Daily Market Outlook, July 20, 2021

Overnight Headlines

  • GOPs Signal Trouble Before Wednesday Vote On Infrastructure
  • US Recession Ended In April 2020, Making It Shortest On Record
  • US And Allies Accuse China Of Global Cyberespionage Campaign
  • US Treasury Tells Regulators To Act Quickly On Stablecoin Rules
  • China Hold Benchmark Lending Rate For Fifteen Straight Month
  • Japan’s Core Inflation Hits Fifteen-Month High On Energy Costs
  • Australian Central Bank's Policy Optimism Tested By Lockdowns
  • Australia’s Victoria Extends Lockdown, Shuts Border To Sydney
  • UK PM Johnson To Unveil National Insurance Payment Increase
  • Germany, US To Announce Nord Stream 2 Deal In Coming Days
  • Brent Oil Steadies At 8-Week Low After Market Selloff On Delta
  • Drug Distributors, J&J Announce $26Bln Settlement This Week

The Day Ahead

  • Today’s data calendar is very light. There are no releases of any note in the UK. And only second-tier data in the Eurozone. However, the European Central Bank’s bank lending survey will give some insight into the strength of the economy’s rebound prior to Thursday’s ECB monetary policy update. It is expected to show a pick-up in lending to both business and consumers in line with other signs that economic activity strengthened in Q2.
  • In the US, housing starts and permits data for June will be watched for signs that rapidly rising house prices is helping boost construction. Activity seemed to be rising rapidly until early spring. Since then, however, starts have been more volatile, although they are still over 50% higher than at the same point a year ago. The slowdown may reflect a natural slowing in activity, after an initial sharp rebound in housing construction, particularly as activity now seems to be back to pre-Covid levels. Nevertheless, the combination of price rises and a lack of housing stock would seem to be a positive backdrop for a further rise in activity.
  • Today is a very quiet day for central bank speakers. ECB policymaker Villeroy is scheduled to talk but he is unlikely to say anything about monetary policy ahead of Thursday’s announcement from the ECB. With Fed policymakers also in their silent period ahead of next week’s policy meeting the main focus for the next few days will be on comments from Bank of England officials. Yesterday we heard from Monetary Policy Committee external member Jonathan Haskel who seemed less ready to support a near-term pivot in monetary policy, including an early end to asset purchases, than the policymakers who commented last week. The next scheduled speech is by Deputy Governor Broadbent on Thursday but in the meantime the views of other officials may appear in various media sources.
  • Early Wednesday, June UK public finance data will be released. The numbers are expected to provide further confirmation that the budget deficit is falling sharply as economic activity rebounds but is still well above pre-pandemic levels.

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 (424M), 1.1770 (339M), 1.1800 (1.2BLN) 1.1815 (556M), 1.1850-60 (834M)

USD/CHF: 0.9070 (200M). GBP/USD: 1.3845 (241M)

AUD/USD: 0.7375-80 (428M). NZD/USD: 0.6965-80 (250M), 0.6990-0.7000 (257M)

USD/JPY: 108.85-109.00 (1BLN), 109.95-110.10 (1.6BLN)

EUR/JPY: 129.50 (400M), 129.70-75 (470M), 130.30. (268M), 130.70-85 (662M)

AUD/JPY: 81.50 (340M), 82.45 (225M). USD/CAD: 1.2625 (335M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.1950 Bullish above

Steady in Asia as orders on both sides contain • EUR/USD opened 0.5% lower at 1.1799 after recovering from 1.1964 • The pair traded in a narrow 1.1790/1.1802 range in quiet Asian session • Volatility was low, as E-minis rose 0.5% and Asian equities just -0.55% • EUR/USD is trading at session low into the afternoon session • EUR/USD support at yesterday's 1.1764 low with buyers tipped ahead of 1.1750 • Resistance is at 10-day MA at 1.1819 with sellers tipped at 1.1820 • Key resistance is at the 21-day MA at 1.1857 and break would ease pressure

GBPUSD Bias: Bearish below 1.40 Bullish above.

No bounce – charts sustain the negative bias • Flat in a 1.3661-1.3688 range – good interest considering Asian holidays • Cameron showed 'lack of judgement' over Greensill lobbying • Charts; momentum studies, 5, 10 & 21 daily moving averages head south • 21 day Bollinger bands expand – signals add up to a strong bearish setup • Break of 1.3697 200 DMA, a base since Sep 2020, adds to the negative picture • Close above 1.3833 21 daily moving average needed to end downside bias • First significant support comes in at 1.3639, 76.4% of the 2021 rise • NY 1.3655-1.3725 range is initial support and resistance

USDJPY Bias: Bullish above 109 Bearish below

Buoyant in Asia after plunge o/n, Gotobi fix demand • USD/JPY buoyant in Asia after plunge to 109.07 EBS yesterday • Asia 109.45 to 109.59, Gotobi Tokyo fix demand, some bargain-hunting • US yields also off lows, Treasury 10s from 1.174% o/n to 1.214% • Equities less bearish than yesterday, Nikkei -0.3% @27,564, low 27,330 • USD/JPY just above 109.11-54 daily Ichi cloud, 109.46 ascending 100-DMA • 109.07 Fibo 61.8% retracement of 107.48-111.66 4/23-7/2 completed • Offers noted from @109.60 however, well bid from ahead of 109.00 • Option expiries today – 109.00 $817 mln, 109.90-110.10 $1.7 bln • JPY crosses steady after plunges yesterday, EUR/JPY 129.16-29

AUDUSD Bias: Bearish below .76 Bullish above

Edging towards yesterday's low as sentiment negative • AUD/USD opened 0.72% lower at 0.7248 as risk sell-off weighed • AUD/USD traded up to 0.7257 at one stage in Asian when E-minis rose 0.50% • Fresh selling emerged and AUD/USD eased to yesterday's 0.7322 low • Heading into the afternoon it is trading around 0.7325 • There wasn't any reaction to the RBA minutes • The break below the 61.8 of the 0.6990/0.8007 move at 0.7378 is bearish • There isn't support of note until 0.7230/35 where the 76.4 of that move lies • Key will be length and depth of risk correction lower