Daily Market Outlook, July 29, 2021

Overnight Headlines

  • Fed Leaves Interest Rates On Hold; Maintains Asset Purchases
  • Powell Sees Progress On Taper Conditions Though A Ways To Go
  • Senate Votes To Open Debate On Bipartisan Infrastructure Bill
  • US Senator Sinema Opposes $3.5T Price Tag For Spending Bill
  • Covid Strains Hospitals In US South, Echoing Pandemic Peak
  • EU Economy Chief Urges End To ‘Muddling Through’ Budget Rules
  • Sydney’s Delta Surge Prompts Tougher Lockdown Restrictions
  • China Injects Short-Term Cash After Plunge In Stocks And Bonds
  • China, Hong Kong Stocks Rebound Sharply As Govt Calms Nerves
  • China Will Still Allow IPOs In The US, Regulator Tells Brokerages

The Day Ahead

  • Today’s data calendar is busy. Possibly the most eye catching release is likely to be Q2 US GDP. In contrast to the Eurozone and the UK, the US economy grew in Q1 and GDP moved back above its pre-pandemic level. A larger rise is expected for Q2 and look for a gain of 9% annualised, reflecting a further easing of restrictions. That will take output further above its Q1 2020 level despite employment still being several million below where it was at that point. The detail of the report will be watched for indications of how much momentum the US upturn had heading into Q3. Of particular interest will be how much of the growth was due to final demand and how much to a rebound in inventories after a decline in Q1.
  • Amongst today’s other US releases, weekly jobless claims will as usual provide a very timely reading on unemployment patterns. Last week saw an unexpected jump in new claims but the underlying trend still appears to be downward pointing to ongoing rise in employment.
  • In the UK, June money supply and bank lending data will be watched for further signs of the strength of the housing market. June mortgage approvals are expected to have held close to last month’s level, despite the stamp duty holiday being phased out from 1st July. Consumer credit data will also provide insight into other spending patterns.
  • Tomorrow’s Eurozone GDP report is expected to show that the region’s economy grew in Q2 for the first time in three quarters. Ahead of that, business confidence indicators for July are expected to echo the message of other recent surveys and suggest that activity has continued to pick up early Q2. Meanwhile, July Spanish and German CPIs may provide a partial preview of what to expect from tomorrow’s Eurozone numbers, although it should be noted that inflation in both have been running ahead of the regional average.

G10 FX Options Expiries for 10AM New York Cut

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

  • EUR: 1.1795-1.1800 (1.5BN), 1.1850 (1.7BN), 1.1860-70 (1.5BN), 1.1900 (815M)
  • EUR/CHF: 1.0675 (420M), 1.1050 (398M)
  • GBP/USD: 1.3755 (404M), 1.3830-40 (368M), 1.3900 (564M)
  • EUR/GBP: 0.8450 (210M), 0.8500 (335M), 0.8560 (260M)
  • AUD/USD: 0.7385-0.7400 (1BLN), 0.7500 (593M). NZD/USD: 0.6940 (419M)
  • USD/CAD: 1.2330 (1BLN), 1.2450-55 (541M), 1.2500 (366M), 1.2570-756 (425M)
  • USD/JPY: 109.30 (380M), 109.75 (225M), 109.90-110.00 (440M), 110.10 (400M)
  • AUD/JPY: 82.45 (366M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.1950 Bullish above

  • EUR/USD opened 0.25% after late rally in US session following FOMC...
  • After dipping to 1.1840 the EUR/USD attained a firm tone through the morning
  • USD broadly eased and the EUR/USD traded to a 2-weeek high at 1.1858
  • Heading into the afternoon it is settling around 1.1850/55
  • The 21-day MA at 1.1820 is support after being key resistance previously
  • Resistance is at the July 12 high at 1.1884
  • EUR/USD will likely range trade now that the short-term trend lower is over
  • Forward looking EUR/USD FX options have seen risk premiums fall post Fed
  • The tiny premium for downside vs upside options has been totally erased
  • Falling implied volatility consistent with low actual volatility outlook
  • 1-3-month risk reversals neutral - no directional premium at all
  • Outright flows have seen more sellers of options - banking premium
  • Suggests range trading expected to prevail over coming sessions
  • However, options do retain some risk premium for NFP and Jackson hole

GBPUSD Bias: Bearish below 1.40 Bullish above.

  • Cable rises to 1.3940 as risk-sensitive GBP benefits from Asian equity gains
  • HK, China stocks rebound as Beijing calms panic
  • 1.3940 is the highest level since June 24 (1.3985 was the high that day)
  • GBP/USD gains have also been aided by dovish Powell briefing
  • Fed Chair said U.S. rate increases were "a ways away"
  • 1.3900 is now a GBP/USD support point (1.3895 was pre-Fed high Wednesday)

USDJPY Bias: Bullish above 109 Bearish below

  • USD/JPY 109.68-94 in Asia, heavy but between 100/55-DMAs at 109.59/99
  • Also in ascending daily Ichi cloud between 109.29-110.10 today
  • Option expiries nearby too - 109.75-90 $505 mln, 110.00-10 $845 mln
  • Bids eyed from @109.50, offers from @110.00, trail up
  • US yields not factor in Asia, small bounce from o/n low, Tsy 10s @1.249%
  • Asia risk on, Nikkei +0.7% to 27,782 at TSE close, E-minis up small

AUDUSD Bias: Bearish below .75 Bullish above

  • AUD/USD opened +0.18% after rallying in wake of FOMC
  • AUD/JPY selling in early Asia pushed the AUD/USD down to 0.7360
  • Once the AUD/JPY flows ceased, the AUD/USD rallied into the afternoon
  • A fall in the USD/CNH and a 1.6% gain on the Shanghai Comp gave support
  • AUD/USD rebounded to 0.7380 heading into the afternoon session
  • AUD/USD sellers tipped at 0.7400 with resistance at 21-day MA at 0.7425
  • A break above 0.7425 would confirm the short-term trend lower is over
  • Bids are eyed at 0.7360 and support is at yesterday's 0.7317 low