Daily Market Outlook, May 19, 2020 

Asian equity market is up this morning after strong gains yesterday in Europe and on Wall Street. Reports of positive tests on a Covid-19 vaccine may have helped lift prices. German Chancellor Merkel and French President Macron agreed to support the EUR500bn recovery fund plan but cautioned that much remains to be worked out. European Central Bank President Lagarde said the plan was “ambitious, targeted and welcome”. 

The UK labour market report mainly covers the period only up to March and so is not timely enough to capture the most significant impacts of the Covid-19 pandemic. As a result employment rose by a more than expected 201k, while the unemployment rate fell to 3.9% (from 4.0%). However, a big rise in benefit claimants in April of 857k points to a probable large increase in unemployment next month.

April’s results for the German ZEW survey were very mixed as current conditions reading fell to an all-time low but the expectations component rebounded by much more than forecast. Markets expect a modest rise in today’s current conditions data for May but expectations may slip slightly. In the US, housing starts and building permits are forecast to have fallen very sharply in April due to lockdown restrictions. 

US Federal Reserve Chair Powell and Treasury Secretary Mnuchin will testify to a Senate committee today about the measures to combat the economic impact of the pandemic. Powell’s already-released opening statement says that the Fed will use the “full range of tools to support the economy” and that it expects to “maintain interest rates at this level until we are confident that the economy has weathered recent events”. He is likely to be questioned about his comments last week that further fiscal measures will probably be necessary and his ruling out of a move to negative interest rates for now. 

ECB Chief Economist Philip Lane will speak this afternoon. Given ongoing concerns with the German Constitutional Court’s ruling that the ECB needs to justify the extent of its asset purchases (under the Public Sector Purchase Programme) it will be interesting to see if Lane has anything more to say about this. Last week he commented that the PSPP was “proportionate” to economic circumstances. 

April UK CPI data (to be released early Wednesday) is forecast to show a sharp fall in annual headline inflation to 0.8% (from 1.5% in March) due principally to lower utility and petrol prices. A fall below 1% will mean that the BoE Governor will have to write to the Chancellor of the Exchequer explaining why the inflation target has been missed.

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

  • EURUSD: 1.0845-50 (900M), 1.0860-65 (1.4BLN), 1.0890-95 (850M)
  • GBPUSD: 1.2050 (363M), 1.2200 (261M), 1.2300 (430M)
  • AUDUSD: 0.6450 (272M).

Technical & Trade Views

EURUSD Bias: Bullish above 1.0750 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

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

USDJPY Bias: Bearish below 107.50 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

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

 

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