Daily Market Outlook, August 21, 2023
Munnelly’s Market Commentary…
Asian equity markets traded in a mixed trading pattern as the disappointment stemming from the People's Bank of China's (PBoC) decision on Loan Prime Rates overshadowed recent support measures implemented by China. The Nikkei 225 index experienced a positive trend due to Japan's announcement of the most significant increase in minimum hourly wage on record. However, the index briefly wavered in response to China's benchmark rates before rebounding to session highs. Conversely, the Hang Seng index faced downward pressure, as did the Shanghai Composite index. These declines were attributed to China's recent support initiatives, which included a meeting between the PBoC and financial regulators with bank executives, encouraging lenders to increase loans in order to bolster economic recovery. These efforts were offset by the PBoC's decision to cut the 1-year Loan Prime Rates by a narrower-than-expected margin of 10 basis points (compared to an anticipated 15bps reduction). Additionally, the 5-year LPR surprisingly remained unchanged at 4.20%, contrary to the anticipated 15 basis points reduction.
In the upcoming week, data-watchers will focus their attention on the release of the August flash PMI surveys from both Europe and the United States. Despite this being a relatively quiet week for major data releases, these PMI figures are expected to provide significant insights into the economic conditions. The Eurozone's flash manufacturing PMI is projected to remain in a state of deep contraction, with market expectations hovering around 42.8, compared to the previous reading of 42.7 in July. Meanwhile, the German PMI is anticipated to reveal a challenging figure of 38.7, following a reading of 38.8 in July, indicating a persistently difficult manufacturing environment. Additional data coming out of the Eurozone includes the German IFO report and the Eurozone's current account data. In the UK, the August flash PMI will also be released, though no other major first-tier data points are expected.
Turning to the United States, data highlights encompass the S&P Global flash PMI for August, figures on durable goods, existing home sales, and the University of Michigan consumer sentiment index.
In the Asian region, Japan's Jibun Bank flash PMI for August will be a point of interest, accompanied by the Tokyo CPI (Consumer Price Index).
All in all, while the week may not be packed with major data releases, the flash PMI surveys from various regions are set to provide valuable insights into the ongoing economic trends. The major focus for the week ahead will be the forthcoming Jackson Hole Symposium by the Federal Reserve is set to commence on Thursday, with investors eagerly seeking insights from both the Fed and prominent central banks present, in order to gain a better understanding of the global economic situation and the potential trajectory of interest rates. Historically, the Jackson Hole symposium has been a platform for introducing significant shifts in Fed policy, but such dramatic changes are deemed unlikely in this year's event. Fed Chair Jerome Powell is scheduled to deliver a speech on Friday, and it's anticipated that his remarks will align with recent communication from the Fed. This entails keeping the possibility of further tightening measures open if upcoming data necessitates such actions. The financial markets will be closely attuned to Powell's address, as well as the statements of other central bankers present, regarding the recent upswing in long-term yields and how this development might influence the global outlook for economic growth.
FX Positioning & Sentiment
In the week ending on August 15, speculative traders increased their long positions on the EUR/USD currency pair by $1.3 billion. This pushed the net long position up from $20.5 billion to $21.8 billion. The EUR/USD pair concluded trading at 1.0903 on August 15. However, subsequent to this, the pair experienced a decline, reaching 1.0845 on August 18, based on the EBS data. The trading range during August 18 to August 19 fluctuated between 1.0871 and 1.0887. Notably, the significant 200-day moving average (DMA) stands close by at 1.0794.
An important level to consider is 1.0780, which represents a 78.6% retracement of the price rise observed from May to July. If this level is breached, it could potentially lead to a downward movement targeting the 1.0635 low recorded in May.
CFTC Data As Of 15-08-23
EUR net spec long rises to 159,863 contracts from 149,811 the previous week, snapping a 3-week slide
JPY net spec short lower at 80,961 contracts from 83,180
AUD net spec short jumps to 53,397 from 43,192
GBP net spec long rises to 50,988 from 47,020
CAD net spec short jumps to 11,411 from 623 (Source: Reuters)
FX Options Expiries For 10am New York Cut
(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)
EUR/USD: 1.0840-45 (1.4B), 1.0885 (580M), 1.0900 (1.9B), 1.0925 (660M)
USD/JPY: 143.00 (750M). USD/CHF: 0.8650 (620M)
USD/CAD: 1.3300 (575M), 1.3510 (515M)
Overnight Newswire Updates of Note
China Trims Benchmark Lending Rate As Calls Grow To Stimulate Economy
China Urges More Loans, Debt Risk Reduction As Woes Compound
UBS Cuts China 2023 GDP Growth Forecast To 4.8% From 5.2%
Japan To Increase Minimum Pau By Record As Inflation Takes Hold
New Zealand Posts Monthly Trade Deficit In July
South Korea’s Early Trade Data Show Export Gloom Continues
Germany’s Lindner Says Debt Will Be Cut, Rejects Taxation Rumors
Italy Set To Back Former Draghi Ally Franco For ECB Post
Asking Prices For UK Homes Suffer Sharpest August Drop Since 2018
Dollar Gains Intact As China Disappoints, Traders Eye Jackson Hole
Oil Rises For Third Day As Tighter Market Vies With Demand Risks
Ukraine Nears Deal With Global Insurers To Cover Grain Ships
China Stocks Fall Monday On Less-Than-Expected Support:
Westpac Bank Sees Modest Increase In Stress Amid Inflation Rise
Citi Considers Overhaul That Would Hand More Power To Chief Jane Fraser
Goldman Sachs Board Has So Far Been Supportive Of Solomon
(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
Technical & Trade Views
SP500 Intraday Bullish Above Bearish Below 4400
Above 4410 opens 4440
Primary resistance is 4510
Primary objective is 4335
20 Day VWAP bearish, 5 Day VWAP bearish
EURUSD Intraday Bullish Above Bearsih Below 1.0860
Below 1.860 opens 1.0830
Primary support is 1.830
Primary objective is 1.13
20 Day VWAP bearish, 5 Day VWAP bearish
GBPUSD: Intraday Bullish Above Bearish Below 1.28
Below 1.2680 opens 1.2620
Primary support is 1.2590
Primary objective 1.3850
20 Day VWAP bearish, 5 Day VWAP bullish
USDJPY Bullish Above Bearish Below 145
Below 144.90 opens 143.90
Primary support 141.90
Primary objective is 147.20
20 Day VWAP bullish, 5 Day VWAP bearish
AUDUSD Intraday Bullish Above Bearish Below .6450
Above .6500 opens .6600
Primary resistance is .6670
Primary objective is .6200
20 Day VWAP bearish, 5 Day VWAP bearsih
BTCUSD Intraday Bullish Above Bearish below 27000
Above 29000 opens 30000
Primary resistance is 28750
Primary objective is 24757
20 Day VWAP bearish, 5 Day VWAP bearish
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!