Daily Market Outlook, July 23, 2021

Overnight Headlines

  • US Biden administration plans to spend $1.6 billion for COVID-19 testing in high-risk settings
  • US Biden administration on Thursday released $3 billion in COVID-19 rescue funds aimed at helping localities bolster their economies
  • US CDC advisers back J&J COVID-19 vaccine benefits amid neurological illness reports
  • US Justice Department this week is formally launching a new effort to crack down on firearms trafficking
  • FR Europe minister Clement Beaune rejected on Thursday Britain's request to renegotiate the Brexit deal governing trade with Northern Ireland
  • UK study found on Friday that a longer gap between doses of Pfizer's COVID-19 vaccine leads to higher overall antibody levels than a shorter gap
  • UK PM Johnson urged European Commission President Ursula von der Leyen on Thursday to consider Britain's post-Brexit proposals seriously
  • UK said on Thursday that it will launch daily COVID tests in food sector to tackle "pingdemic"
  • UK lawmaker said Britain should be concerned about the harvesting of genetic data from millions of women by a Chinese company through prenatal tests
  • UK GfK consumer confidence improved mildly from -9 to -7 in July
  • BOE's Broadbent said much of inflation is coming from oil prices and that he is not convinced that goods price inflation will last
  • AU officials tighten Sydney lockdown after New South Wales state on Friday reported its biggest daily rise in new COVID-19 cases this year
  • AU PM apologises for COVID-19 vaccine delays as cases spike
  • AU Markit preliminary PMIs declined in July; Services and composite PMIs both slid back to contractionary territory amid recent lockdowns across Australia while manufacturing PMI also saw a mild decline from 58.6 to 56.8
  • CN rejected on Thursday a World Health Organization (WHO) plan for a second phase of an investigation into the origin of the coronavirus
  • CN regulators are considering serious penalties for Didi Global Inc after the ride-hailing giant's New York Initial public offering last month
  • CN evacuated tens of thousands of people from flood-hit regions of central China on Thursday

The Day Ahead

  • For the rest of the day, the focus will be on the latest round of PMI surveys – covering the month of July – with updates from the UK, US and Eurozone due. In recent months, improvements in the surveys have generally chimed with the easing of mandatory lockdown restrictions. For the UK, assume that most of the response to the July survey will have been sent in prior to ‘Freedom Day’ on 19 July, which marked the end of all remaining legal restrictions on social contact in England and therefore look for modest declines. Overall, expect the services PMI to edge lower for a second month, to 62.0 from 63.9, and for the manufacturing PMI, look for a drop to 62.5 from 63.9. Both would still be consistent with a very rapid rate of economic growth.
  • Over the second quarter, the sharp rise in activity has led to more firms in the UK reporting difficulties in keeping up with new orders – reflecting both shortages of key materials and inputs and increasingly also labour. This has led to a sharp pick-up in work backlogs across most areas of the UK economy. In addition, as the recovery matures, and the level of economy activity moves closer to its pre-pandemic level, the rate of expansion should also start to ease due to there being less ‘catch up’ left to do.
  • For the Eurozone flash PMIs, a number of countries across the bloc lifted restrictions in late June/early July, suspect supported a further pick-up in service sector activity. Consequently, we look for the services PMI to rise to 59.5 from 58.3. Supply-chain issues are likely to result in a moderation in the manufacturing PMI, look for a slip to 63.0 from 63.4. However, both are likely to suggest that the recovery remains on track at the start of Q3.
  • Across the ‘pond’, the Markit flash PMIs typically receive less attention that their ISM counterparts, but they will provide an early look at July activity. Both manufacturing and services PMIs are expected to remain in strong growth territory.

G10 FX Options Expiries for 10AM New York Cut

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

  • EUR/USD: 1.1800 (EU1.02B), 1.1725 (EU920.3M), 1.1710 (EU885.6M)
  • USD/JPY: 110.75 ($500M), 102.00 ($350M)
  • USD/CAD: 1.2050 ($340M)
  • AUD/USD: 0.7420 (AUD963.6M), 0.7380 (AUD490.5M)
  • GBP/USD: 1.3775 (GBP453.7M)
  • EUR/GBP: 0.8525 (EU560M)
  • NZD/USD: 0.7075 (NZD301.1M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.1950 Bullish above

  • EUR/USD opened -0.15% lower after whippy reaction to ECB event
  • The pair traded in a 1.1767/80 range and was unchanged into the afternoon
  • Resistance is at 21-day MA @ 1.1835 and break would ease downward pressure
  • Support formed ahead of 1.1750 and break targets 2021 low at 1.1704
  • EUR/USD still trending lower, but pace is slow and choppy
  • EZ flash PMIs out today and may cause some volatility

GBPUSD Bias: Bearish below 1.40 Bullish above.

  • Little changed in a 1.3757-1.3779 range with moderate interest
  • Thousands descend on UK music festival amid rise in COVID cases...
  • Large public gatherings will test the viability of unwinding the lockdowns
  • Charts; 5, 10 & 21 daily moving averages slide despite the recent bounce
  • 21 day Bollinger bands contract, neutral momentum studies - negative setup
  • Close above 1.3804 21 daily moving average needed to downside bias
  • NY 1.3740-1.3787 range is initial support and resistance

USDJPY Bias: Bullish above 109 Bearish below

  • +0.1% at top of a 110.09-110.28 range - 109.92 EBS open looks a fat finger
  • Tokyo holiday, so quiet - modest risk on in Asia - E-mini S&P +0.25%
  • Charts; daily cloud proved resilient support this week, and rises next week
  • Horizontal Tenkan and Kijun lines suggest consolidation and define range
  • 5, 10 & 21 daily moving averages conflict, which supports range trading
  • 110.36 Kijun line and London high, then this week's 110.38 top resistance
  • 109.88 Tenkan line then 109.85 cloud top are first supports

AUDUSD Bias: Bearish below .76 Bullish above

  • AUD/USD 0.29% higher at 0.7383 after buoyant risk assets underpinned
  • It was a choppy start and appeared to touch 0.7400 in the first minutes
  • It immediately traded back to 0.7383 and traded 0.7379/89 thereafter
  • The return of risk appetite after Monday plunge supporting AUD on dips
  • Capping rallies is the ongoing COVID related lockdowns in Australia
  • Resistance is at the 10-day MA at 0.7402 and close above eases pressure
  • Support is at yesterday's low at 0.7343 and break reinforces down-trend