Asian equity market is mostly higher this morning. Reports suggest that the President has considered fast-tracking a Covid-19 vaccine ahead of November’s election. Trump said “we do not have to” do business with China and Democratic Presidential candidate Biden promised that under him taxes would not be raised on anyone making less than $ 400,000.
In Australia, the state of Victoria extended its state of emergency to up to 18 months. In New Zealand, Auckland extended its lockdown to 30th August. New Zealand retail sales fell by 14.6% in real terms in Q2, compared to a 1.2% decline in Q1.
A volatile week in markets seemed to end on a mixed note. On the one hand, news from Pfizer that its Covid-19 vaccine was on course for regulatory review in October lent support to some equity markets. However, on the other, a further pickup in coronavirus cases in a number of European countries, notably France and Germany, and disappointing August Eurozone PMI data provided timely updates of the impact of the pandemic. In response equity markets were relatively range bound on the week with few major movers, while government bond yields edged lower.
In currency markets, the US dollar was under pressure for much of last week but ended it on a stronger note. The euro, having touched above 1.19 against the US dollar subsequently depreciated. Sterling at one point hit a new high for the year, above 1.3250, before easing back despite some positive economic data surprises.
This week’s sparse economic data calendar has a distinct late-August feel. There are a number of releases in the US that may interest markets but elsewhere it seems set to be very quiet. That suggests the focus will remain on coronavirus news and particularly the latest evidence on European trends. Also likely to command attention is the Kansas City Fed’s annual economics symposium, which will include talks from US Fed Chair Powell and Bank of England Governor Bailey.
Today’s data calendar is particularly light with nothing of note. Early Tuesday Norway’s Q2 GDP update is expected to confirm that output fell sharply during the lockdown although the decline is expected to have been relatively small compared to that elsewhere. In Germany, updated estimate for Q2 GDP is likely to be unrevised from the original estimate that saw a 10.1% decline.
The buildup of EUR bullish/USD bearish sentiment that has developed consistently over the past couple of months took a “time out” in the latest CFTC positioning report. Overall positioning against the USD retrenched modestly, with the aggregate USD short edging USD344mn lower than the previous week. The broader USD short position remains substantial at USD31.9bn, however. Sentiment trends have been dominated by the accumulation of EUR bullish positioning—triggered initially by EUR short covering in the early part of the year and subsequently (through late June/early July) by the jump in gross long EUR positions. This week, the EUR contract was especially quiet, with EUR bulls sated amid record net longs. Net EUR longs fell very slightly (USD58mn), the first decline in two months.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.1850 (241M)
- USDJPY: 104.90-105.00 (1.1BLN), 106.00-10 (900M)
- GBPUSD: 1.3050 (234M)
Technical & Trade Views
EURUSD Bias: Bullish above 1.17 targeting 1.20
EURUSD From a technical and trading perspective, the breach of trendline support and suggests that we may be entering an extended consolidation phase, as 1.1860 contains upside attempts look for a retest of 1.17 base before another attempt to test the psychological 1.20
GBPUSD Bias: Bullish above 1.32 Bearish below targeting 1.30
GBPUSD From a technical and trading perspective, erratic price action into the end of last week, printing three daily reversal patterns, Friday’s bearish reversal on the Daily time frame flipped the daily chart bearish again, as 1.32 now acts as resistance look for a test of range support to 1.30
USDJPY Bias: Bullish above 105.50 Bearish below
USDJPY From a technical and trading perspective, as 106.50 acts as resistance look for another test of support at 105.50 failure to find sufficient bids here will expose 104.18 again. Note DTCC shows a massive USD 7-billion 105.00 strike option expiries this week. Biggest collection Wednesday – USD 3.2-billion, and Thursday – 1.6-billion. Several billion Wed-Thurs from 105.75 to 105.40 too, but little above 106.00
AUDUSD Bias: Bullish above .7200 targeting .7300
AUDUSD From a technical and trading perspective, reversal from the test of offers above .7250 finds support at .7150 as this contains the downside look for another run at .7300 before a more meaningful reversal
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