Daily Market Outlook - Tuesday, Feb. 20

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Investor confidence has been unsettled by the Asia session, as U.S. equity futures falter and Treasury yields increase. Although China has made substantial cuts to mortgage rates, the mainland stock markets continue to struggle with no signs of recovery. The Shanghai Composite index has struggled to make substantial gains, and the blue chip CSI300 index has dropped by 0.2%. Furthermore, iron ore futures have seen a decline for the second consecutive session.

This morning, Bank of England Governor Bailey and three members of the Monetary Policy Committee will testify before the House of Commons Treasury Select Committee regarding their latest policy update. Among them is external member Dr. Dhingra, who was the sole voter for an interest rate cut at the February meeting. With last week's GDP data revealing the UK's end-of-year 'technical' recession, they are likely to face questions about the necessity of imminent rate cuts. Bailey has somewhat preempted this by acknowledging the late 2023 output decline and noting signs of rebound, supported by Friday's unexpectedly strong rise in January retail sales. He may also point to data showing slower-than-expected wage growth as reason to proceed cautiously with rate cuts. Nevertheless, it remains to be seen to what extent Dhingra presents a dissenting opinion.

Today's data docket is light, although the European Central Bank will release its measure of negotiated wage rates. In a recent update, the ECB highlighted labor costs as the primary contributor to domestic price pressures, noting both continued high wage pressures and tentative signs of cooling toward the end of last year. Thus, today's data will provide insight into the ECB's potential room for near-future interest rate cuts.

Early Wednesday, UK public finances data will be released, marking the last update before the 6th March Budget. Following December's data, the Office for Budget Responsibility observed that the cumulative deficit for the fiscal year was slightly below their forecast after nine months. However, Tuesday's numbers cover January, a crucial month including self-assessment tax payments, offering insight into the Chancellor's flexibility for tax reductions.

Overnight Newswire Updates of Note

  • Biden Willing To Meet Speaker Johnson To Talk Ukraine, Israel Aid
  • US, Philippines Conducted Joint Air Patrol, Drawing China Rebuke
  • Chinese Banks Cut Mortgage Reference Rate By Most On Record
  • RBA Considered Interest-Rate Hike, Saw Pause Case As Stronger
  • US Warns Against Israeli Assault On Rafah In Draft Security Text
  • Biden Adviser To Visit Egypt, Israel As Bibi’s Rafah Threats Grow
  • Oil Holds Near Three-Month High After Another Red Sea Attack
  • Iron Ore Slumps To Three-Month Low, China Concerns Escalate
  • Mining Giant BHP Sees Nickel Pain Staying As Net Income Falls
  • Capital One Buys Discover For $35 Billion In Year's Biggest Deal
  • Bayer Plans To Slash Dividend By 95% In Bid To Pay Down Debt

(Sourced from Bloomberg, Reuters and other reliable financial news outlets)

FX Options Expiries For 10am New York Cut 

(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)

  • USD/JPY: 150.50 ($1.6b), 144.00 ($980m), 143.00 ($976.9m)
  • EUR/USD: 1.0675 (EU1.07b), 1.0770 (EU834.2m), 1.0865 (EU833.5m)
  • USD/CNY: 7.1855 ($1.11b), 7.3510 ($732.1m), 7.2200 ($475.5m)
  • USD/CAD: 1.3625 ($1.46b), 1.3505 ($405.7m)
  • AUD/USD: 0.6400 (AUD1.12b), 0.6475 (AUD707.6m), 0.6775 (AUD482.7m)
  • EUR/GBP: 0.8450 (EU914.3m), 0.8550 (EU749.4m), 0.8530 (EU390m)
  • NZD/USD: 0.6150 (NZD678m)
  • GBP/USD: 1.2605 (GBP390.4m)
  • USD/MXN: 17.00 ($544.8m)
  • USD/BRL: 5.0000 ($452m)
  • FX traders might look to rates for inspiration as expectations for U.S. interest rates favor the dollar. Although traders have been buying dollars, the upward trend has halted as more of the previously anticipated easing is being factored out. Futures indicate that only 91 basis points of expected easing are priced in for this year. The U.S. interest rate is now projected to reach around 4% in May 2025, compared to the previous estimate of 3.5%. This may lead investors to be more inclined to hold onto USD, while currencies with significantly lower interest rates could face pressure. The Japanese yen (JPY), Swiss franc (CHF), Taiwanese dollar (TWD), and Thai baht (THB) are all affected by their respective low interest rates.

CFTC Data As Of 13/02/24

  • British Pound net long position is 50,472 contracts.
  • Japanese Yen net short position is -111,536 contracts.
  • Bitcoin net short position is -1,921 contracts.
  • Swiss Franc posts net short position of -6,014 contracts.
  • Japanese Yen net short position is -111,536 contracts.
  • Equity Fund managers raise S&P 500 CME net long position by 17.391 contracts to 930,253.
  • Equity fund speculators trim S&P 500 CME net short position by 39.481 contracts to 384.474.

Technical & Trade Views

SP500 Bullish Above Bearish Below 4975

  • Daily VWAP bullish
  • Weekly VWAP bullish
  • Above 5040 opens 5086
  • Primary support 4900
  • Primary objective is 5120

(Click on image to enlarge)

EURUSD Bullish Above Bearish Below 1.08

  • Daily VWAP bullish
  • Weekly VWAP bearish
  • Above 1.109 opens 1.10
  • Primary resistance 1.0950
  • Primary objective is 1.0650

(Click on image to enlarge)

GBPUSD Bullish Above Bearish Below 1.2683

  • Daily VWAP bearish
  • Weekly VWAP bearish
  • Above 1.27 opens 1.2770
  • Primary resistance  is 1.2785
  • Primary objective 1.2429

(Click on image to enlarge)

USDJPY Bullish Above Bearish Below 149.50

  • Daily VWAP bullish
  • Weekly VWAP bullish
  • Below 149.50 opens 148.70
  • Primary support 145.85
  • Primary objective is 152

(Click on image to enlarge)

AUDUSD Bullish Above Bearish Below .6590

  • Daily VWAP bullish
  • Weekly VWAP bearish
  • Below .6500 opens .6420
  • Primary support .6525
  • Primary objective is .6260

(Click on image to enlarge)

BTCUSD Bullish Above Bearish below 51000

  • Daily VWAP bullish
  • Weekly VWAP bullish
  • Below 48500 opens 46500
  • Primary support  is 44390
  • Primary objective is 54000

(Click on image to enlarge)

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