Daily Market Outlook, August 11th, 2021

Overnight Headlines

  • Fed's Evans: Wants ‘Few More’ Job Reports Before Bond Taper
  • Rapid US Consumer Price Pace Increases Expected To Level Off
  • US Senate Pivots To $3.5 Trillion Bill, Key To Pres Biden Agenda
  • Republican Senators Pledge Not To Help Dems On Debt Ceiling
  • Real-Time Data Suggest Asia’s Economy Already Feel Delta Hit
  • China Sentences Canadian To 11 Years In Prison For Espionage
  • Sydney’s Variant Spread Triggers Another Australian Lockdown
  • UK Annual Booster Doses Cost GBP1Bln After Pfizer Ups Prices
  • Chancellor Merkel Increases Push On Germans To Get Vaccine
  • Bitcoin Roars Back, Putting $100,000 Forecasts In Vogue Again
  • Oil Crawl Higher On Solid Demand Outlook Despite Case Surge
  • BHP, Workers Reach Tentative Escondida Mine Contract Deals

The Day Ahead

  • US CPI inflation is likely to be the key focus for markets today. So far this year it has surprised on the upside and in June the annual rate rose to 5.4%, its highest since 2008. The increase has been led by energy prices and by various factors linked to Covid disruptions, particularly a surge in used-car prices. As a result, the upward impetus on inflation is expected to fade over time. However, there is considerable uncertainty over how quickly it will do so.
  • Expect today’s July report to show monthly US inflation up by a bit less than in recent months, and for the annual rate to edge down to 5.3%. Also look for annual ‘core’ inflation, excluding food and energy, slip to 4.3% from 4.5%. That would be tentative evidence that the near-term rise has peaked. Nevertheless, inflation will still be elevated and well above the Federal Reserve’s target. Moreover, concerns that businesses are being forced by labour shortages to boost wages point to further upside risks.
  • US Fed officials scheduled to speak today may provide more reaction to growing speculation that the Fed may soon start to cut back on asset purchases. Kansas City President George will address business economists, and typically tends to take a ‘hawkish’ line on policy matters. It will be no surprise if she wants tapering to start this year.
  • There are no UK data releases of note today. However, early Thursday will see the release of GDP data, which are expected to confirm that the UK economy rebounded strongly in Q2, following the third national lockdown at the start of the year. Look for a June increase of 1.3%, which would imply Q2 growth of 4.9% assuming no revisions to prior months. That will still leave GDP some way below its pre-pandemic level, but the Bank of England thinks that we are likely to get back to there in Q4. The retail and hospitality sectors, in particular, seem to be driving the recent recovery, with the rolling back of Covid restrictions. Going forward, economic growth is expected to continue, but the pace of expansion is likely to slow to more normal rates.

G10 FX Options Expiries for 10AM New York Cut

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

  • USDJPY - 111.00/10 465m. 110.00/10 853m. 109.80/90 1.88bn (1.29bn C). 108.70/80 526m. 108.50/60 602m.
  • EURUSD - 1.1900/10 674m. 1.1860/70 852m. 1.1800/10 850m. 1.1780/90 746m. 1.1750 785m. 1.1710/20 804m. 1.1700 914m.
  • AUDUSD - 0.7450 404m. 0.7330 460m.
  • USDCAD - 1.2510/30 860m.
  • EURGBP - 0.8450 1.06bn (P). 0.8350 620m.
  • AUDJPY - 83.00 551m. 79.90 630m

Technical & Trade Views

EURUSD Bias: Bearish below 1.1920 Bullish above

  • EUR/USD opened -0.13% at 1.1721 after USD was supported by higher US yields...
  • It dipped t0 1.1711 at one stage before bids ahead of 1.1705 underpinned
  • Heading into the afternoon it is unchanged around 1.1720
  • EUR/USD support is at the March 31 and 2021 low at 1.1704
  • Major fibo support is at the 38.2 of the 1.1636/1.2349 move at 1.1694
  • A break below 1.1690 targets the Nov 2020 low at 1.1602
  • Sellers are tipped at former support at 1.1750/60
  • Resistance is at 1.1805/10 where the 10 & 21-day MAs converge
  • U.S. CPI later today will likely determine if downside has legs

GBPUSD Bias: Bearish below 1.40 Bullish above.

  • Marginal breach of converged, 1.3830-32, 30-21-day moving averages
  • Still an offered market but 14-day bear momentum is fading
  • Removal of 1.3826 38.2% Fibo, 1.3573-1.3982, significant
  • Key 50% Fibo of that move is 1.3778, a pivotal level for the bear trend
  • As with EUR/USD an increasing rebound risk
  • Initial resistance at 1.3872, Aug 10 high

USDJPY Bias: Bullish above 109 Bearish below

  • USD/JPY bid for most of Asia alongside US yields, 110.55 to 110.73 EBS
  • US yields up some more in Asia, Treasury 10s to 1.368%
  • Tokyo risk on, Nikkei +0.65% at 28,070 at TSE close, E-Minis -0.1% @4425.75
  • USD/JPY offers from @110.70 however, help limit upside - exporters, retail
  • Retail players with offers looking to book profits on longs
  • Bids from @110.50, trail down, sizeable option expiries from 110.15
  • Risk for decisive break above 109.87-110.72 daily Ichi cloud
  • Cloud top descending, to 110.12 by August 25, decisive break above bullish

AUDUSD Bias: Bearish below 0.75 Bullish above

  • AUD/USD opened +0.27% at 0.7348 as buoyant commodities underpinned
  • After trading at 0.7349 it came under some pressure and eased to 0.7335
  • USD gave back early gains and AUD/USD is settling around 0.7340
  • There is talk of good buying below 0.7320 and sellers above 0.7360
  • Support has formed at 0.7315/20 and trend low at 0.7289
  • Resistance is at the 10-day MA at 0.7365 and 21-day MA at 0.7374
  • AUD/USD is trending lower in short-term - while 0.7375 holds
  • Key will be bond and equity market reaction to U.S. CPI later today