Daily Market Outlook, May 22, 2020 

Market risk sentiment turned lower during the Asian trading session, with the Hang Seng index hit particularly hard, falling more than 5%. That followed comments by China’s Premier Li that new national security legislation to rein in dissent in Hong Kong is planned, which could also further heighten US-China tensions. Equity markets opened lower in Europe. In Japan, the BoJ left its main policy settings unchanged but it launched a new lending programme to support businesses.

UK April retail sales and public finances figures were released at 7am this morning. The closure of non-essential stores resulted in the volume of sales (including fuel) dropping by 18.1% on the month after a 5.2% fall in March. Non-food store sales plunged 41.7% on top of the prior month’s 19.5% fall. Grocery sales declined 4.1% after the stockpiling-related 10.1% surge in March. Non-store (including internet) sales surged by 18.0%. The budget deficit, meanwhile, rose sharply in March to £62.1bn, reflecting the increase in government spending. 

The ECB will publish the account of its last monetary policy meeting on 30 April later today (12:30pm). There had been speculation that the Pandemic Emergency Purchase Programme (PEPP) would be expanded at that meeting, but policymakers left it at €750bn. Markets will be analysing the minutes closely for insights on whether and when the programme will be increased. The focus of that ECB meeting instead was the decision to ease terms for its TLTRO3 programme, which provides loans to banks, with the rate falling to as low as -1% (50bp below the deposit rate) if lending targets are met. The ECB also launched its PELTRO programme which provides loans to a wider range of banks at the refinancing rate (currently 0%). ECB Chief Economist Philip Lane speaks at a virtual conference at 3.30pm. 

Canada will release March retail sales with the consensus forecast for a large 10.5% month-on-month decline.

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

  • EURUSD: 1.0855-60 (2.5BLN), 1.0865 (328M), 1.0875-85 (2.8BLN) 1.0900 (532M), 1.0950 (750M), 1.1000 (1.1BLN), 1.1035-40 (1.3BLN)
  • USDJPY: 106.75-85 (2BLN), 107.00 (1.4BLN), 107.45-50 (1.3BLN) 107.70-80 (800M).
  • GBPUSD: 1.2200 (750M)
  • AUDUSD: 0.6470 (460M), 0.6505 (350M), 0.6620-35 (900M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.09 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 UPDATE A closing breach of descending trendline resistance encourages the bullish bias, as 1.09 now acts as support bulls target a test of the interim equality objective at 1.1050. UPDATE a failure of sufficient bid support at 1.09 opens a move back to test 1.08 ascending trendline support again

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 UPDATE if buying interest isn’t sufficient to defend 1.2150 then bears will press for a test of the await 1.20 target

USDJPY Bias: Bearish below 108.50 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 UPDATE note considerable momentum divergence developing this will likely be addressed in a move to test range support back to .6400 before a final attempt to make the .6700 primary upside objective 

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