Daily Market Outlook, August 10, 2022

Overnight Headlines

  • Consensus Expects US Inflation To Have Eased Slightly In July
  • Fed's Bullard Wants Rates At 4% By December
  • US Dollar Trades Solidly In Calm Before US CPI Storm
  • Biden Signs CHIPS Act Into Law As Tech Arms Race With China Heats Up
  • Biden Signs Off On NATO Applications For Finland, Sweden
  • Germany Plans Tax Changes To Help Households Cope With Inflation
  • China Consumer Inflation Reaches 2-Year High As Pork Surges
  • China's July Factory-Gate Inflation Hits 17-Month Low
  • Japan's PPI Moderates On Easing Global Commodity Pressure
  • Oil Prices Dip After Industry Data Shows US Crude Stockpiles Rising
  • Asian Shares Track Wall Street Losses Ahead Of US Inflation Data
  • Elon Musk Sells Nearly $7 Billion Worth Of Tesla Stock
  • DOJ Is Preparing To Sue Google Over Ad Market As Soon As Sept
  • Australia's CBA Cautious On Demand After Profit Hits 4-Year High

The Day Ahead

  • Asian equity markets are generally down this morning. Oil prices are also weaker as reports suggest that yesterday’s halt to shipments from Russia via one pipeline will be short lived. China CPI inflation posted a smaller-than-expected rise in July. The print of 2.7% was still the highest since July 2020 but a fall in ‘core’ inflation suggests that pressures are still well contained. In the US, ahead of today’s CPI report, Federal Reserve policymaker Bullard warned that the US central bank is prepared to hold interest rates "higher for longer" if inflation remains higher than expected.
  • Today’s July US CPI report will attract a lot of attention, particularly after last Friday’s strong labour market report for July, which confounded expectations that the economy is already in recession. The fall in oil prices during the month seems likely to have pushed down headline inflation and we forecast the annual rate to have slipped to 8.8% from June’s 9.1%. The further fall in oil prices in early August points to more near-term inflation relief from that area, moreover the sharp rise in gas prices in Europe which is putting upward pressure on UK inflation is less of a factor for the US. Consequently, unless the oil price rebounds sharply, we may now have seen the peak in headline US inflation for 2022.
  • However, a less positive picture on US inflation trends is likely to be provided by the ‘core’ rate (excluding food and energy). Recent monthly updates have shown signs of inflation broadening out to a wider range of goods and particularly services. Expect the July report to provide further evidence of this with the annual core rate of inflation rising to 6.2% from 5.9%. Fed policymakers have said that they are looking for “compelling” evidence that inflationary pressures are easing before they change course on monetary policy. However, this outcome would seemingly support the comments from officials that a further interest rate rise of at least 50 basis points is likely at their next policy update in September.
  • Bank of England Chief Economist Pill will answer questions online later today. This session seems to be primarily aimed at the general public rather than financial market participants but the latter will also be listening. Of most interest will be whether he gives any signal on the likelihood of another interest rate hike in September. US Fed policymakers Evans & Kashkari are scheduled to speak and are likely to repeat comments made last week that they currently favour another US rate increase in September.

FX Options Expiring 10am New York Cut

  • EUR/USD: 1.0050-55 (674M), 1.0100 (874M), 1.0145-50 (555M)
  • 1.0160 (254M), 1.0170-75 (1.84BLN), 1.0185 (544M), 1.0195-05 (690M)
  • 1.0210-20 (1.95BLN), 1.0225 (300M), 1.0260 (398M)
  • USD/JPY: 133.90-00 (1.18BLN), 134.05-15 (718M)
  • GBP/USD: 1.1990-00 (277M), 1.2040-50 (558M)
  • EUR/GBP: 0.8670 (524M). AUD/USD: 0.6900-10 (307M)
  • 0.6985-0.7000 (735M). USD/CHF: 0.9420 (350M)
  • USD/CAD: 1.2890-00 (1.39BLN). USD/ZAR: 16.50 (260M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.0350

  • Plenty of option strikes in close proximity, as signals edge higher
  • Off 0.1% early, after closing up 0.2% on Tuesday, as choppy trading continues
  • Tight range in Asia ahead of U.S. CPI today - key data for the week
  • Germany plans tax changes to help families cope with inflation
  • Resistance 1.0250/60 stronger offers seen to 1.0350/60, support 1.0100-05, 1.0070-75
  • 20 Day VWAP is neutral/bullish, 5 Day bullish

GBPUSD Bias: Bearish below 1.2280

  • UK consumer confidence rises after falling for seven months
  • Rise may be due to release of support payments for low-income households
  • New PM expected to face a winter of rising power cuts and major pay disputes
  • Cost of living crisis likely to be the main focus as rates rise and colder weather comes
  • Offers sited at 1.2280/1.23 bids 1.20
  • 20 Day VWAP is bullish, 5 Day bearish

USDJPY Bias: Bearish below 135

  • Steady after closing up 0.1% with an inside day around 134.89
  • Japan July wholesale prices rise 8.6 pct yr/yr, v's 8.4% consensus
  • Nikkei trades down 0.6% in early Tokyo, after Nasdaq led Wall Street lower
  • Bears target a test of 130
  • Offers seen at 136.20
  • 20 Day VWAP is bearish, 5 Day bullish

AUDUSD Bias: Bearish below .7050

  • China CPI and PPI July have come in slightly cooler than expected
  • There hasn't been any reaction in the AUD/USD to the data
  • AUD/USD traded to 0.6947 earlier when Tokyo names were noted sellers
  • Offer at .70 acceptance above .70 bulls target .71 test
  • AUD/USD support now sited at .6890
  • 20 Day VWAP is bullish, 5 Day bullish

BTCUSD Bias: Bearish below 25.3K

  • BTC capped at 24k back below 23k
  • Two week range of 23-24k
  • Under pressure as more crypto exchanges buckle
  • Risk sentiment weighs as the Nasdaq weakens on tech warnings
  • Thieves stole an estimated $190 million from U.S. crypto firm Nomad last week
  • Bulls need a close above 25k to gain significant upside momentum
  • Closing below 21k would be a noteworthy downside development
  • 20 Day VWAP is bullish, 5 Day bearish