House is said to be also considering new tariffs on some EU goods. 

The June CBI retail survey will provide the latest gauge of post-lockdown consumer activity. Anecdotal reports suggest that retailers have seen strong sales as they open up again. The official measure of retail sales surprised on the upside in May recording a 12% monthly jump and today’s data may provide further signs of improvement this month. 

Today’s US Q1 GDP release is a third reading that is not expected to be revised from the previous update. So the focus in markets is likely to be on more timely indicators. The advanced international trade report and durable goods orders and shipments for May are all forecast to show some improvement. The June Kansas City Fed manufacturing index is expected to match its equivalents in other parts of the country and notch a significant pickup. Finally, weekly jobless claims data, which have been trending down for several weeks will be watched for further indications that unemployment has peaked. 

The European Central Bank will release minutes of its last policy meeting, when it expanded its emergency pandemic programme. The text may give more detail on further policy options. Potentially of most interest amongst today’s central bank speakers will be the Bank of England’s Haldane. However, as he is scheduled to talk about the ‘future of society’ it is unclear whether he will touch on monetary policy. Haldane was the only member of the BoE’s Monetary Policy Committee not to vote for a further increase in asset purchases last week. Markets will be interested in the reasons behind his dissent and any reaction to BoE Governor Bailey’s comments that he favours starting to run down the Banks’s asset holdings before considering an interest rate hike. 

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 (363M), 1.1200 (1.6B), 1.1260 (805M), 1.1275 (301M) 1.1310-15 (736M), 1.1325 (449M)
  • GBPUSD: 1.2200 (292M), 1.2600 (256M)
  • USDJPY: 107.00 (485M), 107.25 (295M), 107.40 (500M), 108.00 (530M)

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 targeting 105

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

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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