Market risk sentiment is mixed at the start of the new week, after the Phase One US/China trade agreement review that had been scheduled for last Saturday failed to take place. The talks between China’s Vice-Premier Liu He and US Trade Representative Robert Lighthizer have been indefinitely delayed, pointing to a souring in relations.
Outside of China, most Asian equity indices are down, though Chinese equities are being supported by the injection of liquidity into the financial system by the PBOC. Meanwhile, in Japan, the latest GDP report showed a larger-than-expected quarterly fall in Q2 (-7.8%), with private consumption posting a bigger-than-expected drop.
The more widespread rise in Covid-19 cases reported last week, including in some countries where infections were previously believed to be falling, may add to concerns that the pickup in activity will falter in the coming months. For now, markets have been helped in riding out the negative news on coronavirus cases by some positive economic data surprises. Particularly in the US, where the majority of recent releases have surprised on the upside despite ongoing concerns that the rebound may be faltering.
There is a distinct lack of any key data releases across the major economies today, however, in the US, the Empire State manufacturing survey and the US NAHB housebuilders’ survey will provide up-to-date assessments of current activity trends. Having reached an all-time low in April (-78.2), the headline balance of the Empire State manufacturing survey returned to positive territory in July as factories in the region continued to open back up. Expect the headline balance to ease from 17.2 in July to 15.0 in August, still consistent with robust growth, albeit at a slower pace as the rate of reopening slows. For the NAHB survey, we expect the August report to show a further modest improvement, as the index continues to move back up to its pre-crisis peak of 76. We look for a rise to 73 from 72 previously.
This afternoon, Atlanta Fed President Bostic will discuss ‘inclusive innovation’ at a virtual event hosted by the Rotary Club of Atlanta. Elsewhere, the four-day Democratic National Convention commences today. However, no speakers are expected to travel to Milwaukee with Joe Biden set to deliver his acceptance speech virtually on Thursday 20th.
This week’s CFTC report showed a seventh straight increase in the net bearish positions on the USD as investors once again increased their all time high net EUR long. The aggregate USD short position in the currencies that we cover rose to USD32.2bn on a USD3.3bn increase through the week to Tuesday—following a USD4.5bn net short increase the prior week. Net speculative EUR longs rose by USD2.7bn marking a slightly lower pace than last week’s USD3.6bn increase and a USD5.1bn increase a fortnight ago to USD29.3bn, essentially doubling in size over the last six weeks and rebounding from a net short as late as early March. Rather than investors placing increased bets in favour of the EUR (gross EUR longs remained steady at 266k, up 4k contracts) gross shorts were reduced to their lowest point since October 2018 (at 66k, down 15k). The GBP saw a relatively solid decrease in its net short against the USD with a USD973mn decline during the week to USD273mn that puts a neutral position within reach
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.1800 (255M), 1.1900 (917M)
- USDJPY: 105.00 (420M),105.50 (534M), 105.65 (624M), 106.02 (438M) 106.50 (240M)
- GBPUSD: 1.3090 (623M)
Technical & Trade Views
EURUSD Bias: Bullish above 1.17 targeting 1.20
EURUSD From a technical and trading perspective, as.18 continues to hold as such stops above 1.19 are starting to look vulnerable en route to a 1.20 battle as discussed in last week’s live session. Only a closing breach of 1.17 would concern the bullish bias
GBPUSD Bias: Bullish above 1.30 targeting 1.3250
GBPUSD From a technical and trading perspective, as 1.30 is defended stops above 1.32 look vulnerable for a test and breach enroute to a 1.33 test. Only a closing breach of 1.30 would concern the bullish bias
USDJPY Bias: Bullish above 105.50 targeting 107.50
USDJPY From a technical and trading perspective, anticipated test of the equality objective at 104.50 attract big bids, printing a key reversal pattern on Friday, as discussed in today’s Chart Hit, as 105.50 acts as a support look for a test of the equality objective to 107.50. UPDATE as 106.40 supports look for a grind higher to test symmetry swing resistance sighted at 108
AUDUSD Bias: Bearish below .7170/90 targeting .6950
AUDUSD From a technical and trading perspective, test of stops and offers above .7220 has delivered the anticipated corrective phase, as .7170/90 now acts as resistance look for a test .6950 as ascending support. UPDATE potential double top in place to deliver the test of ascending trend channel support now at .7000
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