Daily Market Outlook, May 29, 2020 

<h2><span>Daily Market Outlook, May 29, 2020 </span></h2>
<p><span><strong>The Asian equity market is ending the week on a cautious tone as signs of escalating tensions between the US and China continue to weigh on sentiment.</strong> In response to China imposing new national security legislation on Hong Kong, US President Trump said that new US policies against China would be announced today. This has led to some questions being raised over whether the US would remain in the ‘phase one’ trade deal it signed with China in January. Sentiment in the Far East has also not been helped by weak data readings from Japan for April. Retail sales fell 9.6%m/m while industrial activity slumped by 9.1%m/m – both were much weaker than expected. </span></p>
<p><span><strong>In the UK results of the latest Lloyds Business Barometer showed overall business confidence edged lower in May, to -33% from -32% previously</strong>, matching the all-time low set in December 2008. </span></p>
<p><span><strong>For the rest of the day, weak inflation and consumer spending data reports from the Eurozone and US are likely to underscore the need for ongoing policy support from the ECB and Federal Reserve</strong>. Already released inflation data for Germany and Spain point to the likelihood of a further easing in the annual rate of Eurozone CPI inflation in May. Look for a drop to 0.1%y/y from 0.4% in April, primarily due to the much lower oil price, though ‘core’ inflation is also expected to moderate a little, from 0.9%y/y to 0.8%. </span></p>
<p><span><strong>Similarly, in the US, personal spending is expected to have fallen sharply last month</strong>, look for a 12.0%m/m drop in April. This is likely to reflect the impact of lockdown measures put in place aimed at reducing the spread of Covid-19 and the drop in incomes due to people being made unemployed and/or being placed on furlough. Meanwhile, the Fed’s preferred measure of inflation – the PCE deflator – is forecast to ease from 1.3%y/y to 0.5% in April. If nothing else, today’s economic data points are likely to underscore the need for ongoing monetary stimulus. This message is likely to be reiterated by central bank speakers, including US Fed Chairman Powell who is due to take part in a ‘virtual’ discussion with former Fed Vice Chairman Alan Blinder (16:00 BST). </span></p>
<p><strong>CITI Month-End FX Hedge Rebalancing: May 2020 Final Estimate</strong></p>
<ul>
<li><span> The final estimate of month-end hedge rebalancing flows continues to call for USD selling against all major currencies except JPY.</span></li>
<li><span> Developed markets equity indices continued to make gains in May with the MSCI World local currency index reaching levels last seen at the end of February. The signal to sell USD is based on foreign equity investors’ needs to hedge gains in US equity holdings while fixed income investors are likely to be marginal net USD buyers today.</span></li>
<li><span> Today’s signal is a USD sell even against currencies like EUR and GBP where local equities have somewhat out-performed. This is due to imbalances in our model’s asset allocation and hedge ratio assumptions which suggest more global investors hold US equities and investors outside the US may hedge more. JPY is the exception to this with low hedge ratio assumptions and very strong MSCI Japan performance leading to a net balanced flow estimate.</span></li>
</ul>
<h3><b>Today’s Options Expiries</b><span> for 10AM New York Cut (notable size in bold)</span></h3>
<ul>
<li><span>EURUSD: 1.0990-1.10 (780M), 1.1050-55 (820M), 1.1110 (370M) </span><b>1.1145-55 (1.1BLN), 1.1350 (2.5BLN)</b></li>
<li><span>USDJPY: 107.50 (381M), 108.25 (526M), 108.50 (520M)</span></li>
<li><span>AUDUSD: 0.6500 (640M), 0.6600 (1.1BLN), 0.665 (665M),</span><b> 0.6700 (1.45BLN)</b><span> 0.6800 (900M)</span></li>
<li><span>GBPUSD: 1.2200-10 (360M), 1.2225 (463M), 1.2300 (487M)</span></li>
</ul>
<h3><span>Technical &amp; Trade Views</span></h3>
<p><b>EURUSD Bias: Bullish above 1.09 targeting 1.11</b></p>
<p><span>From a technical and trading perspective, the rejection and reversal from last weeks 1.10 test has gathered momentum, the daily volume weighted average price has now flipped bearish, without a snap back rally and close back above 1.0935, price looks poised retest support back to 1.08, a failure here would be a further bearish development opening a move to test the downside equality objective at 1.0630 and the current year to date lows. UPDATE after the topside breach of triangle resistance price appears to be addressing momentum divergence, as yesterday’s highs contain the current cycle there is the potential to retest the apex of the triangle back towards 1.09 before making an attempt at the 1.11 upside objective UPDATE target achieved potential for profit taking pullback to test 1.10 as support before mounting an assault on the primary equality objective targeting 1.1240</span></p>
