Daily Market Outlook, August 10th, 2021

Overnight Headlines

  • Fed Officials See Tapering Near, Advance Hike Discussion
  • Fed’s Rosengren: Should Slow Stimulus Efforts By Autumn
  • Traders Bet Fed More Talk Than Action Stick To 2023 Hike
  • Senate Set To Pass $1Tln Infrastructure In Bipartisan Vote
  • Change To Crypto Provision In Infrastructure Bill Blocked
  • Delta Wave Goes Coast-To-Coast, Showing Variant Force
  • Delta Outbreak Piles Pressure On China’s Native Vaccines
  • Australia Business Gloom Deepen, Virus Upsets Economy
  • Sydney Cases Keep Climbing Seven Weeks Into Lockdown
  • EU Won’t Impose Travel Curbs On US Despite Cases Rises
  • UK Retailers Report Slowdown As Post-Covid Rally Fades
  • UK Banks To Face Regulator Block On High Street Closure

The Day Ahead

  • The German ZEW survey’s economic expectations component has fallen in the past two months, albeit from very high levels, led by concerns about new Covid variants. The current situation component, however, increased for a fifth consecutive month, reflecting the economic recovery, as Covid-related restrictions are eased. For today’s August report, we expect these trends to continue, and look for a fall in expectations to 57 from 63.3 and a rise in the current situation component to 27 from 21.9. Note that the ZEW report is a survey of financial market participants rather than businesses, although it can provide an early indication of business surveys such as the PMI and German IFO due later in the month.
  • The speech of US Federal Reserve’s Mester (non-voter) will attract attention, particularly as she is expected to talk about inflation risks. The Fed’s central view is that current high inflation in the US is likely to be largely ‘transitory’. Some policymakers, however, have acknowledged upside risks. Given positive inflation surprises in recent months, the key near-term market focus will be the US CPI update on Wednesday.

G10 FX Options Expiries for 10AM New York Cut

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

  • USDJPY - 110.30 433m. 109.90/110.10 1.19bn (852m C). 109.60/70 928m. 108.50 520m. 108.00 761m.
  • EURUSD - 1.1870/80 1.03bn (546m C). 1.1840/50 2.84bn (1.90bn P), 1.1820/30 1.45bn (1.22bn P). 1.1800/10 1.04bn (831m P). 1.1750 871m. 1.1690/1.1700 894m.
  • AUDUSD - 0.7460 458m. 0.7420/30 703m. 0.7400 415m. 0.7370/80 992m. 0.7350/60 878m. 0.7300/20 1.33bn (1.28bn P).
  • USDCAD - 1.2670 425m. 1.2530 510m.
  • USDCHF - 0.9170 445m.
  • EURCHF - 1.1000 850m.
  • EURSEK - 10.19 390m. 10.17 407m.
  • USDZAR - 15.30 480m. 14.30 960m.
  • USDMXN - 20.08 581m. 19.90 395m.
  • USDCNH - 6.60 795m. 6.50 655m. 6.47 700m. 6.46 560m. 6.35 473m.

Technical & Trade Views

EURUSD Bias: Bearish below 1.1920 Bullish above

  • EUR/USD trades a tiny 1.1732-42 (EBS) range so far Tuesday
  • Focus on 31 March and 2021 lows 1.1704, but shorts wary before U.S. CPI Wed
  • Weak numbers could suck fuel from the post U.S. jobs data USD bid
  • FX options primed for a steady/slow FX grind lower over time
  • Overnight option expiry now Wed's at 10-am NY - so gets U.S. CPI
  • Implied volatility higher, but not excessive - aware of CPI risk to EUR/USD
  • 8.0 from 7.0 vol is $39, from $34-pips break-even in either direction

GBPUSD Bias: Bearish below 1.40 Bullish above.

  • Sterling bears lining up two Fibo retracement levels as trend holds
  • Fibos off 1.3573-1.3983, 38.2%-50%, at 1.3826 and 1.3778
  • Key 200DMA rising to meet the 50% Fibo, currently 1.3765
  • Bear market not too stressed despite sharp Mon drop but some rebound risk
  • Rebounds likely to be faded in the 1.3890s by dollar bargain hunters
  • Only above the daily cloud base, 1.3925, does the squeeze risk increase

USDJPY Bias: Bullish above 109 Bearish below

  • USD/JPY, JPY crosses bid post-US jobs report Friday, higher rates abroad
  • USD/JPY 110.29-41 EBS, ensconced in 109.65-110.73 daily Ichi cloud
  • Above 110.10/109.66 55/100-DMAs, hourly Ichi cloud 109.88-110.16
  • Larger option expiries today to downside, 109.65-110.00 total @$2 bln
  • Higher US yields supportive, Treasury 10s @1.313%, high o/n 1.330%
  • Most bourses in region up, Nikkei +0.3% @27,905 but market cautious
  • EUR/JPY 129.45-52 EBS, GBP/JPY 152.58-89, AUD/JPY 80.67-95

AUDUSD Bias: Bearish below 0.75 Bullish above

  • AUD/USD opened -0.26% at 0.7328 as firm USD and weak commodities weighed
  • It pushed lower in Asia following weaker NAB business survey
  • It traded to 0.7316 before bids ahead of 0.7315 absorbed the selling
  • A break below 0.7315 targets the July 21 trend low at 0.7289
  • Resistance is at the 10-day MA at 0.7366 and 21-day MA at 0.7378
  • AUD/USD will likely struggle as concern over commodity demand weighs