Daily Market Outlook, July 20, 2020

Daily Market Outlook, July 20, 2020 

Global equities have begun the week in mixed fashion as a number of conflicting forces continued to affect market sentiment. EU-27 leaders continued their efforts over the weekend to agree on a Covid-19 stimulus rescue package worth around €750bn. The main difference has come over how much of the recovery fund should be provided through grants versus low-interest loans. In particular the so-called ‘frugal four’ (Austria, Denmark, the Netherlands and Sweden) want a higher proportion of funds to be given as loans rather than grants. Talks are set to resume in the day ahead, however, early reports suggest that leaders of the ‘EU hard-liners’ are ready to accept a deal which will see €390bn of the fund made up of grants which is likely to add some positivity to market sentiment at the start of the new week.

More broadly, however, the past week has once again seen markets wavering between concerns of a pickup in Covid-19 cases and hopes that the second half of 2020 will see a rebound in activity. This interplay is likely to remain the focus of attention this week, with PMIs across a number of major countries providing an update on current business conditions.

There are also a number of issues that are likely to attract market interest. Notably, a fifth round of negotiations on a future trading relationship between the UK and the EU are set to continue in London today. PM Johnson has been pushing for a deal to be agreed sooner rather than later, however, the general lack of progress is likely to continue weighing on markets. 

The uncertainty around the UK’s future trading relationship with the EU, is likely to be one of the risks to the domestic outlook highlighted by Bank of England officials – Andy Haldane and Silvana Tenreyro – in their reappointment hearings before Parliament’s Treasury Select Committee. Speaking after the weaker-than-expected May GDP numbers, Ms Tenreyro said that her “central case forecast is for GDP to follow an interrupted or incomplete ‘V-shaped’ trajectory”. In contrast, recent comments from Mr Haldane – who voted against the latest round of asset purchases – were more optimistic, in which he suggested that the UK was on track for a quick ‘V-shaped’ recovery. Today’s comments will be watched closely to see if his assessment has changed, following the May GDP release.

CFTC net non-commercial positioning data for the major currencies show that investors increased their net USD short by USD2.2bn to USD17bn in the key currencies, after the prior week’s slight USD420mn increase in the aggregate USD short which now sits around a two-year high and only slightly short of the recent late-June peak of USD17.35bn as investors reassess the risks posed by a surge in COVID-19 cases in the US South and West.

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

• EURUSD: 1.1350 (2.48BLN), 1.1370-80 (1.7BLN), 1.1400 (2.6BLN), 1.1425 (900M), 1.1450 (616M), 1.1475 (215M), 1.1500 (1.13BLN)
• USDJPY: 106.91-00 (640M), 107.50 (272M), 109.00 (586M), 109.50 (1.14BLN)

Technical & Trade Views

EURUSD Bias: Bullish above 1.1150 targeting 1.15

EURUSD From a technical and trading perspective, increasingly looking like a buy the rumour sell the fact set up, price looks poised to probe offers and stops to 1.15, watch for bearish reversal patterns on a fade the news play as initial optimism over the deal develops into a lack of detail in the plan and profit taking kicks in. Anticipate the potential for a pullback 1.14/1.1380

GBPUSD Bias: Bullish above 1.25 targeting 1.28

GBPUSD From a technical and trading perspective, as 1.25 attracts sufficient demand, look for a grind higher to test offers and stop at 1.28. A closing breach of 1.25 suggests return to range and a test of range support at 1.2250

USDJPY Bias: Bullish above 107.50 Bearish below

USDJPY From a technical and trading perspective, anticipated test of the equality objective at 108.13 saw bearish reversal patterns, setting up a move for  another test of 106 enroute to a pivotal 105 test UPDATE equality objective achieved as 107.30 caps the upside look for  a retest of 106.30’s

AUDUSD Bias: Bullish above .6830 targeting .7100

AUDUSD From a technical and trading perspective, as 6830 attracts buyers there remains scope to retest and break prior cycle highs en route to a .7100 test. Expect bids towards .6900 to act as support. A closing breach of .6900 opens another test of bullish appetite at .6880

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