Asian equity markets are down this morning led by big declines in Chinese indices. The ongoing rise in government bond yields was cited as a key reason behind the move. Concerns about US-China relations may also have been a factor as officials from both sides made critical comments at the start of ‘high level’ talks.

The Bank of Japan as expected left its main monetary policy tools unchanged at this morning’s update. Following a review, it has made some changes to its asset purchase process including scrapping its buying target for some types of funds. However, BoJ Governor Kuroda said that it had not widened the range around its 10-year yield target.

The GfK measure of UK consumer confidence for March released earlier this morning increased to -16 from -23, its highest level since last March. That reflected more positive sentiment about both consumers’ own finances and the general economic situation prompted by the rollout of the Covid-19 vaccine. The latter component is still well below its pre-pandemic level but can be expected to continue to move up as lockdown restrictions are eased further.

Just released UK public finances data for February showed monthly net borrowing of £18.4bn. That was slightly below forecasts but still almost £18bn higher than for the same month a year ago before the impact of the pandemic started to be felt. In the Budget earlier this month, it was forecast that the full-year deficit for 2020/21 would reach a peacetime record of £355bn (or 16.9% of GDP). That would be a six-fold increase on the borrowing total for the previous financial year and around £300bn higher than the Office for Budget Responsibility’s pre-pandemic forecast.

The rest of today’s data calendar is extremely light with nothing of note in the UK, Eurozone or the US. In Canada, retail sales data for January will be watched for signs that domestic economic conditions are improving.

European Central Bank policymaker Panetta is scheduled to speak today and there will be particular interest in whether he has more to say about increases in government bond yields. ECB policymakers in contrast to their counterparts at the US Federal Reserve and the Bank of England have been much more willing to say that the market move is unwarranted. BoE Deputy Governor Cunliffe will also speak but it doesn’t look as though his remarks will cover near-term economic and market developments.

US and UK government bond markets both sold off further yesterday as concerns about a potential rise in inflation and a future tightening in monetary policy continued to mount. It seems that attempts by the US and UK central banks to provide reassurance this week have so far proved ineffective. US Treasuries have rallied modestly overnight after 10-year yields posted a new 12-month high yesterday.

G10 FX Options Expiries for 10AM New York Cut

(Hedging effect can often draw spot toward strikes pre expiry if nearby)

Larger Option Pipeline

USD/JPY: Mar23 Y107.95-108.00($2.3bln), Y108.12($1.8bln)

AUD/NZD: Mar23 N$1.0785-90(A$1.7bln)

NZD/USD: Mar22 $0.7080(N$1.1bln), $0.7400(N$1.0bln)

Technical & Trade Views

EURUSD Bias: Bullish above 1.20 bearish below

EURUSD From a technical and trading perspective, the failure to recapture 1.20 on the upside leaves the 1.1830 lows exposed, through here bears will press for a test of the yearly pivot at 1.1720. Only a move back through 1.20 would reduce downside pressure opening a test of the monthly pivot from below at 1.2085

Flow reports suggest light bids through the 1.19 levels before weak stops through the 1.1880 area before stronger congestion through the 1.1820-1.1780 area with weak stops possibly being cleared up quickly through to the 1.1750 and again stronger congestion and likely to continue through the 1.1700 level, topside offers light back through to the 1.1980 area before stronger offers start to appear into the 1.2000 level. Stronger stops likely on a move through the 1.2020 level with some light resistance into the 1.2050 area and stronger offers then appearing through to the 1.2100 level.

GBPUSD Bias: Bullish above 1.3750 targeting 1.44

GBPUSD From a technical and trading perspective,a retest of 1.3750 pivotal trend support has seen fresh demand develop as this level continues to attract support bulls will target a retest of cycle highs en route to 1.44 upside objective.

Flow reports suggest topside offers around the 1.4000 level and slightly stronger stops appear for the market to open to a move through to the 1.4050-1.4100 with patchy resistance until closer to the topside of that range and stronger offers thereafter, downside bids into the 1.3800 level with weak stops likely on a dip through the 1.3780-40 levels with congestion likely to soak up much of the selling through to the 1.3700 level with possibly strong congestion then around the 1.3700 level increasing into the 1.3650 level before being able to make a move to the 1.3600 area and strong bids again.

USDJPY Bias: Bullish above 107.30 targeting 109.85

USDJPY From a technical and trading perspective, as 108.30 continues to attract demand bulls will target a test of pivotal 109.85 ahead of the yearly R1 pivot at 110.

Flow reports suggest topside congestion is likely to soak up some of the weak stops above through to the 109.50 area where strong congestion is likely to appear and increasing offers into the 110.00 and like the previous spikes at the beginning of last year any move is likely to find resistance above and continuing through the 110.00 with break out stops likely to be a little more nervous, downside bids light through to the 108.00 level with weak stops on any retrace through the 107.80 level and opening a dip to the 106.00 area possible over the coming week

AUDUSD Bias: Bullish above .7560 bullish targeting .8200

AUDUSD From a technical and trading perspective, as /7820 contains upside attempts there is potential for a head & shoulders pattern to develop, a loss of pivotal .7560 would open a move to test trend support at .7400 next

Flow reports suggest topside offers through to the 0.7840-60 area and then increasing offers onwards through 0.7900, with the offers likely to continue through to the 0.7950 area and likely increasing resistance through to the 0.8000 levels, downside bids into the 76 cents level with strong bids likely through to the 0.7580 area, weak stops are likely to be few and far between with stronger bids likely into the 0.7550 level and likely stronger congestion through to the 0.7500 area.

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