Daily Market Outlook, November 11, 2021
Overnight Headlines
- Biden White House Scrambles To Tame Soaring US Inflation
- Manchin May Delay Biden BBB Agenda On Inflation Worries
- US Warn Against IP, Trade Secret Risk In Draft EU Tech Rule
- Biden, China’s Xi Virtual Summit Tentatively On For Monday
- USTR Tai: Getting ‘Traction’ With China In Phase 1 Deal Talk
- China Xi Delivers Party Doctrine To Change Course Of Nation
- Japan Wholesale Inflation Hits 40-Year High, Fuel Costs Spike
- Australia October Jobs See Shock Fall, Unemployment Jumps
- ECB Holzmann: ECB Bond Purchases Could End Next Autumn
- UK RICS House Prices Up Again, Fuelled By Dearth Of Sellers
- Tesla CEO Elon Musk Sells $5 Billion Shares After Twitter Poll
- Disney Slumps As Streaming Dips, Suggesting Struggle Ahead
The Day Ahead
- Asian equity markets were mixed, with declines minimized by gains in Chinese stocks. That was despite the fall in the US markets after October CPI inflation topped 6%, resulting in rises in US Treasury yields and speculation the Fed may speed up its tapering of asset purchases.
- UK September GDP data was released earlier this morning. It showed a monthly increase of 0.6% which, together with revisions to past data, resulted in a rise of 1.3%q/q for Q3, slightly below forecasts for 1.5% and significantly lower than 5.5% in Q2. The output measure of GDP was just 0.6% below February 2020 levels. A moderation in the pace of growth in the second half of the year was always expected since the boost from economic reopening in services in Q2 would not be repeated, but there is widespread evidence that supply bottlenecks are hampering the ability of many businesses from meeting strong demand, hence exacerbating the slowdown. The Bank of England forecasts growth to moderate further in Q4 to around 1.0%. UK attention turns to next week’s key data releases, including updates for inflation and the labour market. The annual rate of headline CPI inflation is set to increase from 3.1% towards 4% in October and could peak near 5% in the coming months. The labour market data will mostly cover September, so more focus is likely to be on next month’s release which will reveal how unemployment fared in October, the month after the end of the furlough scheme.
- There are no major US or European data releases today. There are a few ECB speakers, including Chief Economist Lane, while the European Commission will update its economic forecasts. The Commission’s Eurozone growth forecast for 2021 may be revised up slightly (previously 4.8%), but the bigger change will be potentially significant upward revisions to its projections for inflation in light of much stronger rises in energy prices and more persistent supply related cost increases.
- UK 10-year gilt yields were pulled higher by Treasury yields following the stronger-than-expected increase in US inflation yesterday to 6.2%, although they remain below levels before last week’s BoE decision to leave policy rates unchanged. In the currency markets, the pound was lower after this morning’s GDP release with GBP/USD trading below 1.34, down from around 1.3650 a week ago.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )
EUR/USD: 1.1450 (267M), 1.1490-1.1500 (721M), 1.1550-60 (1.4BLN)
EUR/CHF: 1.0630 (328M). EUR/GBP: 0.8485-0.8500 (317M)
GBP/USD: 1.3450 (200M), 1.3530-35 (455M), 1.3550 (241M)
AUD/USD: 0.7330-40 (923M), 0.7345-50 (431M), 0.7375-85 (842M)
USD/JPY: 113.00-05 (1.4BLN), 113.35-45 (1.5BLN), 113.50-60 (1.7BLN)
113.70 (1.6BLN), 114.00 (315M)
AUD/JPY: 84.50 (327M), 85.25 (304M)
Beware the big G10 FX option strike expiries this week
(Reuters) – The hedging of FX option strikes can influence FX price action if nearby, and more so when the strikes are large and soon to expire, so it's worth being armed with this information in advance.
EUR/GBP Friday has 429-million euros at 0.8625.
GBP/USD Friday has 445-million pounds at 1.3320.
EUR/USD Friday currently has 1.2-billion euros between 1.1540-50.
USD/JPY There are $1.5-billion at 114.00 on Friday.
USD/CAD Friday has $762-million at 1.2450-55, $905-million 1.2465-75, $1.2485-901.1-billion, and $886-million 1.2510-15.
AUD/USD Friday between 0.7370-85 on A$1.5-billion.
Technical & Trade Views
EURUSD Bias: Bearish below 1.17 Bullish above
- Edges lower as USD retains bid tone in Asia
- EUR/USD opened 1% lower after USD broadly gained after hot US CPI
- After opening at 1.1477 it traded in a 1.1465/87 range in Asia
- Heading into the afternoon it is around session lows
- EUR/USD trending lower with no strong support ahead of 1.1290 fibo support
- Resistance is at the 10-day MA at 1.1562 and break would ease pressure
- EUR/USD likely to stay weak while Fed expectations remain hawkish
GBPUSD Bias: Bearish below 1.37 Bullish above.
- GBP/USD remains close to 11 – month low after UK GDP data
- Cable hit 1.3393 in Asia, its lowest level since 23 Dec 2020
- Drop to 1.3393 fuelled by big rise in UST yields after hot U.S. CPI data
- 10-year UST yield jumped to 1.59% high Wednesday
- 1.3431 was rally high from 1.3393 (shortly before UK GDP data at 0700 GMT)
- UK Sept GDP +0.6% vs +0.4% f/c; Aug GDP revised down by 0.2%
- 1.3361 (23 Dec 2020 low) and 1.3300 are GBP/USD support points below 1.3393
- FX options flag the next big GBP volatility risk
- Good demand for options expiring November 16 - next UK jobs data
- These options trade a decent premium to those the day before
- 1-week (15 Nov) implied volatility 7.25, while 8-day (16 Nov) trades 8.0
- Higher implied volatility flags expectations of increased actual volatility
- BoE said they will wait for more jobs data before acting on rates
- Nov 16, and Dec 14 are last jobs data prints before Dec 16 BoE meeting
- GBP/USD options maintain a strong downside strike risk premium
USDJPY Bias: Bullish above 112.50 Bearish below
- Japanese exporter and spec offers noted to the 114.15 high earlier
- These offers/interest will likely remain in place
- Short-term specs seen back to selling rallies, buying back on dips
- Downside likely limited however on higher US yields, massive options
- Total $7.7 bln in expiries today between 113.00-85, $1.6 bln at 113.70
- US yields off late NY highs but still well above recent lows, 10s @1.569%
- Nikkei closed up 0.6% at 29,277.86
AUDUSD Bias: Bearish below 0.75 Bullish above
- Breaks support as firm USD and weak Aus jobs weigh
- AUD/USD opened -0.72% at 0.7327 after USD gained following US CPI
- It traded to 0.7340 early Asia before Aus jobs came in weaker than expected
- AUD/USD slipped to 0.7315 before finding buyers again and bounding to 0.7329
- Another round of selling late morning has taken it to a fresh low at 0.7297
- It is trading around the session low into the afternoon
- AUD/USD at risk from divergent Fed/RBA expectations
- Support at the 61.8 of 0.7120/0.7555 has given way
- Next support of significance is the Sep 29 trend low at 0.7120
- Resistance is at the 55-day MA at 0.7364
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!