Daily Market Outlook, August 19th, 2021

Overnight Headlines

  • Biden Approval Rating Dips Below 50% For The First Time In Office
  • Federal Reserve Preparing For Tapering This Year, July Minutes Show
  • Bullard: Misreading Inflation Could Require "Very Disruptive" Hikes
  • Japanese Factory Mood Hits A Three And A Half -Year High: Tankan
  • Australian Unemployment Rate Falls, But Distorted By Lockdowns
  • Australia Sees Worst Day Since Pandemic Began With Record Cases
  • China Sets Firmer Yuan Fix, Pushing Basket Index To 5-1/2-Year High
  • Dollar Index Rises To Fresh Nine-Month High On Fed Taper Talk
  • Oil Extends Losses On Covid Fears And Rise In Gasoline Stockpiles
  • Asian Equity Markets Broadly Lower After Late Wall Street Sell Off

The Day Ahead

  • The latest Lloyds Bank Recovery Tracker has been released this morning. It pointed to a continuation of the upturn in the economy in July but also some signs that growth is slowing as the recovery matures. The number of UK sectors reporting output growth was not unanimous for the first time since March, and future output expectations dipped to their weakest since January. There were also indications that supply chain disruptions and recruitment difficulties are continuing to pose challenges for many sectors.
  • Today’s Norges Bank policy update is not expected to see an immediate change In policy. However, the Norwegian central bank has been hinting for some time that an interest rate hike is imminent, and today it is likely to signal that this will probably happen at its next meeting in September.
  • There are no data releases in the UK today and only balance of payments data in the Eurozone, which seem unlikely to impact markets. In the US, weekly initial jobless claims are expected to move down again, reflecting the ongoing improvement in the jobs market. Last week’s fall saw them back to almost their lowest level since the pandemic began. The August Philadelphia Fed survey will provide a timely update. Last month its reading for the factory sector was much lower than expected. However, that seemed out of step with other indicators so we expect a rebound in August.
  • The UK retail sales report for July due early Friday may show a modest monthly fall in spending. Certainly, footfall data imply that consumers’ initial reaction to the reopening of retail establishments has been fairly cautious. The BRC has suggested that July sales may have been hurt by the wet and generally disappointing weather and by consumers switching spending away from goods and into services as restrictions have been lifted. The August GfK consumer confidence report will also be out. An equivalent measure in the US fell sharply this month, seemingly in part because of concerns about inflation. Suspect the UK's confidence may also have slipped but probably much more modestly.

G10 FX Options Expiries for 10AM New York Cut

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

  • EUR/USD: 1.1700 (EU2.53B), 1.1800 (EU2.48B), 1.1750 (EU2.02B)
  • USD/JPY: 110.60 ($760M), 110.50 ($738M), 109.00 ($704M)
  • AUD/USD: 0.7250 (AUD2.47B), 0.7350 (AUD705.8M), 0.7360 (AUD593.7M)
  • USD/CAD: 1.2580 ($1.08B), 1.2760 ($390M), 1.2600 ($380.7M)
  • NZD/USD: 0.6635 (NZD1.37B), 0.6800 (NZD1.37B)
  • GBP/USD: 1.3800 (GBP720.2M), 1.4400 (GBP447.2M), 1.3260 (GBP360M)
  • EUR/GBP: 0.8500 (EU401.8M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.1920 Bullish above

  • EUR/USD opened flat @ 1.1708 after a whippy US session following Fed minutes...
  • Stops below 1.1690 were triggered early Asia when USD moved broadly higher
  • It kept grinding lower and traded to a 9-month low at 1.1665 at one stage
  • Heading into the afternoon it is trading around 1.1675
  • The next level of support is at the November 2020 low at 1.1602
  • Only a move back above the 10-day MA at 1.1734 will ease the pressure

GBPUSD Bias: Bearish below 1.40 Bullish above.

  • UK race between the Delta variant and vaccination continues...
  • British study shows COVID-19 vaccine efficacy wanes under Delta...
  • Charts; momentum studies, 5, 10 & 21 daily moving averages conflict
  • Neutral setup, despite Tuesday's fall - 1.3862 August trend line caps
  • 1.3730 early London low and 1.3729, 61.8% July rise potential range base
  • Break of 1.3725 would initially target 1.3715 lower 21 day Bollinger band
  • NY 1.3745 low and 720 mln 1.3800 strikes initial support and resistance

USDJPY Bias: Bullish above 109 Bearish below

  • Up 0.4% on broad safe haven USD strength - EUR/JPY and AUD/JPY are stable
  • Nikkei -0.75%, AsiaxJP -1.45%, Brent -1.1% and Dalian iron ore slumped -6.8%
  • There is a sense that optimism on the global economic rebound is cooling
  • Delta variant a formidable opponent for Japan... & US
  • Yen is back in the middle of the July-August range - USD and risk leads
  • Charts; Tenkan and Kijun lines flat line - does not support a trending move
  • 110.00 cloud base gave way in Asia, break targets 110.42 cloud top
  • Tokyo 109.75 - 110.22 range is initial support resistance

AUDUSD Bias: Bearish below 0.75 Bullish above

  • AUD/USD opened -0.29% at 0.7234 after risk assets sold off in NY
  • It fell below 0.7230 support when stops were triggered when USD moved higher
  • It was 0.7225 when Aus jobs came in better than expected and touched 0.7236
  • The gains were short-lived as risk assets came under pressure
  • Dalian iron ore fell over 7.0% on global growth concerns
  • AUD/USD fell to 0.7198 and is around 0.7200 into the afternoon
  • AUD/USD likely to remain under pressure as negatives mount
  • There isn't any decent support until the 38.2 of the 2020/2021 move @ 0.7053