Daily Market Outlook, August 16, 2022

Overnight Headlines

  • US President Biden To Sign Health And Climate Bill On Tuesday
  • UK Set To Begin Formal Dispute With EU Over Science Programs
  • Iran Sends EU Nuclear Deal Response And Signals Pact Is Near
  • RBA Signals Further Rate Hikes, Reiterates Not On Pre-Set Path
  • China Needs More Stimulus To Boost Growth, PBOC Paper Says
  • China Covid Cases Hold Near 3-Month High On Holiday Hotspots
  • China Cuts US Treasuries Holdings For Seventh Straight Month
  • PBoC Sets Weaker Fixing After Yuan Tumbles To Three-Month Low
  • Asian Equity Markets Mixed; Chinese Property Stocks Outperform

The Day Ahead

  • Asian equity markets are mixed this morning with no major moves. The oil price has fallen sharply with Brent crude hitting its lowest level since February on global growth concerns. Reports suggest that a heatwave in China is causing issues with hydroelectric power and threatening factory production. The minutes of the August Australian central bank meeting, when interest rates were raised by 50 basis points for the third consecutive time, indicated that further hikes are likely, but that policy is not on a pre-set course.
  • Just released UK labour market data showed employment growth of 160k in the three months to June, while the unemployment rate held at 3.8%. However, there were hints that the tight labour market be starting to turn with job vacancies easing further away from their recent highs, albeit only marginally. Earnings data including bonuses slipped but the ex-bonus annual wage growth posted a higher-than-expected rise of 4.7% in June.
  • The German ZEW survey will provide one of the first updates of August economic trends in the Eurozone. As a survey of analysts it can be less reliable than other indicators such as the PMIs but gets attention because of its timeliness. The latest readings are expected to show both current conditions and expectations at close to recent lows reflecting ongoing uncertainties not least the potential impact of higher gas prices.
  • July data in the US are forecast to deliver mixed messages on economic activity. Housing starts are likely to have fallen for the fourth successive month reflecting the impact of higher interest rates, but industrial production may have risen.
  • July UK inflation data will be released early Wednesday. It is expected to show a further rise in annual headline CPI inflation to 9.8% from 9.4% in June, a new 40-year high. Also look for the ‘core’ rate (excluding energy & prices) to increase to 6%, from 5.8% in June. UK inflation seems set to rise significantly further in October. The BoE calculates that it could move above 13% when the next Ofgem price cap comes into effect.
  • Also, early Wednesday the Reserve Bank of New Zealand is expected to be the latest central bank to raise interest rates. The consensus expectation is for a fourth successive 50 basis points increase to take rates to 3%. The RBNZ also seems likely to warn that rates could still rise further.

FX Options Expiring 10am New York Cut

  • EUR/USD: 1.0100 (278M), 1.0125 (246M), 1.0145-55 (1.15BLN)
  • 1.0160-65 (469M), 1.0170-75 (842M), 1.0185-90 (365M)
  • 1.0250 (805M)
  • USD/JPY: 132.90-00 (390M)
  • AUD/USD: 0.7000 (490M), 0.7300 (640M)
  • USD/CHF: 0.9640 (500M)
  • USD/CAD: 1.2650 (282M), 1.2800 (308M), 1.2900 (290M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.0410

  • Softer after closing down 0.95%, as the safe haven U.S. dollar jumped
  • Cautious start, after Mondays soft China data inspired safe haven USD flows
  • 20 day VWAP contracts - signals have turned modestly negative
  • Close below 1.0215 a base in August, adds to the bearish outlook
  • Targets a test of 1.0117, lower 20 VWAP and 1.0111 61.8% Jul/Aug rise
  • Support around 1.0100 should be resilient unless there is significant news
  • 1.0120/40 1.750 BLN, 1.0150 1.458 BLN are Tuesday's close major strikes
  • 20 Day VWAP bearish, 5 Day bearish

GBPUSD Bias: Bearish below 1.23

  • UK labour market shows more sign of cooling
  • Employment +160k in three months to June vs 256k f/c; jobless rate 3.8%
  • UK wage rises a potential headache for the Bank of England
  • 20 day VWAP bands contract - signals show no significant bias
  • Close below 1.2105 was bearish development
  • Targets 1.2004 August low then 1.1963, 61.8% July-August rise
  • 20 Day VWAP is bearish, 5 Day bearish

USDJPY Bias: Bearish below 136

  • USD/JPY moves tied to US yields, downside limited for now
  • USD/JPY moves again tied to moves in US yields, downside limited for now
  • US yields key, tad heavy but holding, Treasury 10s @2.778%
  • JPY short positions pared considerably, buy-backs
  • Option expiries not a big factor today, only $390 mln at 132.90-133.00
  • Massive expiries Thursday however, 132.00 $1.4 mln, 133.90 $652 mln
  • USD/JPY trades within the usually resilient 132.06-135.17
  • 20 Day VWAP is bearish, 5 Day bullish

AUDUSD Bias: Bullish above .7050

  • Focus shifts to Australia Q2 wages data Wed, July employment data Thursday
  • Minutes of RBA Aug policy meeting shows c.bank walking tight rope on policy
  • Needs to prevent high inflation without curbing economic growth
  • Australia inflation shot to 6.8% in June by new monthly measure
  • Upside limited as weak data from China, US raise global recession fears
  • Offers eyed .7270/30, bids .6950’s
  • 20 Day VWAP is bullish, 5 Day bearish

BTCUSD Bias: Bearish below 25.3K

  • BTC washed up after failing to cross 25k again
  • Closing above 24,665 needed to fuel rally
  • Will exit VWAP uptrend channel if below 24,145
  • Last 24,004, BTC slipped 0.9% Mon despite Nasdaq rise
  • Crypto assets under the weather despite risk-on in tech
  • Bulls need a close above 25k to gain significant upside momentum
  • Closing below 21k would be a noteworthy downside development
  • 20 Day VWAP is bullish/neutral, 5 Day bearish