Daily Market Outlook, August 17th, 2021

Overnight Headlines

  • Biden Defends Troop Withdrawal And Blames Afghanistan Leaders For Chaos
  • US To Advise Boosters For Most Americans 8 Months After Vaccination
  • Fed’s Rosengren Backs Tapering In Fall, No Hikes Until Job Market Improves
  • US Treasuries' Foreign Ownership In June Rises To Highest Since Feb 2020
  • Japan Set To Expand Virus State Of Emergency, Extend It To September 12
  • Australia's Central Bank Ready To Act If Covid Lockdowns Threaten Economy
  • NZ Health Officials Investigating New Community Covid Case In Auckland
  • Safe-Haven Currencies Supported On Signs On Weakening Sentiment
  • Oil Rises On Bargain-Hunting, Expectations OPEC+ Will Not Boost Supply
  • Asia Shares Fall As Investors Eye Rising Covid-19 Cases, Afghan Crisis

The Day Ahead

  • UK labour market figures released earlier this morning revealed a fall in the unemployment rate to 4.7% in the three months to June compared with forecasts for 4.8%. The economy added 95k jobs during the second quarter. Timelier HMRC data showed payrolled employees rising by 182k to 28.86mln, just 201k below the February 2020 level, while vacancies surged by 953k in the May-July period, led by the reopening of sectors in hospitality and leisure. Vacancies are more than 20% above pre-pandemic levels.
  • The focus later today is US retail sales and Fed Chair Powell. Eurozone Q2 GDP growth due later this morning will confirm an economic rebound, supported by progress in vaccinations and the reopening of the economy. The earlier estimate of 2.0%q/q is expected to be reaffirmed.
  • US consumer spending growth is set to slow after a stellar first half of the year. Markets expect today’s July retail sales figures to show a small decline, although that may partly reflect spending switching to services. Nevertheless, last Friday’s plunge in the University of Michigan consumer sentiment index to the lowest level since 2011 means markets will be nervous about the risk of a sharper slowdown. Industrial production figures are expected to show another monthly increase, reflecting strong demand, although supply issues remain a constraint on output.
  • Fed Chair Powell will speak this evening but at an event where he will probably not say anything new on monetary policy. His speech at the Fed’s Jackson Hole forum on 27th August, may be more interesting as Fed Chairs have sometimes used that to signal future policy changes.
  • Early tomorrow morning (7am), UK July inflation figures will be released. The annual rate of CPI inflation picked up to 2.5% in June and is set to move up to around 4% in Q4, according to the Bank of England. We expect, however, that it will have temporarily moderated in July. Seasonal sales happened earlier than usual in 2020 and so a. return to a more normal pattern seasonal price reductions this year should weigh on annual comparisons. Look for annual headline CPI inflation to drop back to 2.1% in July from 2.5%.

G10 FX Options Expiries for 10AM New York Cut

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

  • EUR/USD 1.1680 (520M), 1.1775 (606M), 1.1815-25 (1.6BLN), 1.1850-55 (900M)
  • USD/JPY 108.00 (300M), 109.05-10 (636M), 110.00 (723M)
  • AUD/USD 0.7200 (800M), 0.7225 (250M), 0.7330 (1.1BLN), 0.7450 (605M)
  • NZD/USD 0.7050 (600M), 0.7075-80 (693M), 0.7120 (810M), 0.7160 (530M)
  • USD/CAD 1.2350 (1.13BLN), 1.2400 (235M), 1.2450 (302M),
  • 1.2600 (340M), 1.2745-50 (1.22BLN)
  • GBP/USD 1.3810-15 (335M), 1.3860-65 (385M)
  • EUR/GBP 0.85 (321M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.1920 Bullish above

  • EUR/USD opened 0.16% lower at 1.1775 after EUR/JPY selling weighed
  • It traded in 1.1768/80 range in Asia and was at low late morning
  • USD moved up against risk currencies as Asia was risk averse
  • E-Minis are down 0.20% and the AXJ index is down 0.85%
  • EUR/USD option strikes at 1.1775 limiting the price action
  • Resistance is at the 21-day MA at 1.1797 and break eases pressure
  • Strong support is around 1.1700 with bids in front

GBPUSD Bias: Bearish below 1.40 Bullish above.

  • Trades at the base of a 1.3815-1.3845 range busy in the morning, then quiet
  • Afghanistan situation... and Delta variant cap risk in Asia
  • UK jobs data leads event risk in early London, se chart for polls
  • Charts; neutral momentum studies, 5, 10 & 21 daily moving averages coil
  • Neutral setup, but downside bias survives while 1.3880 Aug trend line caps
  • Initial target is 1.3778/1.3783, 50% of the July bounce and 200 DMA
  • 1.3790 August low and earlier 1.3845 high are initial support resistance

USDJPY Bias: Bullish above 109 Bearish below

  • +0.05% towards the top of a after tight 109.20-109.33 summer season range
  • Nikkei +0.17% on strong earnings..., risk off elsewhere
  • E-mini S&P -0.2%, 10yr UST -1bp to 1.253%, and AsiaxJP stocks -0.9%
  • Charts; negative momentum studies, 5, 10 & 21 daily moving averages conflict
  • Neutral setup, after a Friday's break below daily cloud - 110.00 cloud base
  • Resistance starts at 109.76 Kijun line, then the 109.95 Tenkan line
  • 108.72 August trend low initial support then 108.46, 76.4% April-July rise
  • 109.05 536M and 110.00 723M are the close significant strike

AUDUSD Bias: Bearish below 0.75 Bullish above

  • AUD/USD descent may pick up speed as RBA staunchly dovish
  • Firmly inside Bollinger downtrend channel; ceiling at 0.7340
  • Near-term target for bears is 0.7200 psych barrier
  • Much further down, 0.7053 Fibo support from March 2020 low beckons
  • RBA minutes show c.bank ready to act again if needed
  • Virus lockdowns threaten to upend economy agai