Asian equity market is trading higher following a rebound in US and European markets yesterday. However, Indonesian stocks fell sharply in response to authorities placing the capital, Jakarta, back into lockdown following a sharp increase in coronavirus cases.
In the UK also tightened social distancing restrictions, limiting gatherings to six people in England in response to a wave of new virus infections. However, the bigger UK story was the publication of the Internal Market Bill, which would allow home nation companies unfettered access to internal UK markets. The bill would essentially override parts of the Northern Ireland protocol and has drawn criticism from the EU which has called the move a breach of international law.
The ECB delivers its latest policy announcement today. In June, it had already increased the envelope of its Pandemic Emergency Purchase Programme (PEPP) to €1,350bn which, based on the current pace of purchases, should last well into next year. As such, policy settings are likely to remain unchanged at this meeting, and the focus instead will be on the ECB’s economic projections and communication.
In June, the ECB predicted Eurozone GDP growth to fall 8.7% this year, before rising by 5.2% in 2021, while headline CPI inflation was forecast to still be below target in 2022 at 1.4%. There may be some tweaks to the forecasts, given the stronger euro but also higher oil prices, but particular attention may perhaps be reserved for the core CPI projection (in June it was expected to be at only 0.9% in 2022). Given softening in some of the recent high-frequency economic indicators, the rhetoric from the ECB is expected to be dovish, emphasising downside risks to the outlook and its readiness to increase stimulus measures further, possibly later this year.
In the US, the latest set of weekly jobless claims should attract some interest. Initial claims for the latest week fell by more than expected, to 881k, and a further decline is forecast in the latest report, although a new seasonal adjustment method has made comparisons to past data more difficult.
Meanwhile, early Friday morning, we expect UK monthly GDP figures to show another very strong increase of 8.0% in July, following rises of 8.7% in June and 2.4% in May. That would leave economic output about 10% below February levels, compared with about 25% down in April. The economy is set for a strong rebound in the current quarter, having contracted by more than 20% in Q2. The outlook beyond Q3 is less certain. A number of potential risks lie ahead including the impact of the end of the furlough scheme on unemployment, renewed increases in coronavirus cases and uncertainties surrounding UK-EU trading arrangements from the start of next year after the end of the transition period.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.1775-85 (1.6BLN), 1.1790-1.1800 (1.5BLN), 1.1805-15 (600M) 1.1855-65 (500M), 1.1890-1.1900 (1.1BLN)
- USDJPY: 105.00 (1BLN), 105.80-85 (1.9BLN), 106.00 (2BLN), 106.50 (660M) 106.75 (557M), 107.00-05 (1.1BLN)
- GBPUSD: 1.2960 (200M), 1.3090 (262M), 1.3125 (181M)
- AUDUSD: 0.7170 (737M), 0.7250 (313M), 0.7280 (331M) 0.7290-0.7300 (600M), 0.7350 (440M)
Technical & Trade Views
EURUSD Bias: Bearish below 1.1950 targeting 1.1750
EURUSD From a technical and trading perspective, further consolidation likely look for supply at 1.1950 to contain upside attempts setting up a test of ascending trendline support to 1.1750.
Flow reports suggest downside bids into the 1.1740-60 congested sentimental area with increasing bids into the 1.1720-00 level weak stops on a dip through the 1.1680 area for the prospect of a deeper move through to the 1.1500 level before stronger bids start to appear and all that is available is possible congestive sentimental bids, topside offers light through to the 1.1800 level where some offers are starting to build with increasing congestion through to the 1.1850-1.1900 area with some weak stops above the 1.1920 level but almost certainly running into strong offers from there through to the 1.2000 level.
GBPUSD Bias: Bearish below 1.3350 targeting 1.3050
GBPUSD From a technical and trading perspective, the breach of 1.32 would negate the near term bullish thesis opening a retest of 1.3050 from above. UPDATE target achieved, now look for a test of the pivotal primary trendline support at 1.2830/50
Flow reports suggest downside bids into the 1.2950 area are likely to be strong still and once through to the 1.2900 area medium sized congestion opens up the downside to decent stops and the market then open to the 1.2760 area before decent bids reappear with limited sentimental bids around the 00/50 areas. Topside offers light through to the 1.3050 level with some congestion likely around the level and a push through likely to trigger weak stops for a move through to the weaker congested 1.3100 area and stronger stops above.
USDJPY Bias: Bearish below 106.50 Bullish above
USDJPY From a technical and trading perspective, as 106.50 acts as resistance look for another test of support at 105.50 failure to find sufficient bids here will expose 104.18 again.
Flow reports suggest topside offers remain into the 107.00-20 area with congestion likely to be mixed with weak stops on a break of the level and that congestion likely to continue on any move into the 107.60 area where stronger offers are likely to appear, maybe another round of stops before stronger offers then appearing through to the 108.00 level. Downside bids light through to the 105.50 level where congestion is building then stronger bids likely on any dip through to the 105.20 area and weak stops then putting in an appearance on a dip below the 104.80 level.
AUDUSD Bias: Bullish above .7250 Bearish below
AUDUSD From a technical and trading perspective, as .7250 now acts as support look for a test of psychological .7500. Only a daily closing breach of .7220 would concern the bullish thesis opening a retest of .7100. UPDATE sub .7220 negates the near term bullish thesis, as .7270 now acts as resistance look for a test of .7100 ascending trendline support
Flow reports suggest topside offers light through the 0.7300 level with very light stops on a push through the 0.7320 area and stronger offers starting around the sentimental 0.7340-60 area limited at best, stronger offers start to appear on a move through the 74 cents level and continue through to the 0.7450 area although some weak stops possible, downside bids into the 0.7250 level a little thinner however, once through the 0.7240 level the market is likely to increase in size particularly through the 0.7220 area and weak stops possibly tempered by stronger bids below the 0.7180 level.
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