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Daily Market Outlook, July 14, 2021
Overnight Headlines
- Democrats Unveil USD 3.5T Plan To Fulfil Biden's Agenda
- Fitch Affirms United States At 'AAA'; Outlook Negative
- US Covid-19 Case Counts Have Doubled In Recent Weeks
- Brussels To Unveil Plan To Reduce Carbon Footprint
- UK PM Sees Off Conservative Rebellion Over Foreign Aid
- Chinese State Media Blasts US Plan For Digital Trade Deal
- Japan's Factory Mood In July Hits Highest Since Late 2018
- RBNZ Calls An End To Asset Purchase Program; Hold OCR
- Oil Slips As Drop In China Crude Imports Rings Alarm Bells
- Gold Prices Subdued As Dollar Firms On US Inflation Data
- Asian Equity Markets Broadly Lower; US Futures Also Slip
The Day Ahead
- Probably the most significant event for the rest of the day will be US Federal Reserve Chair Powell’s semi-annual testimony on monetary policy to Congress. He speaks to a House Committee today and to a Senate Committee on Thursday. Markets will be watching whether he provides more information on the Fed’s policy intentions and, in particular, when the ‘tapering‘ of asset purchases may start. However, it is more likely that will happen at future Fed policy meetings.
- In the meantime, Powell’s remarks are likely to stick close to comments following the Fed’s June policy meeting. That means that the inflation rise will still be described as ‘transitory’, but upside risks that require monitoring will be acknowledged. He will probably also say that the Fed is still some way from its goals and that the present very accommodative policy stance will only be eased gradually, with no concrete timetable being offered. Overall, that will give markets no fresh information on how policy will evolve.
- May UK labour market data, to be released early Thursday, will be watched for further indications on inflationary pressures. Business surveys continue to highlight recruitment difficulties with resulting upward pressures on wages. However, any sign of this in the upcoming report may be swamped by methodological changes due to the difficulties of collecting data during the pandemic. That seems likely to lead to a downward revision in the estimated level of employment and possibly a small rise in the unemployment rate. Annual earnings growth is forecast to be up sharply but that may also reflect data distortions rather than genuine pressures. Overall then, this report may not help to clarify the highly uncertain labour market situation.
- Also given concerns about slowing growth in China, overnight updates for Q2 GDP and June retail sales and industrial production will be watched closely. GDP is likely to post a solid rise, but timelier monthly data may provide the better gauge of the extent to which growth is slowing.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD 1.1770-80 (827M), 1.1800-05 (610M), 1.1810 (766M), 1.1850 (918M), 1.1865-75 (868M), 1.1890 (300M)
USD/JPY 109.60-65 (350M), 110.00 (476M), 110.50-55 (420M), 110.75 (490M)
EUR/JPY 129.50 (475M), 130.75-80 (1.0BLN), 131.00 (244M)
AUD/USD 0.7545-50 (305M)
USD/CAD 1.2200 (802M), 1.2300 (360M), 1.2400 (225M), 1.2435 (240M), 1.2650 (390M)
Technical & Trade Views
EURUSD Bias: Bearish below 1.1950 Bullish above
Consolidates losses in quiet Asian session • EUR/USD opened 0.70% lower at 1.1777 after USD gained on hotter US CPI • EUR/USD traded a 1.1772/85 range and is near session high into the afternoon • It is trending lower with the 5, 10 and 21-day MAs in bearish alignment • The next level of support comes in at the 2021 low at 1.1704 • Resistance is at the 21-day MA at 1.1878 and break would end down-trend • Key today will be bond market reaction to Fed Chair Powell's testimony
GBPUSD Bias: Bearish below 1.40 Bullish above.
Busy early, then bid with a softer USD • +0.05% in the top of a 1.3802-1.3822 range – busy at the open then quiet • U.S., UK trade chiefs meet, agree to strengthen bilateral ties • UK seeks a U.S. trade deal when the Biden administration is ready to talk • Charts; neutral momentum studies, 5, 10 & 21 daily moving averages conflict • 21 day Bollinger bands contract – mixed signals suggest range trading • 1.3733 June low and 1.3930, 38.2% of the June-July fall a viable range • NY 1.3800 – 1.3857 range is initial support and resistance
USDJPY Bias: Bullish above 109 Bearish below
Falls back post-Tokyo fix, exporter sales continue • USD/JPY up to 110.70 into Tokyo fix, off thereafter to 110.47 EBS • Japanese exporter fix sales, offers trail up too, more supply than demand • Massive, $1.1 bln option expires today between 110.50-75, help cap • Some support from area of flat hourly Ichi kijun at 110.45, 55-HMA 110.34 • Volume on the whole low, flows few and far between post-Tokyo fix • Eyes on US yields, off from early highs too, tad choppy pre-Powell • Risk more off than on though in Asia, Nikkei -0.2% @28,659 • JPY crosses steady below recent highs, most in lower ranges this week
AUDUSD Bias: Bearish below .76 Bullish above
Dragged higher by surging NZD/USD after RBNZ • AUD/USD opened -0.47% at 0.7444 after USD firmed on hotter US CPI • After trading at 0.7436 it started tracking higher with the NZD/USD • The RBNZ was more hawkish than expected and NZD/USD soared 1.0% higher • Despite AUD/NZD selling, the AUD/USD moved up to 0.7467 in sympathy • It is tradi8ng around 0.7460 heading into the afternoon session • Resistance is at the 21-day MA at 0.7517 with support at 0.7410 • Fed chair Powell appears before Congress today and will be a key event • Powell's view on inflation and growth could impact USD direction
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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!