Daily Market Outlook, July 8, 2021
Overnight Headlines
- Asian equities were mostly lower as markets digested last night’s Fed minutes, which provided more colour on the planned reduction in asset purchases, potentially later this year. In the UK, aside from England’s progress to the Euro 2020 final, the government is expected to set out today details on how fully vaccinated travellers can return from certain countries without quarantining. Separately, the UK RICS survey showed the net house price balance rising to 83%, the highest since the late 1980s.
- The calendar is relatively thin today, with the main focus being the results of the ECB’s strategy review and the minutes of its June meeting. At that meeting, the ECB decided to maintain the faster pace of asset purchases than in the early part of the year under its Pandemic Emergency Purchase Programme (PEPP). President Lagarde said recently that the Eurozone economic recovery remains fragile. The economy is expected to bounce back in Q2, but less strongly than the US and the UK. The ECB’s strategy review has reportedly resulted in agreement to raise its inflation goal to 2% (from ‘below but close to 2 %’) and allow room for overshoot.
- US weekly initial jobless claims in early July are expected to fall again, signalling further improvements in the labour market. Look for a decline to 350k, in line with the market consensus forecast, down from 364k in the prior week and the four-week average of 393k. That would follow last week’s June nonfarm payrolls figures showing a bigger-than-expected rise of 850k.
- There are no major UK data releases today, but tomorrow morning at 7am sees the release of official monthly GDP data for May. The figures for April showed a particularly strong monthly rise in services output of 3.4%, offsetting surprising declines in manufacturing and construction, resulting in an overall 2.3% increase in GDP. Expect May GDP to post an additional gain of 2.5%, reflecting a further expansion in services as well as rebounds in manufacturing and construction. The Bank of England has already revised up its Q2 forecast to about 5½% from 4¼%, and the risk is that it could be even stronger. UK trade data for May will be released alongside monthly GDP, and are likely to draw some attention given reported interruptions related to the pandemic and new EU trading arrangements.
- China will release producer and consumer price inflation data in the early hours. Markets are looking for slight moderations to 8.8% (from 9.0%) for PPI and 1.2% (from 1.3%) for CPI inflation.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD 1.1685-90 (350M), 1.1700 (896M), 1.1775-80 (400M), 1.1800 (946M), 1.1855 (303M), 1.1875-80 (500M), 1.1930-45 (1.8BLN)
USD/JPY 110.50 (345M), 110.75-80 (600M), 110.95-00 (655M), 111.25 (570M), 112.00 (410M)
EUR/GBP 0.8475 (250M), 0.8535-40 (320M), 0.8600 203M), 0.8625 (456M), 0.8660 (300M)
GBP/USD 1.3850-55 (450M)
AUD/USD 0.7350 (440M), 0.7400 (320M), 0.7500 (233M), 0.7530 (901M), 0.7600-05 (900M)
NZD/USD 0.7200-05 (240M),
AUD/JPY 0.8230 (320M)
USD/ZAR 14.45-48 (250M)
USD/CHF 0.9225-30 (400M)
EUR/CHF 1.0910-20 (480M)
Technical & Trade Views
EURUSD Bias: Bearish below 1.20 Bullish above
Holds below 1.1800 in quiet Asian session • EUR/USD opened 0.25% lower at 1.1793 after USD firmed in US afternoon • In a quite Asian session, it could only manage a 1.1783/97 range • Sellers are now lined up at former support between 1.1800/10 • The next level of support comes in at the 2021 low at 1.1704 • EUR/USD trending lower with the 5, 10 and 21-day MAs in bearish alignment • Only a break above the 10-day MA at 1.1860 would ease downward pressure
GBPUSD Bias: Bearish below 1.4080 Bullish above.
July base vulnerable, as USD firms and Italy looms • -0.1% in a 1.3775-1.3801 range, after a big win with Italy next on Sunday • UK's post-lockdown hiring boom hits record pace in June – REC • COVID-19 infections in England have quadrupled since June • Lifting COVID-19 restrictions on July 19 a high risk strategy • Charts; momentum studies ease, 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 • 1.3915/30 is pivotal resistance
USDJPY Bias: Bullish above 110 Bearish belwo
Key support held, but a bounce needs a risk rebound • Touch softer in a 110.42-110.65 range, as key 110.40/45 support again held • Japan to declare Tokyo COVID-19 emergency, fan free Olympics? • Japan June bank lending missed 3% market forecasts at 1.4% • Charts; rising trend channel base from May held Wednesday and in Tokyo • Channel parameters today are 110.44 and 111.94 – base pivotal support • Horizontal 110.42 Kijun and 111.03 Tenkan lines suggest range trading • 110.40/45 should hold, but a break would target 110.11, 50% May-July rise • Wednesday's 110.40 low and Tokyo 110.65 high initial support and resistance
AUDUSD Bias: Bearish below .7790 bullish above
Dips early but holds above recent low • AUD/USD opened 0.15% lower at 0.7483 and edged up to 0.7487 in early trading • It then came under pressure and fell below yesterday's 0.7463 low to 0.7455 • Market didn't react to RBA Governor Lowe's speech as he remained dovish • AUD/USD support @ Friday's 0.7445 low and break targets 38.2 fibo @ 0.7378 • Resistance is at the 10-day MA at 0.7512 and break eases pressure • AUD/USD trending lower and sentiment is bearish in the near-term
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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!