Daily Market Outlook, August 18th, 2021

Overnight Headlines

  • Biden Approval Rating Drops To Lowest Level This Year After Taliban Takeover
  • Senior House Democrats Launch Pressure Campaign Ahead Of Key Budget Vote
  • Yellen Pushes 'Fiscally Responsible' Biden Agenda Ahead Of Planned House Vote
  • Fed Chair Powell: It’s Unclear What The Covid-19 Surge Means For Economy
  • Fed's Kashkari: 'Reasonable' To Taper Purchases Late This Year Or Early Next
  • Fed’s Rosengren: Would Support Beginning Tapering Of Purchases Next Month
  • Japan's Exports Extend Gains, Machinery Orders Fall Amid Fragile Recovery
  • RBNZ Holds Rates At Record Low As Fresh Covid Outbreak Stokes Uncertainty
  • Oil Edges Lower As Spread Of Delta Variant Clouds Prospects For Demand
  • Asian Equity Markets Broadly Higher After Wall Street Snaps Winning Streak

The Day Ahead

  • .UK CPI inflation figures for July, released earlier today, revealed a fall in the annual rate to 2.0% from 2.5% in June. The decline was close to the forecast of 2.1%. The detail showed inflation partly dragged lower by the return of seasonal discounts in clothing & footwear compared with last year.
  • The decline is likely to be short-lived, as in August CPI inflation is expected to resume its upward move. Notably, base effects associated with last year’s temporary reduction in VAT for parts of the hospitality sector, along with the government’s Eat Out to Help Out scheme, are expected to see annual inflation rebound sharply.
  • With ongoing supply chain issues and higher energy prices set to add further upward impetus in the months ahead, inflationary pressures look likely to remain acute going into year end. The Bank of England’s recent update contained an eye-catching upward revision, with headline CPI now projected to move up to around 4% in Q4.
  • Eurozone July CPI inflation figures are also due later this morning, but they are final readings. They are expected to confirm preliminary ‘flash’ estimates which showed headline inflation rising more than expected to 2.2%. However, underlying core inflation (excluding food and energy) remained subdued at 0.7%.
  • In the US, the minutes of its July policy meeting will be released this evening. The post-meeting comments included hints that tapering is getting closer, so the minutes will be watched for further details. However, they are unlikely to reveal any timetable. Fed Chair Powell yesterday said that the pandemic continues to cast a shadow on economic activity, but did not reveal anything new on monetary policy. His speech later this month, at the Fed’s Jackson Hole forum on 27th August, may be more interesting as Fed chairs have sometimes used that to signal future changes in policy direction. US housing and Canadian CPI data are also due this afternoon.

G10 FX Options Expiries for 10AM New York Cut

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

  • EUR/USD 1.1800-05 (880M), 1.1850 (587M)
  • USD/JPY 109.00-05 (440M), 109.80 (500M), 110.-20 (1.9BLN)
  • EUR/GBP 0.8490-00 (583M)
  • USD/CAD 1.2595-05 (480M). AUD/USD 0.7275 (302M), 0.7300 (330M)
  • 0.7320-25 (526M), 0.7405 (712M), 0.7480 (1.145BLN)
  • NZD/USD 0.7225 (300M). AUD/NZD 1.0450 (195M)
  • USD/CHF 0.9180-95 (510M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.1920 Bullish above

  • EUR/USD 20-day Bollinger bands are turning down slightly
  • Now 1.1679, 1.1792 lower bands will allow for a slightly deeper drop
  • Volatility at 5.3 suggests moves will unfold slowly
  • Creeping decline as traders continue to pare bullish bets likely
  • Close below 1.1695 (38.2% 2020-21 rise) will energise sellers
  • 50% same move at 1.1492 is next big target

GBPUSD Bias: Bearish below 1.40 Bullish above.

  • Touch firmer in a 1.3738 - 1.3758 range with plenty of interest in Asia
  • Copper +0.8%, Brent & E-mini S&P +0.1%, AsiaxJP stocks +0.5%, Nikkei +0.7%
  • Recent soured risk appetite recedes - potential to weigh on the USD
  • Focus in London will be on the raft of inflation data, see chart for polls
  • Charts; momentum studies, 5, 10 & 21 daily moving averages conflict
  • Neutral setup, despite Tuesday's fall - 1.3871 August trend line caps
  • 1.3726 NY low and 1.3729, 61.8% of the July rise resilient support
  • Break of 1.3725 would initially target 1.3715 lower 21 day Bollinger band

USDJPY Bias: Bullish above 109 Bearish below

  • Unchanged in a tight 109.48-109.61 range, as risk appetite returned
  • Nikkei +0.6%, AsiaXJP stocks +0.5%, Brent oil +0.1% and CMCU copper +0.75%
  • Japan's exports climbed, machinery orders slipped less than feared
  • Continued coronavirus emergency undermines economic outlook...
  • Charts; momentum studies, 5, 10 & 21 daily moving averages conflict
  • Neutral setup, after Friday's break below daily cloud - 110.00 cloud base
  • Resistance starts at horizontal 109.76 Kijun, 109.95 Tenkan lines
  • This week's 109.11 low then 108.72 August trend base initial supports

AUDUSD Bias: Bearish below 0.75 Bullish above

  • AUD/USD opened 1.1% lower at 0.7255 as global growth concerns intensified
  • It fell to 0.7238 in sympathy with collapse in NZD/USD after RBNZ on hold.
  • Big bounce in NZD/USD on hawkish statement and OCR forecast lifted AUD/USD
  • AUD/USD reversed and is at session high close to 0.7270 into the afternoon
  • Support is at the 76.4 of the 0.6990/0.8007 move at 0.7230
  • Resistance is at former support at 0.7285/90
  • A break above 0.7300 would ease downward pressure, but upside limited
  • Global growth concerns related to COVID will continue to weigh on AUD