Daily Market Outlook, July 15, 2021

Overnight Headlines

  • Biden Backs USD 3.5 Tln Spending Plan, Republicans Blast Massive Package
  • Manchin ‘Open’ To Democrats’ Budget Plan But Not Yet Backing
  • Fed's Powell Stays Focused On Jobs Recovery, Feels Heat On Inflation Front
  • Fed Beige Book: US Economy Further Strengthened At Start Of Summer
  • BoE Governor Bailey Won't Be Rushed Into Raising Interest Rates
  • BoE’s Ramsden: BoE Might Discuss Reining In Stimulus Earlier Than Thought
  • Irish Government Plans To Abandon 12.5% Tax Rate For Fear Of 'Pariah' Status
  • PBOC Likely To Cut LPR This Month, Policy Rate Cut Unlikely:CSJ
  • China Partially Rolls Over Medium-Term Loans After RRR Cut
  • Australian Unemployment Declines In Lead Up To Sydney Lockdown
  • Japan Panel Seeks Record 28 Yen Rise In Minimum Wage To 930 Yen
  • Takenaka Says Japan Needs Extra Budget As Big As USD270 Bln

The Day Ahead

  • UK labour market data, released this morning, showed the unemployment rate at 4.8% in the three months to May, which was above market expectations for 4.7%. We had predicted an increase to 4.9%. The outturn was unchanged from April, but down from 5.0% in the prior 3-month period to February, reflecting recovery in the labour market as Covid restrictions were eased. Timelier HMRC payroll employment data showed a monthly increase of 356k to 28.9 million in June, the biggest gain since the start of the pandemic, and less than 1% below the February 2020 level.
  • There are no other major UK releases today. UK PM Johnson is due to give a speech in the West Midlands on the government’s ‘levelling-up’ agenda. Bank of England MPC member Michael Saunders is scheduled to speak on the inflation outlook at 11am. His comments will be closely watched, following yesterday’s upside surprise in UK inflation (which increased to a three-year high of 2.5% in June). Following that Deputy Governor Dave Ramsden said that inflation could reach 4% later this year, and that he can envisage conditions for tightening of monetary policy “being met somewhat sooner than I had previously expected”.
  • In the US, Fed Chairman Jerome Powell will take part in a second day of testimony on Capitol Hill. Chicago Fed President Evans also discusses the economy today. In terms of data releases, the NY Fed Empire and Philadelphia Fed manufacturing surveys for July will be eyed, including for latest developments in price pressures. June industrial production is forecast to have risen by 0.6% and weekly initial jobless claims are forecast to have fallen to 350k. The main data focus for markets, however, is likely to be tomorrow’s retail sales figures.

G10 FX Options Expiries for 10AM New York Cut

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

EUR/USD 1.1750 (448M), 1.1800-05 (1.0BLN), 1.1875-80 (500M)

1.1900-10 (1.15BLN), 1.1950-60 (920M)

USD/JPY 109.70-80 (750M), 109.90 (230M), 110.00-13 (1.25BLN)

110.35 (284M), 110.50-55 (616M), 111.00-05 (1.1BLN)

AUD/USD 0.7470 (250M), 0.7500-10 (3.9BLN), 0.7570 (439M)

0.7590 (470M). EUR/SEK 9.95 (490M).

EUR/NOK 10.3000-30 (500M)

USD/CAD 1.2245 (470M), 1.2310-20 (565M), 1.2500 (422M)

1.2600 (250M). USD/ZAR 14.48-50 (440M). AUD/JPY 83.50 (300M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.1950 Bullish above

Consolidates gains as range trading continues • EUR/USD opened +0.50% at 1.1836 after USD weakened on Powell testimony • It traded 1.1821/38 in early Asia and is around 1.1830 into the afternoon • EUR/USD has whipped between 1.1770/1.1885 for most of July • Key resistance is at the 21-day MA at 1.1873 and break ends down-trend • The 10-day MA is at 1.1837 and the price has stalled around that level • Support is at the double-bottom formed at 1.1772 and break targets 1.1704

GBPUSD Bias: Bearish below 1.40 Bullish above.

Under steady pressure, without significant news • -0.3% towards the base of a 1.3822-1.3860 range with steady flow • EUR/GBP +0.1% in a 0.8540-0.8554 range with very heavy flow early • Decent sterling volatility and volumes in Asia with no major news • Most Britons want at least some COVID restrictions to remain • Charts; momentum studies, 5, 10 & 21 daily moving averages conflict • 1.3733 June low and 1.3930, 38.2% of the June-July fall a viable range • Tight contracting 21 day Bollinger bands suggest a breakout is due • 1.3802 Wednesday's Asian low and earlier 1.3860 high support, resistance

USDJPY Bias: Bullish above 109 Bearish below

Heavy with US yields after dovish Powell • USD/JPY heavy with US yields after dovish Powell, Asia 109.82-110.02 EBS • Holding for now in area of ascending 55-DMA at 109.83 • Ichi daily cloud below between 109.22-54, 100-DMA in cloud at 109.37 • Option expiries help limit downside, $730 mln between 109.80-90 • Total $1.3 bln up between 110.00-15 likely to help cap market • US yields sag some more in Asia, Treasury 10s @1.335% • Risk off in Tokyo, Nikkei -0.9% @28,343, JPY crosses heavy as result

AUDUSD Bias: Bearish below .76 Bullish above

Under pressure in Asia as NZD/USD leads it lower • AUD/USD opened +0.50% at 0.7481 after USD fell on Powell testimony • After trading at 0.7487 it tracked lower through the morning session • Profit taking on NZD/USD longs sent NZD/USD down 0.50% and AUD/USD followed • AUD/USD traded to 0.7453 before settling above 0.7455 into the afternoon • Market didn't react to solid Aus jobs data nor mixed China data • AUD/USD support at yesterday's 0.7431 low and trend low at 0.7410 • Resistance is at 10-day MA at 0.7481 and 21-day MA at 0.7511