Daily Market Outlook, July 13, 2021
Overnight Headlines
- Asian Equity Markets Rise After Another Record Close on Wall Street
- US Senate Returns For Hell Of A Fight Over Biden Infrastructure Plan
- GOP Support For The Bipartisan Infrastructure Deal Is Going Wobbly
- Biden Team Weighs Digital Trade Deal to Counter China in Asia
- Fed's Williams Doesn't Yet See Case To Slow Down Fed Bond Buying
- Brussels Offers Financial Cushion To Get Support For Climate Plan
- ECB's Delgado: ECB Could Use Tools to Rein In Excessive Dividends
- UK PM Johnson Confirms England Lockdown Rules To End On 19 July
- Chinese Export Growth Unexpectedly Accelerates YoY In June
- China Warns Trade May Slow In H2, Flags Pandemic Uncertainties
- Oil Prices Rise On Expectations Of US Crude Stocks Falling
- US Treasury Yields Edge Higher As Investors Gear Up For Powell
- Asia Shares Track Wall Street Higher As Investors Await Earnings
The Day Ahead
- The main focus today is this afternoon’s US CPI inflation figures for June. So far this year, annual inflation has risen sharply from 1.4% in January to 5.0% in May. Today’s release may show a small decline to 4.9%. However, the monthly rise in prices is still expected to be 0.5%. Moreover, ‘core’ inflation is predicted to be up 0.4% on the month and 4.0% from a year ago (3.8% in May). Therefore, it will still be far from clear that inflation pressures are easing. These figures come ahead of Fed Chair Powell’s semi-annual testimony on monetary policy to Congressional Committees on Wednesday and Thursday, during which the inflation rise will probably still be described as ‘transitory’, but upside risks that require monitoring will be acknowledged.
- In the UK, CPI inflation figures for June will be released at 7am tomorrow. Annual CPI inflation is expected to have risen further, and we look for an increase to 2.3% (from 2.1% in May), with the ‘core’ measure also up to 2.2% (from 2.0%). Recent easing of restrictions point to additional uncertainties around pricing and so a higher-than-usual possibility of a surprise. More increases in the headline inflation rate is expected in the coming months, with the Bank of England indicating that it is likely to ‘exceed 3% for a temporary period’, due mainly to higher energy and other commodity prices, before falling back.
- The Bank of England released its Financial Stability Report (FSR) earlier this morning. Among the headlines, the FSR said that housing debt servicing ratios remain low, and that households and businesses will need financial support through the recovery. The countercyclical capital buffer is expected to remain at 0% until December. Governor Bailey is scheduled to speak on the Report at 8.30am.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD 1.1720-25 (435M), 1.1740-45 (1.17BLN), 1.1795-00 (900M), 1.1870-80 (1.7BLN), 1.1900-10 (1.3BLN), 1.1925 (332M)
USD/JPY 109.25-30 (430M), 109.70-75 (520M), 109.85 (355M), 110.30 (575M), 110.50-55 (300M), 110.80 (402M), 112.00 (340M)
GBP/USD 1.3800 (461M)
EUR/CHF 1.0800 (225M)
AUD/JPY 84.55 (757M)
Technical & Trade Views
EURUSD Bias: Bearish below 1.1950 Bullish above
Moves higher as reflation trade revived by strong China trade • EUR/USD opened -0.16% at 1.1860 after recovering from 1.1836 • After trading at 1.1858 it drifted higher as USD attained offered tone • Strong China trades gave risk currencies a boost and weighed on USD and JPY • EUR/USD traded to 1.1875 and is around that level into the afternoon • Resistance is at the 21-day MA at 1.1898 and break ends S/T trend lower • Support is at the 10-day MA at 1.1850 and break eases upward pressure • EUR/USD direction likely linked to reflation trade, as factors are mixed • Global growth concerns linked to Delta variant still a risk
GBPUSD Bias: Bearish below 1.40 Bullish above.
Strong data – bid below key resistance • +0.15% at top of a 1.3884-1.3905 range with modest flow – USD led • UK retailers report record Q2 growth as shops reopen • Impact of lifting COVID curbs key for sterling this summer • Charts; momentum studies climb, 5, 10 & 21 daily moving averages conflict • 21 day Bollinger bands contract – conflicting signals suggest consolidation • Close above 1.3930, 38.2% of the June-July fall would be a bullish signal • Monday's 1.3911 high then 1.3930 38.2% Fibo are initial resistance • 1.3839 NY low and 1.3836 10 daily moving average first supports
USDJPY Bias: Bullish above 109 Bearish below
JPY crosses bid with risk on but upside limited • USD/JPY buoyant in Asia, 110.29-44 EBS, quiet, upside limited • Some offers at 110.40 taken, more at 110.50, Japanese exporters in • Downside limited too with bids from @110.30, more towards 110.00, below • Some option expiries in area, 110.30 $575 mln, 110.50-80 $839 mln • US yields steady but still relatively low, Treasury 10s @1.371% • Asia bourses up, risk on after Wall St gains, Nikkei +0.8% @28,792
AUDUSD Bias: Bearish below .76 Bullish above
Edges above 0.7500 as USD broadly eases • AUD/USD opened -0.19% at 0.7479 and after trading 0.7477 it drifted higher • USD broadly eased in Asia in a continuation of the move late in US session • Heading into the afternoon it is trading at session high around 0.7500 • Sellers ahead of 0.7500 filled and next resistance is at 21-day MA at 0.7530 • Risk currencies outperforming – as AXJ equity index up over 1.0% • Strong China trade numbers helped to support risk appetite • There was no reaction to slip in NAB business survey from record levels • AUD/USD buyers tipped between 0.7445/50 with 10-day MA at 0.7490 now support
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!