Daily Market Outlook, June 24, 2021

Overnight Headlines

  • .Asian equity markets are mostly down this morning, but with no major moves. US Treasury Secretary Yellen warned that the Federal budget deficit may be in danger of breaching its debt ceiling as early as August. English rules on foreign travel will be reviewed today and Transport Secretary Shapps will offer an update on the ‘traffic light system’ this afternoon. Meanwhile, German Chancellor Merkel said that all EU countries should make British travellers quarantine on arrival to slow the spread of the Covid Delta variant.
  • Today’s Bank of England update is likely to see monetary policy unchanged. In the run-up, there has been some focus on May CPI data, which were above BoE expectations and saw inflation move slightly above the 2% target. April GDP data also pointed to stronger Q2 growth than the BoE predicted. That has caused some forecasters to bring forward their expected date for a first rise in Bank Rate.
  • This is not one of the meeting where the BoE issues a new set of forecasts and there won’t be a press conference. The minutes may acknowledge near-term upside risks for growth and inflation. However, expect a key message to be that the rise in inflation is temporary and that the Monetary Policy Committee is content to just monitor the situation for now. It will be the last MPC meeting for its most hawkish member, chief economist Andy Haldane, who is expected to dissent in favour of less bond purchases.
  • The focus internationally continues primarily to be on the policy intentions of the US central bank. Having been surprised by the hawkish tone of the last week’s Federal Reserve policy update, markets seem to have been more reassured by this week’s comments from Fed policymakers, although some of yesterday’s remarks were again hawkish. There are a more Fed speakers today, whose comments will again be followed closely, although most of them seem to have already spoken at least once this week.
  • In Germany, the June IFO survey will provide further evidence on the pace of the economy’s rebound. Yesterday’s PMI data showed further increases in both the manufacturing and services measures. The IFO is also expected to have risen, reflecting further gains in both current conditions and expectations. There is no UK data out today, but early Friday the latest GfK consumer confidence measure is expected to post a further rise, despite the delay in removing all restrictions.
  • US Q1 GDP is a third reading that is not expected to be revised. Other data releases are timelier. Possibly of most interest will be weekly jobless claims. Those have been on a downtrend of late reflecting an improving labour market, but moved up last week for the first time in five weeks.

G10 FX Options Expiries for 10AM New York Cut

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

EUR/USD 1.1900 (700M), 1.1910 (524M),1.1920-30 (2.0BLN),

1.1950 (512M), 1.1975 (640M),1.20 (826M), 1.2020 (300M),

1.2045-50 (570M), 1.2100 (450M)

USD/JPY 109.95-00 (2.2BLN), 110.25-30 (740M), 110.60 (600M),

110.75 (1.153BLN), 111.00 (535M),111.30 (1.12BLN)

111.75 (1.2BLN), 112.00 (400M)

GBP/USD 1.3895-00 (800M), 1.40 (687M). EUR/JPY 132.00 (556M)

USD/CAD 1.2350 (400M). AUD/USD 0.7500 (840M)

AUD/JPY 82.45 (1.1BLN), 84.75 (1.1BLN)

Technical & Trade Views

EURUSD Bias: Bearish below 1.21 Bullish above

Orders both sides of market hemming in price action • EUR/USD opened 0.13% lower at 1.1927 and traded 1.1919/34 in Asia • Heading into the afternoon it was trading just above 1.1920 • EUR/USD trend lower showing signs of stalling, but sellers tipped on rallies • Resistance is at the 10-day MA at 1.1983 with sellers ahead of that level • More support is at the 200-day MA at 1.1997 where more selling is tipped • Buyers are camped ahead of 1.1900 with support at double bottom at 1.1848

GBPUSD Bias: Bearish below 1.4080 Bullish above.

.Key resistance in view, as the downtrend falters • Steady in a 1.3954 – 1.3968 range with only occasional interest pre BoE • BoE to on hold, but will they maintain inflation is transient? • Britain risks missing climate targets due to lack of policies • Charts; daily momentum studies base, 10 & 21 daily moving averages fall • 21 day Bollinger bands ease – net bearish setup, but progress needed soon • 10 DMA capped in NY, now 1.3981 – close above would undermine downside bias • NY 1.3952-1.4001 range is initial support and resistance • 1.3895/00 797M and 1.4000 687M are the close strikes

USDJPY Bias: Bullish above 108 targeting 112

bid despite iffy risk mood, steady US yields • USD/JPY bid in Asia despite iffy risk mood, steady US yields • Asia range 110.96-111.11 EBS, talk stops 111.10+ but no action • Resistance still 111.10-15 but break up projects 111.71 high Mar '20 • USD/JPY ensconced in middle of 109.37-112.43 monthly Ichi cloud • Bids now eyed sub-111.00, tech support at 110.88 daily Ichi kijun • Option expiries help contain action, large at 110.75, 111.00-25, 111.30 • Nikkei 1.2% @28,920 after early weakness, yield on Tsy 10s @1.493% • JPY crosses mostly steady at higher levels

AUDUSD Bias: Bearish below .7790 bullish above

Narrow consolidation above 200-day MA • AUD/USD opened +0.28% at 0.7576 after AUD and NZD moved up on the crosses • In a quiet Asian session it traded in a 0.7569/79 range • AUD/USD resilience this week is frustrating shorts taken late last week • AUD/USD support is at the 200-day MA at 0.7558 with bids ahead of 0.7560 • Resistance is at the 10-day MA at 0.7599 and break increases upward pressure • Fibo resistance is at the 38.2 of the 0.7981/0.7478 at 0.7635

The case for a lower AUD/USD appeared compelling at the end of last week. Federal Reserve expectations had taken a hawkish turn following the FOMC meeting and comments from key Fed members. The view from the Fed contrasted with dovish signals from the Reserve Bank of Australia. One of the main factors behind the strong gains in the AUD/USD since the first quarter of 2020 has been the huge gains in iron ore and copper. Both commodities came under pressure last week amid calls they were ready to correct lower. It appears AUD/USD bulls are not yet ready to throw in the towel. According to a note from Morgan Stanley this week, leveraged traders indicate that "long AUD has been a favoured way to play for the global recovery". Judging by the price action in equity markets, the hawkish tweak to the Fed outlook hasn't dimmed optimism the global economy will continue to bounce back strongly from the pandemic. The AUD/USD has broken back above the 200-day moving average at 0.7558 to relieve downward pressure, but needs to break above the 38.2 Fibonacci retracement of the 0.7891/0.7478 move at 0.7635 to confirm a bottom is in place. Conversely, a break below 0.7475 would likely energise AUD/USD bears and accelerate downward price action.