Daily Market Outlook, July 6, 2022

Overnight Headlines

Global recession fears continued to dominate the mood in financial markets, despite reports suggesting that US-China talks may lead to lower trade tariffs. European equities closed lower yesterday after a constructive start to the week, while their US counterparts ended in the red after the return from a public holiday. Asian stock markets followed through with widespread sell-offs. Brent crude oil dropped to a low of $101.10 yesterday but is slightly higher overnight. US 10-year Treasury yields has declined to 2.80%.

The release of the minutes of the US Federal Reserve’s June policy meeting will be closely parsed as markets assess how policymakers respond to the trade-off between a weakening economic outlook and still uncomfortably high inflation. The Fed upped the ante and hiked rates by 75bp last month, with Chair Powell indicating that a similar rise is in play later this month. Powell indicated that evidence of rising longer-term inflation expectations among consumers partly justified the bigger hike. However, that measure of inflation expectations has since been revised lower. Nevertheless, given the Fed’s imperative to meet its inflation objective, the tone of the minutes is still likely to be ‘hawkish’ with the likelihood of further aggressive tightening flagged.

In the UK, political uncertainty has increased after the resignations of the Chancellor and the Health Secretary yesterday. PM Johnson has indicated he is determined to stay on, while reports suggest his party’s MPs may seek to amend the rules over leadership changes. PMQs take place today. Meanwhile, Bank of England Chief Economist Pill is scheduled to give a keynote address entitled ‘The role of Central Banks in a Transforming World’ at a Qatar conference. Earlier this morning, BoE Deputy Governor Cunliffe said UK growth will be ‘essentially flat’ over the coming year, but the Bank will act to bring down inflation.

Data wise, the UK construction PMI for June will be released and is expected to show continued expansion in activity in the sector. Yesterday’s UK services PMI was revised up to 54.3. Financial markets, nevertheless, are focused on softening business expectations. This morning’s Eurozone retail sales figures are likely to attract limited attention. Broader concerns remain about the curtailment of energy supplies from Russia and the impact on the Eurozone economy. The US data focus will be the ISM services survey. Look for a fall to 54.5 in June from 55.9, which would be the weakest pace of expansion for two years.

EURUSD Bias: Bearish below 1.05

Consolidates after big losses on Tuesday’s increasing recession fears
EUR/USD prints 20 year lows sub 1.0250
Huge 17% increase in European natural gas prices raise recession alarms
Lack of co-ordination on ECB support to indebted Eurozone states sours sentiment
June Eurozone business growth adds further pressure to Euro
Fed June meeting minutes released later as market eyes potential 75bps hike in July
Bears eyeing a parity test; offers seen at 1.0340/60
20 Day VWAP is bearish, 5 Day bearish

GBPUSD Bias: Bearish below 1.2150

USDJPY Bias: Bullish above 134

AUDUSD Bias: Bearish below .7050

BTCUSD Bias: Bearish below 22k

BTC continues to rotate around 20K weighing by recession fears
Testing the 20 day VWAP which remains bearish
20 VWAP band contracting ready for next directional drive
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