<p><img class="aligncenter size-full wp-image-44401" src="http://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.48.12.png" alt="" width="2150" height="1202" srcset="https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.48.12.png 2150w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.48.12-300×168.png 300w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.48.12-1024×572.png 1024w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.48.12-768×429.png 768w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.48.12-1536×859.png 1536w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.48.12-2048×1145.png 2048w" sizes="(max-width: 2150px) 100vw, 2150px" /></p>
<p><b>GBPUSD Bias: Bearish below 1.23 targeting 1.20 bullish above 1.23 targeting 1.25)</b></p>
<p><span>GBPUSD From a technical and trading perspective, the momentum trendline failure forewarned of the price decline through 1.23 support, as this level contains upside attempts look for a move to test the pivotal support cluster to 1.20 It is noteworthy demand has picked up for GBPUSD FX options that would allow holders to sell the pound at 1.2000 and below over coming weeks. There’s already been demand for early July downside options as concern grows over the June 30 Brexit deadline If buying interest isn’t sufficient to defend 1.2150 then bears will press for a test of the 1.20 target. UPDATE a breach of 1.23 opens a move to the equality objective at 1.24 UPDATE as 1.2360 equality objective contains upside attempts focus shifts back to the 1.20 downside objective a close through 1.24 opens 1.25 test</span></p>
<p><img class="aligncenter size-full wp-image-44402" src="http://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.49.09.png" alt="" width="2151" height="1202" srcset="https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.49.09.png 2151w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.49.09-300×168.png 300w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.49.09-1024×572.png 1024w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.49.09-768×429.png 768w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.49.09-1536×858.png 1536w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.49.09-2048×1144.png 2048w" sizes="(max-width: 2151px) 100vw, 2151px" /></p>
<p><b>USDJPY Bias: Bearish below 108.50 targeting 1.0465)</b></p>
<p><span>USDJPY From a technical and trading perspective, as 1.0850 contains the upside drift, look for a move back through 1.07 to develop downside momentum,however, a topside breach of 108.50 would delay downside objectives opening a retest of range resistance above 109 before lower again</span></p>
<p><img class="aligncenter size-full wp-image-44403" src="http://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.50.13.png" alt="" width="2153" height="1204" srcset="https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.50.13.png 2153w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.50.13-300×168.png 300w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.50.13-1024×573.png 1024w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.50.13-768×429.png 768w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.50.13-1536×859.png 1536w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.50.13-2048×1145.png 2048w" sizes="(max-width: 2153px) 100vw, 2153px" /></p>
<p><b>AUDUSD Bias: Bullish above .6450 targeting .6700)</b></p>
<p><span>AUDUSD From a technical and trading perspective, price testing pivotal .6568 prior cycle highs area if sufficient supply is seen here look for another leg lower to test trend support back to .6330 before another attempt to base and make another run towards the .6700 primary upside objective. Note considerable momentum divergence developing this will likely be addressed in a move to test range support back to .6400 before a final attempt to make the .6700 primary upside objective. UPDATE as .6550 support look for a test of offers and stops above .6700, this level will likely see profit taking on the first test and could prove pivotal in a move extended corrective phase.</span></p>
<p><img class="aligncenter size-full wp-image-44404" src="http://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.51.02.png" alt="" width="2150" height="1205" srcset="https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.51.02.png 2150w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.51.02-300×168.png 300w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.51.02-1024×574.png 1024w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.51.02-768×430.png 768w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.51.02-1536×861.png 1536w, https://blog.tickmill.com/wp-content/uploads/2020/05/Screenshot-2020-05-29-08.51.02-2048×1148.png 2048w" sizes="(max-width: 2150px) 100vw, 2150px" /></p>
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