Asian equity market is mostly higher this morning following yesterday’s modest gains in Europe and the US. The New Zealand central bank left interest rates unchanged at its latest monetary policy update. However, it raised the possibility of introducing a ‘funding for lending scheme’ for banks before year end to lower borrowing costs. September PMIs readings for Japan posted modest improvements in August but both manufacturing and services stayed below the 50 expansion level. In Germany, the latest consumer confidence reading posted a smaller-than-expected gain.

Today’s PMI data for September follows some big surprises last month. August saw much weaker than expected outturns, particularly for services, in the Eurozone alongside upside surprises in the UK. That may have reflected a pickup in Eurozone Covid-19 cases providing a dampener on activity, while UK output was boosted by government initiatives including ‘eat out to help out’. Nevertheless the gaps between the Eurozone and UK data look suspiciously wide and expect them to have narrowed this month. Look for modest upward moves in both the Eurozone manufacturing (to 51.9 from 51.7 in August) and to services (to 51.2 from 50.5). In the UK, we expect falls in manufacturing (53 from 55.2) and services (55 from 58.8). Those levels that are still consistent with strong GDP growth.

In the US, expect mixed data with the manufacturing measure rising to 53.5 from 53.1 but services slipping to 54.5 from 55.0. There are no other data of note today. However, there are a number of central bank speakers, mostly in the US, including Fed Chair Powell who is scheduled to testify to Congress for the second day in a row. It seems unlikely that he will have anything to add to yesterday’s testimony when he acknowledged some signs of improving economic activity but also reiterated previous comments that more fiscal stimulus is probably required to support growth.

Today’s other Fed speakers are also unlikely to waver significantly from recent updates. The Fed’s key messages are that, while monetary policy is on hold for now, they stand ready to offer further support if necessary. Moreover, recent tweaks to their policy framework and forward guidance were intended to emphasise the message that US interest rates will probably remain close to zero for a long period of time.

Informal negotiations on the UK’s future relationship with the EU are continuing this week ahead of next week’s formal round. EU chief negotiator Barnier is supposed to be in London today for talks. Meanwhile, it has been confirmed that this week’s EU summit, where Barnier was supposed to brief leaders, has been cancelled because EU Council President Michel is self-isolating.

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

  • EURUSD: 1.1685 (462M), 1.1700 (836M), 1.1760-65 (500M), 1.1780 (350M)
  • USDJPY: 104.50 (860M), 104.60-65 (500M), 105.00 (471M), 105.15 (530M)
  • GBPUSD: 1.2860 (212M), 1.2945 (280M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.18 bearish below

EURUSD From a technical and trading perspective,test of 1.1750 trendline attracted fresh bids, as 1.18 now acts as interim support look for a test of offers and stops above 1.1950 UPDATE as 1.1700/50 acts as support expect continued rotation in 1.17/1.19 range, a breach of 1.17 would suggest a deeper correction underway to challenge bids at 1.16 NOTE There's roughly 120 billion of expiries between 1.17 and 1.20 Sep-Nov. Area has, by far, the greatest amount of options due to expire soon. UPDATE as 1.1750 now acts as resistance look a challenge of bids and stops below 1.16

Flow reports suggest downside through the 1.1680 area opening the downside through to the 1.1480-1.1500 level in the short term, limited congestion around the 1.1650 level likely to give way with similar limited congestion through the figure and onwards Topside offers light through the congested 1.1800 area and the market then building above the 1.1860 area and through into the 1.1900 level with weak stops through the level but limited stops likely to leave the topside vulnerable to reversals through the area.

GBPUSD Bias: Bearish below 1.29

GBPUSD From a technical and trading perspective, test of the pivotal primary trendline support at 1.2830/50 stalls downside for now, however as 1.3000 acts as resistance look for renewed downside to target 1.2650 next UPDATE as 1.2810 acts as resistance look for a test of bids to 1.26

Flow reports suggest downside congestion through the 1.2700 level with limited potential for stops with a stronger supportive area on a dip to the 1.2650 level and increasing through to the 1.2630 area and possibly to the 1.2600 area before weak stops appear, any push through the level will likely to find stronger bids into the sentimental handles through to 1.2500 and possibly stronger key area. Topside light through to the 1.2800 level with limited offers only just starting to build in the area, a push through the 1.2850 area opens up the chance of a short squeeze through the 1.2900 level before stronger offers start to increase through to the 1.30000.

USDJPY Bias: Bearish below 105.50 Bullish above

USDJPY From a technical and trading perspective, as 106.50 acts as resistance look for another test ofsupport at 105.50 failure to find sufficient bids here will expose 104.18 again. UPDATE as 105.50 now acts as resistance look for a test of bids towards 103.80 as the next downside objective. NOTE Massive 3-billion USD/JPY between 104.90-105.10 expire Thursday NY cut

Flow reports suggest offers light through to the 105.50 level with some weak stops likely on a break through and opening the market through to the slightly stronger 106.00 area with stops on a break through the 106.20-30 area, offers remain into the 107.00-20 area with congestion likely to be mixed with weak stops on a break of the level and that congestion likely to continue on any move into the 107.60 area where stronger offers are likely to appear, maybe another round of stops before stronger offers then appearing through to the 108.00 level. Downside bids into the 104.20 light and then increasing on any dips to the 104.00 level and stronger stops through the 103.80 level, any break here opens the chance of a deeper move through to the 103.00 level before stronger bids start to appear with possible option related buyers.

AUDUSD Bias: Bullish above .7250 Bearish below

AUDUSD From a technical and trading perspective, as .7220 now acts as support, look for a test of psychological .7500. Only a daily closing breach of .7220 would concern the bullish thesis opening a retest of .7100. UPDATE as .7220 now acts as resistance look for a test of bids to .7050

Flow reports suggest downside bids into the 71 cent level likely to be a key reversal area and a push through the 0.7080 is likely to see strong stops coming into play for a quick test through to the 0.7020-00 level with congestion on the move through the level and weak stops mixed with supportive bids with congestion likely to continue through to the 0.6940 area.

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In this Daily Market Outlook, our market expert looks into the trading day ahead, possible market moving data releases and the technical analysis to accompany it!