Daily Market Outlook, July 7, 2021
Overnight Headlines
- Asian equity markets are mostly down this morning, following declines in Europe and the US yesterday. The UK confirmed that, from 16th August, fully vaccinated people will not have to self-isolate if they come into contact with a positive Covid-19 case. In Australia, the Sydney lockdown was extended for a further week. Oil prices have slipped, reflecting hopes OPEC will reach an output deal, although they are still close to six-year highs. German industrial production unexpectedly fell by 0.3% in May, but April data was revised up..
- Today’s economic data calendar is very light with nothing of note in the UK and only second-tier data that is unlikely to have any financial market impact in the Eurozone and the US. Already released May Eurozone retail sales data posted a 4.6% gain, which suggests that today’s Italian numbers will also see a sizeable increase. In the US, the May JOLTs survey provides information on which industries have sizeable job vacancies and so could help highlight mismatches in the labour market that seem to be fuelling complaints from businesses of worker shortages. However, the data lag the overall labour market report by a month, which can limit its usefulness.
- Last month’s monetary policy update from the US Federal Reserve was initially regarded by markets as more ‘hawkish’ than expected. Subsequently there has been a rethink on this despite mixed comments from Fed policymakers over the past few weeks. Nevertheless, today’s minutes of the US central bank’s latest policy meeting may provide some useful detail on just how quickly policy thinking is evolving.
- In particular, markets will be looking for more colour on discussions surrounding inflation risks. While the central view remains that rising inflation is likely to be transitory, Fed Chair Powell did acknowledge that recent developments need to be monitored. So any detail on the extent to which concerns have risen of late will be interesting. There will also be attention on the start of discussions about the tapering of asset purchases. The Fed’s press statement continued to say that “substantial further progress” towards the Fed’s goals for inflation and employment needed to be made before asset purchases are cut back. However, markets would something more specific on just what is meant by ‘substantial’.
- Earlier today, the European Commission will release a new set of economic forecasts. Given recent news, that will probably show increases for at least near-term economic growth and inflation forecasts in many countries. Of particular interest will be whether the Commission acknowledges any significant risk that inflationary pressures will prove less ‘transitory’ than most central banks, including the European Central Bank, currently expect.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD 1.1760 (420M), 1.1850-60 (420M), 1.1865-70 (780M), 1.1920-25 (1.7BLN), 1.1935 (563M)
USD/JPY 109.00 (1.23BLN), 109.70-75 (615M), 111.00 (1.1BLN), 111.50 (1.1BLN)
GBP/USD 1.3950 (543M)
USD/CHF 0.9255 (360M)
AUD/USD 0.7500-05 (1.3BLN), 0.7575-80 (550M)
NZD/USD 0.7140 (1.2BLN), 0.7170 (558M), 0.7185 (557M)
USD/CAD 1.2475 (360M), 1.2560-70 (785M), 1.2590-00 (1.3BLN)
Technical & Trade Views
EURUSD Bias: Bearish below 1.20 Bullish above
Consolidates in Asia ahead of Fed minutes • EUR/USD opened 0.36% lower at 1.1823 after USD and JPY moved higher • In a quiet Asian session the EUR/USD traded in a 1.1814/33 range • Heading into the afternoon it is unchanged at 1.1820/25 • Talk of bids ahead of 1.1800 holding the EUR/USD up for now • A clear break below 1.1800 targets the March 31 low at 1.1705 • Resistance is at the 10-day MA at 1.1876 and close above eases the pressure • EUR/USD trending lower and sentiment has turned bearish
GBPUSD Bias: Bearish below 1.4080 Bullish above.
Softer with the trend into major English event risk • Steady in a tight 1.3790-1.3809 range with only occasional interest • Charts; momentum studies conflict, 5, 10 & 21 daily moving averages slip • 21-day Bollinger bands slide – Tuesday's dip leaves downtrend in play • Targets a test of the 1.3733 July base then 1.3669 March/April double bottom • 1.3930 is pivotal resistance, 38.2% of the June/July fall and the 21 DMA • NY 1.3773 low and Asia's 1.3809 high are initial support and resistance • England looking to break barriers by making Euros final • England v Denmark semi will be won on the wings, says Hareide USD rises as growth concerns build ahead of Fed minutes
USDJPY Bias: Bullish above 108 targeting 112
Steadies after slump to 110.40 in light trade • USD/JPY heavy, no Tokyo fix demand, 110.66 to 110.40 EBS before steadying • Trading light, flows not large, few, bids from @110.42 daily Ichi kijun • Some offering interest from 110.70 but larger towards 111.00 • Option expiries less of factor today – large on 109.00, 111.00+ • Soggy US yields help cap upside, Treasury 10s @1.357%, 2s @0.220% • Risk mood more off than on in Asia, Nikkei -1% @28,363 • JPY crosses heavy after plunges overnight on more sour risk mood
AUDUSD Bias: Bearish below .7790 bullish above
Bulls lick their wounds in quiet Asian session • AUD/USD opened 0.41% lower at 0.7494 after bearish outside day • The pair could only manage a 0.7484/98 range in Asia as volatility calmed • Market side-lined ahead of Fed minutes later today • Support is at Friday's 0.7445 low and break targets 61.8 fibo at 0.7378 • Resistance is at the 10-day MA at 0.7525 and close above eases pressure • Key later today will be moves in risk assets after the Fed minutes
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!