Daily Market Outlook, August 3rd, 2021

Overnight Headlines

  • RBA Sticks With Taper Plan Even As Economy Expected To Contract
  • China Quietly Sets New ‘Buy Chinese’ Targets For State Companies
  • NZ To Further Limit Mortgages Amid Relentless Housing Boom
  • Tokyo Shows An Inflation Pulse For The First Time In A Year
  • Korea’s Inflation Quickens As Central Bank Mulls Rate Hike
  • Fed's Waller: Sees Reduction In QE Possibly Starting In October
  • IMF Allocates $650Bln To Boost Pandemic-Hit Economies
  • German Warships Heads For South China Sea Amid Tension With Beijing
  • Dollar On Back Foot Vs Safe-Haven Peers As Delta Virus Spreads
  • U.S. Treasury Cash Pile Fell To $459b Before Debt Cap Return
  • Asian Stocks Slip As Global Delta Spread Spooks Investors
  • Chinese Media Brand Online Games ‘Spiritual Opium’ Fanning Crackdown
  • SocGen Raises 2021 Forecasts On Lower Bad Loan Provisions
  • Amazon Union Vote Should Be Re-Run, U.S. Labor Official Says

The Day Ahead

  • Today’s data calendar is light with nothing of note in the UK. In the Eurozone, the June PPI will provide an update on inflationary pressures. July CPI data for the region were mixed as annual headline inflation rose by more than expected to a near 9-year high of 2.2% but the ‘core’ measure seemed to indicate that underlying inflation is still relatively tame. Nevertheless, Eurozone companies are complaining about the same sort of cost increases that are being seen elsewhere, so another rise in producer prices seems likely.
  • The US factory sector has looked strong of late and another rise in orders is expected for June. However, already released durable goods orders were weaker than expected, which suggests that the increase in overall orders may be much slower than in May. That may be a sign that demand is waning after an initial post-lockdown surge but could also be an indication that supply chains issues and other bottlenecks are having an impact.
  • US Federal Reserve policymaker Bowman is scheduled to speak today although she may only talk briefly at the start of a conference. Her previous statements suggest that she is one of the Fed officials that wants to take a cautious approach in reining back on the high degree of support that monetary policy is currently giving to the economy. In Congress this week, the Senate seems set to have a final vote on the President’s infrastructure package.
  • Overnight Australian retail sales data will be watched for a negative impact form the latest lockdown measures imposed as a result of the rise in Covid-19 cases. Meanwhile, after other July PMI measures for China pointed to a slowdown in activity, it is hoped that the unofficial Caixin services indicator may provide more positive news.

G10 FX Options Expiries for 10AM New York Cut

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

  • USDJPY - 110.00 875m.
  • EURUSD - 1.2000 869m. 1.1880/90 790m. 1.1840/50 1.66bn (1.08bn P).
  • AUDUSD - 0.7330 591m.
  • USDCAD - 1.2540 468m. 1.2480 1.28bn (845m P).
  • USDCHF - 0.9050/60 470m.
  • USDCNH - 6.50 1.54bn (1.05bn P). 6.47 505m

Technical & Trade Views

EURUSD Bias: Bearish below 1.1950 Bullish above

  • EUR/USD opened 1.1871 and traded in a narrow 1.1869/78 range
  • Option strikes around 1.1860 and 1.1880 helped contain the price action
  • Support is found at the 10-day MA at 1.1828 and 21-day MA at 1.1823
  • Sellers are tipped ahead of 1.1900 with resistance at Friday's 1.1907 high
  • A break above 1.1910 targets the 38.2 of 1.2266/1.1752 at 1.1948
  • EUR/USD starting a short-term trend higher - valid while 1.1820 holds

GBPUSD Bias: Bearish below 1.40 Bullish above.

  • +0.05% in the middle of a tight 1.3885-1.3899 range with only light flow
  • Summer holiday season in full swing in the UK and Europe weighs on interest
  • Charts; 5, 10 & 21 daily moving averages climb - momentum studies crest
  • Net bullish signals, but 1.4000 test needed soon to sustain bullish view
  • 1.3846 10 DMA is initial support - 1.3820 21 DMA is the pivotal level
  • 1.3985 upper 21 day Bollinger and 1.3991 61.8% June July fall cap at present
  • 1.4000 break would initially target 1.4090 76.4% of the June-July fall
  • No significant data of scheduled BoE activity today- USD, risk to lead cable

USDJPY Bias: Bullish above 109 Bearish below

  • USD/JPY heavy in Asia, 109.19-34, mostly below 109.29-110.12 Ichi cloud
  • Managing to hold above 109.00 - 109.07 EBS low July 19, Japanese bids
  • Offers from Japanese exporters, others eyed from @109.50 now
  • Few large nearby option expiries today - 109.25 $332 mln, 110.00 $775 mln
  • Soggy US yields weigh, Treasury 10s @1.181%, after 1.151% low yesterday
  • Risk off in Asia too, Nikkei -0.8% @27,559, AXJ mostly in red, E-minis +0.1%
  • JPY crosses heavy, EUR/JPY 129.68-82, GBP/JPY 151.66-90, AUD/JPY 80.37-56
  • Tokyo Jul core CPI weak, +0.1% y/y, overall -0.1%

AUDUSD Bias: Bearish below .75 Bullish above

  • AUD/USD pushed to 0.7400 from 0.7368 after the RBA decided not to delay taper
  • Market was expecting RBA to delay tapering bond purchases as of September
  • RBA statement upbeat on prospects of bounce back after lockdowns end
  • AUD/USD was holding up despite global growth concerns and Sydney COVID spread
  • Speculation of AUD-positive M&A flows helping to underpin AUD/USD for now
  • AUD/USD resistance is at the 21-day MA at 0.7406