Daily Market Outlook, July 4, 2022

Overnight Headlines

Equities across the Far East are mixed, with gains across Japan and Australia offset by declines elsewhere. Notably, stock markets in China are trading lower on the day as rising Covid infections weigh on sentiment. Flare-ups in infections in provinces near Shanghai are causing some parts of the region to be locked down, although case levels remain well below those seen during April and May. In the UK, the release of the British Chambers of Commerce’s latest Quarterly Economic Survey showed that a record number of UK firms were expected to increase prices in the next three months.

Over the past week, fears over a sharper than desired slowdown in global economic activity have been the overarching driver of market moves. Global stock markets slipped, contributing to a torrid first half for equities, while bond yields moderated further from their recent highs as markets increased their expectations that central banks may have to cut policy rates in the second half of next year (although not before raising them significantly to combat elevated inflationary pressures), as ongoing signs of a global economic slowdown continue to be evident.

For now, however, the message from policymakers continues to be that they remain most concerned about higher-than-expected inflation. Consequently, they feel the need to tighten policy aggressively to ensure that the present high inflation does not become embedded in longer-term inflation expectations. That means significant further interest rate rises across a range of countries before year end are still expected.

Over the coming days, the release of the minutes to the last Fed and ECB policy meetings in June, along with a plethora of central bank policymakers – including from the Bank of England – are likely to continue signalling support for a further tightening in monetary policy. However, any indication that recent signs of slowing economic activity are weighing on their minds will likely see a further shift in interest rate expectations.

For today, the focus will be on comments from ECB members Nagel and de Guindos, while on the data front, the Eurozone Sentix investor confidence survey for July is expected to show another decline, reflecting further drops in equity markets. Meanwhile, early tomorrow morning the Australian central bank (RBA) will give its latest update, which is expected to result in a third successive rate rise, this time by 50 basis points.

(Source: Reuters)

EURUSD Bias: Bearish below 1.0650 Bullish above

Opens the LDN session trading in the middle of Fridays range
Trading in a 25pip range driven by reduced flows due to US holidays
Asian trade in general has had a risk off tone driven by ongoing recession fears
EUR/USD will likely remain under pressure in the short-term
Failure below the base opens a test of 1.0270’s next
Initial offers are seen at 1.0530/50
Bids 1.04 stops below to fuel a retest of cycle lows
20 Day VWAP is bearish, 5 Day bearish

GBPUSD Bias: Bearish below 1.24 Bullish above.

GBP stages a tepid recovery from lows Friday but bias remains lower
GBP crosses follow cables lead and recover losses from Friday
Headwinds continue to cloud cable outlook, high inflation, PM issues, dovish BoE
Market feels heavy below 1.2230/60 resistance
Note Friday has GBP810 mln in option expiries at 1.2000 strike
Bears targeting a break of YTD lows en-route to a test of 1.18
Resistance sited at 1.2275
1.2150 failure opens a test of bids at 1.2050
20 Day VWAP is bearish, 5 Day bearish

USDJPY Bias: Bullish above 132 Bearish below

AUDUSD Bias: Bullish above .7200 Bearish below

Aussie lifts from early Asain lows trading middle of Friday’s range break candle
Remains under pressure from reduced risk sentiment at the start of the week
Iron ore on the back foot losing 5.5% as global growth concerns weigh
Resistance is sited at .6900/10
Support seen at the 50% retracement of the 0.5510/0.8007 move at 0.6758
20 Day VWAP remains untested confirming downside
20 Day VWAP is bearish, 5 Day bearish

BTCUSD Bias: Bullish above .22000 Bearish below

BTC opens the week down 1.32% weighed by souring risk sentiment
Three Arrows Capital bankruptcy pressures amid concerns about further liquidations
Trend remains down as within broader bearish channel beckons
Support seen at 19k then 18300 the base of the daily VWAP bands failure here opens a retest of lows
20 Day VWAP remains bearishly oriented and untested
Additional pressure seen from BTC miners liquidating positions on declining profitability
20 Day VWAP is bearish, 5 Day bearish