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Intermarket:
• SP Futures 3935 (-0.74%)
• EUSTXX 3809 (-2.43%)
• Crude Oil 59.60 (-2.26%)
• US 10YR 1.66% (-0.84%)
• EurUsd 1.1775 (-0.15%)
• UsdJpy 109.46 (-0.19%)
• DAX 14752 (-0.03%)
Risk appetite is softer ahead of today’s EU open, and US futures are also weaker. Bonds mixed, with US Treasuries firmer and the US 10YR at 1.66%. Dollar is firmer versus euro and sterling, softer versus Japanese yen. Comm-dolls are soft also. Oil down. Gold softer. Industrial metals mostly lower.
Focus is on forced liquidations of positions by Archegos, which drove heavy selling pressure in China ADRs on Friday. Baidu among notable decliners in Hong Kong today. Meanwhile, Nomura and Credit Suisse warned of significant loss from transactions with US client, believed to be tied to Archegos. Lot of interest ahead of US market open.
US-China tensions remain elevated: the US said China “plans to seize control of Taiwan”. China sanctioned US religious freedom officials, Canadian MP amid tensions over Beijing’s treatment of minorities.
Coronavirus situation in Europe remains a worry amid reports third wave could soon overwhelm hospitals in France. Late last week Germany said to be considering declaring country a high incidence area requiring tests for entry.
Grounded ship in Suez Canal now freed but canal may take up to 1 week to resume operations.
Matters that Matter:
• Month-End/Quarter End flows suspected to be large.
• Stranded Suez Canal ship re-floated - Inch Cape
• Investment banks (Credit-Suisse, Nomura, etc) say large US fund failed to cover margin calls, seeing forced liquidation of positions; losses will impact Q1 results.
• ECB must remain euro zone’s stabiliser - chief economist Lane
• Merkel presses German states to get tough with COVID curbs
• France also stepping up COVID restrictions.
• Britain nearing vaccine deal with European Union - Times
• More than a fifth of small UK exporters have temporarily halted EU sales
Majors Weekly View:
USDJPY
- Prices posted a bullish engulfing at the weekly level, which would suggest further upside. However, prices are stretched on multiple levels and, alongside month-end/quarter-end flows, we suggest caution. Selling into rallies may be the smarter move around 109.50-80, or buying any dip to 108.50.
- Profit taking reported from close to 109.80.
- Offers reported up to 110.00 option barriers with large stops above.
- Upside limited ahead of quarter-end flows and JP fiscal year-end (Wed)
EURUSD
• Prices posted the 4th lower weekly high in a row last week, with losses of over 1 ½ Big Figs. As such, signals remain bearish this week.
• EUR vulnerable on new lockdowns, COVID spread
• Support at 1.1760, resistance at 1.1860
AUDUSD
• Prices posted losses of 2 Big Figs last week, reaching fresh lows for 2021 at .7562. Buyers returned into the close, but on balance signals remain slightly bearish going into the week.
• Forced equity sales weigh on risk appetite, also news that Brisbane going into 3-day lockdown.
• Support at .7620, .7560; Resistance .7680.
GBPUSD
• Prices posted initial losses of 2 Big Figs last week, reaching fresh 6-wk lows at 1.3670. However, buyers returned into the close, with prices closing little changed. As such, signals are more mixed this week and we prefer to trade a break of 1.3670/1.3878.
• Caution required as lockdowns ease
• New COVID variants in Europe still problematic
FX Relative ATR Grid
Comment: Volatility remained elevated last week, suggesting decent trading conditions into month-end/quarter-end.
Initial Directional Cues for the Week
Comment: going into the week we are seeing USD, JPY, CHF strength vs. weakness in comm-dolls. This would appear a typical risk-off move.