Citi

Market participants are likely to continue taking cues from the US session, after Monday’s meltdown. London readers may be able to sympathize with the ongoing heatwave! With Singapore and a whole host of other local markets out for holidays, it was a quieter session overnight and there are a lack of catalysts ahead in the European morning session.

US equity futures and yields are attempting some stabilization, but we would wait for the NY session for further direction. USD is still seeing a slight bid, with NZD and KRW underperforming without any particular reason. The PBoC left the LPR unchanged as expected while RBA minutes were not a market mover for AUD. We may continue to see EUR resilience heading into the ECB on Thursday, newly previewed by CitiFX Strategy.

US equities: Our CETS colleagues believe that the move was more driven by a positioning unwind. “By the close of today’s ugly session it is unclear whether investors have any more insight into the underlying drivers of this current bout of risk off…Investors have not had to grapple with more than three real days of risk off at any given time so far this year, and today would represent day two. A blast through that CTA level of 4215 tomorrow may ultimately be short lived.”

JP Morgan

GBP

Plenty of news to digest in the pound as ‘freedom day’ has essentially been dialed back, the only real change was nightclubs and that has been put on ice until September and even then you need to be double jabbed. More importantly we got a few more reads on the MPC with Haskel and Mann coming down on the dovish side of the argument, we get Broadbent on Thursday but so far we only have 2 possible votes for a QE target reduction in Vlieghe and Saunders, I do not think Ramsden crossed the threshold in his remarks although to be fair the market is taking little notice of CB rhetoric at the moment except maybe for the fact that a withdrawal of stimulus is adding to the sense of impending doom with growth peaking and inflation running away alongside the delta variant.

Add to this we had more bellicose Protocol language from Frost yesterday, Johnson and Co are hiking taxes (National Insurance by 1%) and the US has raised travel restrictions to the UK to its highest level. Phew. Well not much in there that makes me want to be long GBP and it seems that many more came to that same conclusion yesterday as the cross exploded back onto the 0.86 handle while our franchise was a solid seller of GBP (and buyer of JPY) for the HF community (z-scores of >1 and ~3 respectively).

We remain short USDJPY here given the power of the fixed income move and very close to home in sterling for now. Cable having broken and closed below the 200dma (~1.37) and is currently breaking the 1.3650/70 zone, through here we have relatively clear air until the more medium term 1.3480/1.3520 band while in the cross we find next resistance at 0.8670 but the bigger level of 0.8720/30 will be more important.