Daily Market Outlook, July 9, 2021
Overnight Headlines
- Asian equity markets are broadly down, following US markets lower, on concerns about the spread of virus variants and the potential impact on global growth prospects. US 10-year Treasury yields fell to a low of 1.25% yesterday, but edged higher overnight, although they are on course to have fallen in seven of the past eight weeks, perhaps reflecting in part lessening concerns about spiking inflation. China’s factory-gate inflation eased to 8.8%y/y in June from 9.0%, while CPI inflation fell more than expected to 1.1% from 1.3%.
- UK monthly GDP figures for May, released earlier this morning, showed a smaller-than-expected expansion of 0.8%m/m, while April GDP growth was revised down to 2.0% from 2.3%. Markets were anticipating a rise of 1.5%. Services output during May increased by 0.9%, less than forecast, while manufacturing stagnated for a second month despite buoyant survey evidence. Overall, it looks like June will have to be very strong (3%) to meet the Bank of England’s Q2 forecast for 5.5%. UK trade data for May has been rescheduled for later today, and are likely to draw some attention.
- The minutes of the ECB’s June policy meeting will also be released later today. It was delayed from yesterday owing to the publication of the ECB’s strategy review in which a symmetric 2% inflation target has been adopted, meaning that inflation under- and overshoots have the same weight. The new target is more ‘dovish’ than the erstwhile goal of ‘below but close to 2%’, often perceived as an inflation ceiling, although the outcome of the review seems to have been in line with expectations.
- Today’s ECB minutes will refer to the a meeting when policymakers decided to maintain a faster pace of asset purchases than in the early part of the year under its Pandemic Emergency Purchase Programme (PEPP). President Lagarde said recently that the Eurozone economic recovery remains fragile. The economy is expected to bounce back in Q2, but less strongly than the US and the UK.
- Before the minutes, ECB President Lagarde is scheduled to participate on a panel on digitalisation with Bank of England Governor Bailey. Canadian employment figures will interest loonie watchers, ahead of next week’s Bank of Canada policy update. There are no major US releases today, as markets look forward to Fed Chairman Powell’s semi-annual testimony to Congress next week. Ahead of that the Federal Reserve will today release its twice yearly Monetary Policy Review. US data releases next week include CPI inflation and retail sales.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby)
EUR/USD 1.1685-90 (350M), 1.1700 (896M), 1.1775-80 (400M), 1.1800 (946M), 1.1855 (303M), 1.1875-80 (500M), 1.1930-45 (1.8BLN)
USD/JPY 110.50 (345M), 110.75-80 (600M), 110.95-00 (655M), 111.25 (570M), 112.00 (410M)
EUR/GBP 0.8475 (250M), 0.8535-40 (320M), 0.8600 203M), 0.8625 (456M), 0.8660 (300M)
GBP/USD 1.3850-55 (450M)
AUD/USD 0.7350 (440M), 0.7400 (320M), 0.7500 (233M), 0.7530 (901M), 0.7600-05 (900M)
NZD/USD 0.7200-05 (240M),
Technical & Trade Views
EURUSD Bias: Bearish below 1.1950 Bullish above
Lower in Asia after surge to 1.1868, 1.1835-50 • EUR/USD lower after surge to 1.1868 overnight, 1.1835-50 EBS in Asia • Players bit confused as to effect of reflation trade reversal on EUR • ECB noncommittal on policy • Massive nearby option expirations today help contain action • 1.1800 E1.3 bln, 1.1830-45 E715 mln, 1.1850 E1.2 bln, 1.1865-75 E1.1 bln • More expiries above too, amounts nearby fall off sharply Monday • EUR/GBP 0.8588-96, EUR/CHF heavy, 1.0831-39, EUR/JPY too, 129.97-130.16
GBPUSD Bias: Bearish below 1.40 Bullish above.
Soft with risk, as the USD firms – 1.3670 beckons • -0.1% in a 1.3768-1.3795 range – plenty of flow once Asia fully opened • Delta variant surge fears as England celebrates Euro 2020 • Charts; momentum studies ease, 5, 10 & 21 daily moving averages slip • 21-day Bollinger bands contract – June/July downtrend remains in play • Targets a test of the 1.3733 July base then 1.3669 March/April double bottom • 1.3895 21 day moving average and 1.3898 July high is pivotal resistance • NY 1.3742-1.3797 range is initial support and resistance
USDJPY Bias: Bullish above 109 Bearish below
Bounces after fall to 109.54 but upside limited • USD/JPY in bounce after fall to 109.54 yesterday, Asia 109.75 to 109.96 EBS • Gotobi Tokyo fix demand, profit-taking by spec shorts cited • Upside limited to ahead of 110.00 though, plenty offers 110.00, 110.30-50 • Some offers option-related – $688 mln 110.00-30 today, tom 110.00 $1.1 bln • Soggy US yields, risk-off mood also to help cap upside • Nikkei -1.7% @27,638, Treasury 10s @1.317% after plunge to 1.250% overnight • JPY crosses mostly on back foot, EUR/JPY 129.97-130.16, low yesterday 129.63
AUDUSD Bias: Bearish below .76 Bullish above
Heavy as risk appetite wanes and charts trend south • -0.15% in a 0.7410-0.7438 range with a trend low and consistent interest • Risk 'off' weighs as regional stocks slide, E-mini S&P -0.2%, Nikkei -2% • Sydney to face prolonged COVID-19 lockdown amid record cases • Vaccine rollout to accelerate (Full Story) – short term lockouts weigh • Charts; 5, 10 & 21 daily moving averages head south with 21 day Bolli bands • Bearish setup targets a test of the 0.7378, 61.8% November-February rise • Close above 0.7548 21 DMA needed to undermine the downside bias
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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!