Daily market outlook, November 26, 2019

Main market themes

• Equity markets extended gains, buoyed by rising sense of trade optimism that helped push Wall Street main indexes to finish at record highs. Markets gained confidence from multiple reports from both the Chinese and American sources that suggest that the US and China could indeed reach a partial deal this year.
• The Dow Jones, S&P 500 and NASDAQ rose 0.7%, 0.8% and 1.3%, led by a broad rally across sectors that saw tech shares reaping the biggest gain (+1.4%) overnight.
• The trade sensitive Philadelphia Semiconductor index jumped by 2.4%, its largest increase in more than a month.
• Treasury yields however moved only a little, edging lower by around 1-2bps along the curve, offering signs that investors remained cautious.
• The USD strengthened against most of the major currencies but the dollar index picked up only a little on the back of a stronger pound which was boosted by polls that showed the Conservatives are leading in December ballots.
• Oil prices rose 0.4%. Brent crude closed at $63.65/barrel.
• Chicago Fed National Activity Index points to slower US growth: The Chicago Fed National Activity Index slipped further to -0.71 in October (Sep: – 0.45), led by declines in production related indicators, suggesting a pullback in growth last month. All four categories of indicators namely production, sales & orders, employment and personal consumption & housing made negative contributions to the headline index.  Texas factory activity continued to decline: The Dallas Fed’s Texas Manufacturing Outlook Survey reported that its general business activity index was at -1.3 in November (Oct: -5.1), marking its second month of negative reading that suggests continuous albeit smaller contraction in Texas factory activity. The production index fell to -2.4, its first venture into the negative territory since June-16, offering signs of weakening conditions amidst softer company outlook and elevated uncertainty.
• The US economic docket on Tuesday is heavy. The advance goods trade balance for October is due, alongside wholesale and retail inventories data. September house price data from FHFA and S&P Case-Shiller will also be due, followed by the Richmond Fed manufacturing index for November, new home sales for October, and November consumer confidence data. Fed Governor Lael Brainard speaks later today on the Fed’s review of its policy framework.

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

• EURUSD:  1.1020 (EUR225mn); 1.1035 (EUR324mn); 1.1100 (EUR347mn); 1.1140 (EUR305mn)
• USDJPY: 109.50 (USD2.3bn)
• GBPUSD: 1.2825 (GBP235mn)
• AUDUSD: 0.6800 (AUD507mn)

EURUSD (Intraday bias: Bearish below 1.1070 targeting 1.0960)

From a technical and trading perspective, the failure to hold 1.1030 combined with Thursday & Fridays bearish reversals suggests tactical USD bullish bias into this week. I retain short exposure from Friday, look for 1.1050 to cap upside attempts targeting a test of bids sub 1.1000. On the day only a close above 1.1070 would suggest downside failure and a return to range. NO CHANGE IN VIEW

GBPUSD (Intraday bias: Neutral bearish below 1.29 bullish above)

From a technical and trading perspective, 1.29 is the bull bear line in the sand this week, a drive through offers and stops here will set up a grind higher to retest offers and stops above 1.30 en route to the broader upside objective of 1.32, on the week only a failure below 1.2820 would open a test of support towards 1.2720 with further consolidation in the 1.27/1.29 range. NO CHANGE IN VIEW

USDJPY (intraday bias: Bearish below 109 targeting 107.90)

From a technical and trading perspective, the anticipated further long liquidation to test bids back towards 108.50 played out and bulls once again defended the key support, a failure to  recapture ground above 109 suggests another test of bids towards 108.50. A close above 109.50 opens 110.50 test. NO CHANGE IN VIEW

AUDUSD (Intraday bias: Bearish below .6830 targeting .6750)

From a technical and trading perspective, pivotal .6830 prior support now acts as resistance only a sustained drive through this level would suggest a false downside break and confirm a base for another assault on .6900 offers and stops. As .6830 caps upside attempts expect a retest of Fridays low enroute to a test of .6765 NO CHANGE IN VIEW

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