Daily Market Outlook, November 28, 2019 

Main Market Themes

All eyes will be on China and the potential “Phase 1” trade deal after US President Trump signed the Hong Kong Human Rights and Democracy Act into law on Wed. The bill has overwhelming bipartisan support in the US President Donald Trump also signed another bill to bar the sale of munitions such as tear gas and rubber bullets to Hong Kong police.

USD strengthened against most of its major peers on strong data. The GBP surged as a popular poll indicated significant Tories majority in December ballot. Gold and JPY slipped in a risk-on environment, crude oil prices fell by 0.3-0.5%. Brent crude closed at $64.06/barrel. 

US 3Q GDP growth revised higher: US 3Q annualized GDP growth was revised higher from 1.9% to 2.1% QOQ (2Q: +2.0%) according to the BEA’s second estimate as a result of upward revisions to private inventory investment, nonresidential fixed investment, and personal consumption expenditures (PCE) that were partially offset by a downward revision to state and local government spending. On a yearly basis, real GDP growth was slower at 2.1% (2Q: +2.3%), but better than the initial estimate of 2.0%.  

Solid increase in US personal spending; further pullback in core PCE inflation: The latest Personal Outlay Report shows that personal spending picked up a solid 0.3% MOM in October (Sep: +0.2%) despite an unchanged personal income (0.0% vs +0.3%), adding to signs of strong consumer spending in the fourth quarter. The gain in the all-important core PCE price index, the Fed’s preferred gauge of inflation however pulled back further to 1.6% YOY (Sep: +1.7%) confirming that inflation has lost momentum in recent months in the US, but we do not foresee this to alter the Fed’s latest monetary policy outlook which is to keep fed funds rate unchanged in the December meeting.  

US durable goods orders, core capital orders rebounded: Orders of durable goods i,e goods meant to last for at least three years rose 0.6% MOM in October (Sep: -1.4% revised), supported by the larger increase in computer & electronic products as well as nondefense as well as defense aircrafts. Orders of motor vehicles & parts continued to decline although at a smaller magnitude. The key capex gauge core capital orders (nondefense capital orders excluding aircrafts) meanwhile picked up by a solid 1.5% MOM (Sep: -0.5% revised) while shipments of these goods also rose 0.8% MOM (Sep: -0.8%), a welcoming sign that US firms are raising capital expenditure in at the start of the final quarter.

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

  • EURUSD: 1.1025 (EUR697mn)
  • USDJPY: 108.65 (USD375mn)
  • GBPUSD: 1.30 (GBP281mn) 1.2950 (301mn)

Technical & Trade Views

EURUSD (Intraday bias: Bearish below 1.1070 targeting 1.0960)

EURUSD From a technical and trading perspective, the failure to hold 1.1030 combined with Thursday & Fridays bearish reversals suggests tactical USD bullish bias into this week. I retain short exposure from Friday, look for 1.1050 to cap upside attempts targeting a test of bids sub 1.1000. On the day only a close above 1.1070 would suggest downside failure and a return to range. NO CHANGE IN VIEW, note EURUSD volatility made new lows on the year yesterday as trading range contract significantly.

GBPUSD (Intraday bias: Bullish above 1.29 targeting 1.32)

GBPUSD From a technical and trading perspective, 1.29 is the bull bear line in the sand this week, a drive through offers and stops here will set up a grind higher to retest offers and stops above 1.30 en route to the broader upside objective of 1.32, on the week only a failure below 1.2820 would open a test of support towards 1.2720 with further consolidation in the 1.27/1.29 range. GBPUSD…UPDATE close above 1.29 injects upside momentum, with stops above 1.30 the immediate upside objective, only a reversal below 1.2820 would concern the bullish bias suggesting a false upside break and return to well defined 1.27/1.29 range

USDJPY (intraday bias: Bullish above 109 targeting 110.50)

USDJPY From a technical and trading perspective, the anticipated further long liquidation to test bids back towards 108.50 played out and bulls once again defended the key support, a failure to  recapture ground above 109 suggests another test of bids towards 108.50. A close above 109.50 opens 110.50 test. USDJPY…UPDATE the upside breach of 109.50 on a closing basis suggests a further grind higher to test the long awaited 110.50. Caution in lower liquidity today as a close back below 109 would suggest a false break and return to range 108/109

AUDUSD (Intraday bias: Bearish below .6830 targeting .6750)

AUDUSD From a technical and trading perspective, pivotal .6830 prior support now acts as resistance only a sustained drive through this level would suggest a false donside break and confirm a base for another assault on .6900 offers and stops. As .6830 caps upside attempts expect a retest of Fridays low enroute to a test of .6765 NO CHANGE IN VIEW

 

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