Daily Market Outlook, July 22, 2021

Overnight Headlines

  • Fed’s Powell Has Support Among Biden Aides For New Term
  • GOP Senators Block Infrastructure Bill But Talks To Continue
  • Biden Rejects Inflation Worries, Warns On Hiring Difficulties
  • Senior Diplomat Sherman To Visit China Amid Strained Ties
  • US-China Goods Trade Booms As If Tariffs Never Happened
  • US Treasury’s Debt-Limit Measures May Run Out, CBO Says
  • US Officials Debates Masking Push As Covid Infections Spike
  • ECB Set To Promise Even Longer Support To Boost Inflation
  • EU’s Refusal To Reopen Brexit Deal Spells Fresh UK Collision
  • Oil Steadies Near $70, Investors Size Up Consumption, Virus
  • Bitcoin Hangs Around $32,000 After Aid From Tesla’s Musk
  • Tesla Strikes Deal With Top Miner BHP Over Nickel Supplies

The Day Ahead

  • Recent comments from policymakers have led to some uncertainty about the near-term course of Bank of England policy. Last week, a couple of Monetary Policy Committee members noted that an early move on policy might be necessary in response to rising inflationary pressures. That prompted speculation in markets that the asset purchase programme could be stopped before year end, and that interest rates could start to go up in the first half of next year. However, earlier this week Jonathan Haskel another member said that he would be opposed to an early change in policy. Given these mixed signals this morning’s speech from BoE Deputy Governor Broadbent may provide an important steer on which set of views are likely to prevail at the BoE’s August policy meeting.
  • Today’s European Central Bank monetary policy update is expected to show the impact of its recent strategy review. That revised the price stability goal to a symmetric medium-term 2% inflation target, which is seen as more dovish that the previous formulation of ‘below, but close to, 2%’. In addition, the ECB noted that inflation may be allowed to be moderately above target’ in the near term. While policy interest rates are likely to be unchanged today, ECB President Lagarde has indicated that the forward guidance will be realigned with the new inflation remit. That suggests that guidance on interest rates is likely to be more dovish, possibly with a reference to allowing inflation to overshoot temporarily. There may also be indications whether the ‘higher pace’ of purchases under the Pandemic Emergency Purchase Programme (PEPP) will extend beyond the current quarter. Overall, the message is likely to be that the ECB is a long way from moving to a less stimulatory policy position.
  • Today’s economic data calendar will probably be overshadowed by these monetary policy events. However, in the UK the CBI industrial survey for July and Q3 will be of interest, particularly what it says about investment intentions. In the US, weekly jobless claims will provide timely news on the state of the labour market. Finally early Friday, UK retail sales for June and the GfK measure of UK consumer confidence will be released.

G10 FX Options Expiries for 10AM New York Cut

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

EUR/USD: 1.1710 (1.1BLN), 1.1800-10 (1.3BLN), 1.1870 (270M), 1.1900 (600M)

GBP/USD: 1.3700 (219M), 1.3755 (290M), 1.3875-80 (423M), 1.3900 (269M)

EUR/GBP: 0.8450 (630M), 0.8650 (815M)

AUD/USD: 0.7370-75 (1.5BLN). NZD/USD: 0.6940 (273M), 0.7000 (494M)

USD/JPY: 109.75-85 (280M). USD/CAD: 1.2750 (1.4BLN)

Technical & Trade Views

EURUSD Bias: Bearish below 1.1950 Bullish above

Idles around 1.1800 ahead of ECB • EUR/USD opened 0.13% higher at 1.1795 after recovering from 1.1752 • In a quiet session, the EUR/USD traded in a 1.1787/1.1801 range • Heading into the afternoon it is unchanged around 1.1795 • EUR/USD support is at the 10-day MA at 1.1813 and break would ease pressure • Bids are tipped ahead of 1.1750 with support at 2021 low at 1.1704 • ECB later today will be a key event, as they adjust forward guidance • The market is pricing in a dovish event

GBPUSD Bias: Bearish below 1.40 Bullish above.

Off 0.1% in a 1.3691-1.3715 range – busy in the morning, then quiet • UK could see revival of local stores as COVID curbs lift • A preference for local shopping over city centres is behind the forecast • Charts; 5, 10 & 21 daily moving averages slide despite Wednesday's bounce • 21 day Bollinger bands slip – momentum studies flat line – negative setup • Close above 1.3808 21 daily moving average needed to downside bias • Asian 1.3691 base and NY late 1.3722 high initial support and resistance

USDJPY Bias: Bullish above 109 Bearish below

Asia counter-trades offshore yen weakness • -0.1% with JPY crosses a touch lower, EUR/JPY -0.15%, AUD/JPY -0.25% • Modest profit taking or bargain hunting into Wednesday's risk bounce • Japanese holiday, but Asia ran with offshore risk 'on' AsiaxJP stocks +1% • Two Olympic athletes test positive for COVID-19 – organisers • Charts; horizontal Tenkan and Kijun lines suggest a period of consolidation • 5, 10 & 21 daily moving averages conflict, which also supports range trading • 110.36 Kijun line then Wednesday's NY 110.38 high are initial resistance • 109.88 Tenkan line then 109.85 cloud top are first support

AUDUSD Bias: Bearish below .76 Bullish above

Pivots around 0.7350 as market seeks catalyst for direction • AUD/USD opened +0.45% at 0.7362 after risk rally underpinned at lows • It came under pressure in early Asia and drifted down to 0.7343 • Buoyant Asian equities discouraged further selling as AXJ index rose 1.0% • AUD/USD was settled around 0.7350/55 heading into the afternoon • Rebound in risk and US yields likely to cushion AUD/USD against big falls • AUD/USD still in down-trend while 10-day MA at 0.7410 caps rallies • Support is at yesterday's 0.7289 low and 76.4 fibo at 0.7230