Daily Market Outlook, June 29, 2020 

A risk off tone dominates market sentiment at the start of the new week, with all major Asian equity indices in the red. This follows the recent rise in regional outbreaks of Covid-19 case increases, particularly in the US, which has led to some states pausing their reopening process. However, the extent of the market’s pessimistic reaction may have been mitigated by reports that a vaccine developed by a Chinese firm has received approval for military use.

Across Europe, the main focus will be on June CPI inflation from Germany and Spain, ahead of tomorrow’s French and Eurozone flash releases. Today’s outturns are expected to be consistent with Eurozone headline inflation rising to 0.3%y/y in June having fallen to just 0.1%y/y in May. The turnaround is expected to be led by higher energy prices, though core CPI inflation is forecast to edge down to 0.8%, keeping both headline and core inflation well below the ECB’s target.

In the UK, the Bank of England will release May lending data, including consumer credit and mortgage approvals which had weakened significantly in April. While the RICS housing survey pointed to some improvement in the new buyer enquiries balance in May – from the all-time low reached in April – the feed-through to mortgage approvals is likely to take some time. As such, mortgage approvals are likely to have remained depressed in May.

A number of central bank policymakers are also due to speak. In the UK, BoE Governor Bailey and MPC member Vlieghe are scheduled. Meanwhile, in the US, we hear from Fed members Daly and Williams – the latter of whom is speaking at a joint event with IMF managing director Georgieva.

Overnight, updates on consumer and business confidence are due from the GfK survey and Lloyds Business Barometer. Consumer confidence improved in the early June survey to -30 from -36 in May. Overall confidence in the Lloyds Business Barometer, however, fell to a new low of -33 in May. Also early Tuesday, China’s official PMIs for June will be watched for signs of further improvements, especially with the rest of the world gradually moving out of lockdown.

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: 1.1165 (760M), 1.1200 (850M), 1.1230 (300M), 1.1250-60 (600M), 1.1270 (1BLN), 1.1300 (800M)
  • 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 1.1170 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. 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 1.1170 would opena move to test the downside equality objective at 1.1092

GBPUSD Bias: Bullish above 1.2324 targeting 1.27

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

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

 

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