Investment Bank Outlook 23-07-2021
Citi
We think it's an appropriate characterization of price action this week, and the overnight session was no different. It was quiet as the Olympics kicks off and Japan market participants remained out. USD drifts slightly higher through the day likely as risk squares up heading into the weekend. Asia FX continue to struggle amid Delta variant headlines and meanwhile AUD was slightly negatively impacted by the accelerating COVID cases in Sydney.
Markit PMIs will be the highlight of the day, with preliminary prints for GBP, EUR and USD. Citi Economics expects UK services to ease slightly in July. We expect manufacturing PMI to also ease in the Eurozone but for services to strengthen. The July ECB Governing Council yesterday was slightly dovish but broadly in line with expectations, as the ECB reflected the new Strategy’s emphasis to be more persistently accommodative in a low-inflation world. RUB rate decision is coming up today where consensus now expects a 100bps rate hike.
ECB Review:
EURUSD traded choppy throughout the session, but ultimately weakened -0.2% to 1.1770.
–The July ECB Governing Council was slightly dovish but broadly in line with expectations, as the ECB reflected the new strategy’s emphasis to be more persistently accommodative in a low-inflation world.
–The main change is that the forward guidance indicates for present or lower rates until inflation is at 2% well ahead of the end of the forecast horizon, and notes the possibility of moderate inflation overshoots. But these changes are modest as markets are only pricing a hike at some point in 2024 and inflation remains subdued.
–We think the immediate market implications are limited but the Meeting reinforces the ECB’s position as one of the most dovish central banks, which points to EUR weakness against high-beta currencies as risk sentiment balances out, and a dovish ECB is helping sentiment to stabilize as we expected. The focus will now be on the FOMC next week and the ECB’s guidance for asset purchases into Q4.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.