Daily Market Outlook, August 4th, 2021

Overnight Headlines

  • New Zealand Jobless Rate Drops To 4%, Fueling Rate-Hike Bets
  • Growth In China's July Services Activity Speeds Up, But Risks Loom
  • Japan's Service Sector Activity Shrinks At Faster Pace In July
  • FDA Aims For Final Approval Of Pfizer Shot By Early Sept - NYT
  • U.S. CDC Announces New 60-Day Covid-19 Eviction Moratorium
  • Dollar Pressured Ahead Of Jobs Data; Kiwi Leaps As Rate Hikes Loom
  • Japan 10-Year Yield Falls To Zero For First Time Since December
  • Oil Drops For Third Day On Concerns Covid-19 Spread To Cut Demand
  • Asian Shares Near 1Week Highs But Delta Woes Continue To Mount
  • Singapore Banks Report Strong Profit Growth, Loan Losses Decline
  • Softbank Is Said To Build $5b Stake In Swiss Pharma Giant Roche
  • Apple, Affirm To Launch BNP Program For Canadian Purchases

The Day Ahead

  • Today’s July PMI Services updates for the Eurozone and the UK are both final estimates. Typically these are largely unchanged from the initial reading. However, in the case of the UK, the latest responses will have been collected after the lifting of restrictions in England on 19th July. So given the likelihood that this provided a boost to some services firms we look for a small upward revision this morning.
  • The services headline index for the Eurozone moved up sharply from June on the first reading, while in contrast the UK measure slipped to its lowest since March. However, both are consistent with strong growth in the sector. In both cases, but more markedly in the UK, inflationary pressures and supply side constraints were noted. UK businesses also continued to point to recruitment difficulties.
  • In the US, the July ISM Services survey will be published. In June the headline index fell to its lowest since February, although its level would normally be seen as indicating strong growth. A further fall in the ISM Manufacturing Index on Monday prompted some speculation that US economic activity may be starting to roll over. Nevertheless, after a big decline in June, it still seems likely that the Services index posted a modest improvement in July. As in the UK, US services companies are complaining about continuing supply issues and recruitment difficulties. It suggests that it might be those factors rather than a lack of demand behind much of the slowdown in activity.
  • Today’s ADP measure of US employment will, as always, be watched for clues on Friday’s jobs report. Expect 800k jobs growth for July which would be a signal that the labour market is robust. However also note that the ADP is often an unreliable guide to the payrolls outturn.
  • Fed Vice-Chair Clarida is set to speak this afternoon. He is seen as one of the Fed’s key policymakers, So his insights into what needs to happen before the Fed starts tapering its asset purchases may be particularly revealing of the policy outlook. Previous comments suggest that he favours taking a cautious approach to cutting back stimulus

G10 FX Options Expiries for 10AM New York Cut

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

  • USDJPY - 111.70 981m. 111.40/50 926m. 111.20/30 594m. 111.00/10 603m. 110.50/60 1.46bn (1.38bn C). 109.50/60 500m. 106.40/50 420m.
  • EURUSD - 1.2000 562m. 1.1920 632m. 1.1890/1.1900 416m. 1.1870/80 507m. 1.1850/60 1.96bn (1.21bn P). 1.1830/40 1.30bn (878m P). 1.1800/10 836m. 1.1650 424m.
  • GBPUSD - 1.3750 598m.
  • EURGBP - 0.8600 420m. 0.8550 872m.
  • EURJPY - 129.20 960m.
  • USDMXN - 19.90 445m.

Technical & Trade Views

EURUSD Bias: Bearish below 1.1950 Bullish above

  • EUR/USD opened 1.1863 - the third straight day opening close to 1.1865
  • The USD broadly eased in Asia - led by a surge higher in NZD/USD
  • EUR/USD is at the session high at 1.1875 heading into the afternoon
  • Buyers are tipped ahead of 1.1850 where it has bottomed last 3 days
  • Support is at the 10-day MA at 1.1836 and break would ease upward pressure
  • Sellers are camped around 1.1900 with resistance at 38.2 fibo at 1.1948
  • EUR/USD consolidation may continue ahead of US payrolls Friday

GBPUSD Bias: Bearish below 1.40 Bullish above.

  • +0.1% at the top of a 1.3899-1.3930 range with morning flow and a softer USD
  • UK's civil servants may return to office for only 2 days a week
  • Range trading likely key in August, providing opportunities
  • Charts; 5, 10 & 21 daily moving averages climb - momentum studies conflict
  • Net bullish setup, but topside progress needed soon to sustain signals
  • 1.3870 10 DMA is initial support - 1.3827 21 DMA is the pivotal level
  • 1.3991 61.8% June-July fall and 1.3998 upper 21 day Bollinger cap at present
  • Break would bring 1.4090 76.4% retracement of June-July fall into play

USDJPY Bias: Bullish above 109 Bearish below

  • USD/JPY does little in Asia, holds in 108.93-109.11 EBS range
  • Bids, support sub-108.90, 108.88 low overnight
  • Safe-haven JPY buys as well as some JPY buy-backs on 109.00 break
  • Japanese importers, investors, others showing interest sub-109.00
  • Upside now likely capped ahead of daily Ichi cloud base at 109.30
  • Japanese exporter offers look to have moved down, bounce to 109.50 a sell?
  • Some option expiries today but mostly to upside, from @109.50
  • Soggy US yields to help cap USD/JPY, Treasury 10s @1.183% in Tokyo
  • AXJ mostly up with Wall Street but Nikkei -0.1% @27,603, E-Minis -0.1%
  • JPY crosses do little, NZD/JPY, ZAR/JPY best bid
  • Japan services still in doldrums, July PMI-services 47.4

AUDUSD Bias: Bearish below .75 Bullish above

  • AUD/USD opened +0.41% at 0.7393 after a whippy US session
  • Strong NZD jobs data sent the NZD/USD soaring and dragged the AUD/USD higher...
  • The AUD/USD traded to 0.7411 and was around 0.7405 into the afternoon
  • A close above the 21-day MA (0.7401) and last week's 0.7413 high would be bullish
  • The objective of a break higher would be the 38.2 of 0.7891/0.7289 at 0.7519
  • Buyers are tipped ahead of yesterday's 0.7357 low