Daily Market Outlook, August 12th, 2021

Overnight Headlines

  • Fed Officials Grapple Over Timeline For Tapering Purchases
  • Pres Biden: Trust Fed To Take Action On Inflation If Needed
  • Biden Calls OPEC To Boost Oil Production To Contain Prices
  • Reports Yellen Weighs China Visit, First As US Treasury Sec
  • US Democrats Warn GOP Against Partisan Debt Limit Fight
  • China Faces Contrarian Calls For Surprise Interest Rate Cut
  • China Quietly Instructs Localities To ‘Buy Chinese’ Products
  • China Signal Its Regulatory Crackdown Will Go On For Years
  • Japan Goods Inflation Hits 13-Year High, Imports Costs Rise
  • Australia’s Capital Locking Down As Covid-Free Status Ends
  • Fully Vaccinated UK Adults Avoid Self-Isolation On Monday
  • Oil Steadies, Traders Bet Demand Rebound Can Withstand

The Day Ahead

  • Official UK Q2 GDP data, released earlier this morning, confirmed a strong economic rebound, following a negative Q1 due to the third national lockdown at the start of the year. Monthly GDP in June increased by 1.0% and May was revised down a little to 0.6%, but the result was Q2 growth of 4.8%q/q, led by services activity and consumer spending as Covid restrictions were rolled back. The latest figures indicate that the economy is just over 2% below its pre-pandemic level.
  • In the second half of the year, the pace of expansion is likely to slow to more normal rates. The Bank of England expects UK GDP to reach its pre-pandemic level in Q4 of this year, but has noted downside risks relating to concerns about new Covid variants. The government has announced that fully vaccinated adults will no longer need to self-isolate from Monday if they come into contact with a coronavirus case. That follows the so-called ‘pingdemic’ which has aggravated supply chain problems for many businesses, including in retail and hospitality.
  • Later this morning, expect Eurozone industrial production to have fallen slightly in June by 0.4%, based on the latest national figures, including a second monthly decline in Germany. That would round off a disappointing quarter for industrial output in the single currency area despite strong order books, with production seemingly affected by supply constraints. The afternoon session sees the release of US July producer prices and the latest weekly jobless claims figures.

G10 FX Options Expiries for 10AM New York Cut

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

  • EUR/USD: 1.1650-60 (2.43BLN), 1.1675 (536M) 1.1700-05 (1.7BLN), 1.1775-90 (1.6BLN) 1.1795-00 (1.3BLN), 1.1810-15 (2.0BLN), 1.1865-70 (1.1BLN)
  • EUR/CAD: 1.4820 (1.1BLN).
  • GBP/USD: 1.3850-60 (785M)
  • EUR/GBP: 0.8450 (1.3BLN), 0.8500 (650M), 0.8515-20 (276M) 0.8590 (520M).
  • AUD/USD: 0.7300 (697M), 0.7440 (690M)
  • USD/CAD: 1.2300 (585M), 1.2495-1.2500 (1.6BLN)
  • 1.2525 (447M), 1.2540 (585M), 1.2655 (555M)
  • EUR/JPY: 129.50 (660M). AUD/JPY: 81.35-50 (500M)
  • USD/JPY: 109.00 (455M), 109.20 (350M), 109.45-50 (600M) 109.65-75 (600M), 110.00 (480M),110.30-35 (1.4BLN) 110.95-111.00 (880M

Technical & Trade Views

EURUSD Bias: Bearish below 1.1920 Bullish above

  • EUR/USD opened +0.15% at 1.1739 after moving up on softer US CPI
  • It consolidated between 1.1735/45 through a very quiet Asian morning
  • The 38.2 of the 1.0636/1.2349 move at 1.1694 has been validated once again
  • Bounce has been shallow - so too early to call a bottom in place
  • Resistance is around 1.1800 where the 10 and 21-day MAs converge
  • A break above 1.1810 would suggest a bottom is in place for now
  • A break below 1.1690 targets the Nov 2020 low at 1.1602

GBPUSD Bias: Bearish below 1.40 Bullish above.

  • Steady trading in a very tight 1.3865-1.3872 range with occasional flow
  • Asia cautious ahead of the UK data dump, led by GDP, see chart for polls
  • Charts; mixed momentum studies, 5 & 10 daily moving averages edge lower
  • Bearish cross of the 5 and 10 daily moving averages - modest negative setup
  • Next significant support comes in at the 1.3769 200 daily moving average
  • Break of 1.3905 August daily trend line resistance would be bullish
  • London 1.3804 low and NY 1.3887 high initial support and resistance
  • Sterling likely to range trade during the summer season

USDJPY Bias: Bullish above 109 Bearish below

  • USD/JPY heavy but holding between 100/55-HMAs, mostly in its Ichi cloud
  • Hourly Ichi cloud 110.36-56 currently, 100-HMA 110.33, 55-HMA 110.50
  • USD/JPY 110.32-44 EBS in Asia, holding below 110.51 daily Ichi cloud top
  • Plenty of option expiries in area help contain action, $2.9 bln+ 110.00-55
  • Volume and interest low but some offers from @110.50, bids from sub-110.30
  • US yields somewhat supportive after bounce from overnight lows
  • Treasury 10s from 1.302% to 1.354% in Asia, risk mood mixed, Nikkei +0.2%
  • JPY crosses buoyant, GBP/JPY 152.96-153.20, NZD/JPY 77.56-78
  • EUR/JPY steady, 129.53-62 EBS, AUD/JPY 81.21-46, CAD/JPY 88.14-33
  • Japan July CGPI +5.6% y/y

AUDUSD Bias: Bearish below 0.75 Bullish above

  • AUD/USD opened +0.33% at 0.7372 after USD eased in wake of moderating US CPI
  • It eased sightly in Asia, as AXJ equities slipped despite Wall Street gain
  • AUD/USD traded down to 0.7362 before settling just above 0.7365
  • It is trading around the 10 & 21-day MAs that converge 0.7365/70
  • The next resistance is at the Aug 2 high at 0.7426
  • Buyers are tipped to be below 0.7320 with sellers ahead of 0.7400
  • Range trading is likely until market finds fresh catalyst