Daily Market Outlook, July 30, 2020 

Asian market was mixed overnight as investors digested the latest signals from the US Federal Reserve. The Fed last night kept policy unchanged including interest rates at the 0.00-0.25% range. Concerns about the resurgence of Covid-19 infections meant the message remained dovish. Chair Powell reiterated that the Fed stands ready to offer more support if warranted and he called for more fiscal stimulus (Congress is discussing whether a fourth fiscal package should be passed). 

Following yesterday’s FOMC policy decision, the focus remains on the US with the first release of Q2 GDP this afternoon. The figures will be ugly: the consensus forecast is nearer -35%, reflecting the impact of much of the economy being in lockdown through April and for some of May. While the forecast fall is very large, activity rebounded in late May and through June. The focus now is on whether growth is faltering in July. For that reason, today’s weekly jobless claims will also draw considerable attention, especially after last week witnessed the first rise since March. 

As a prelude to tomorrow’s Eurozone releases, Germany will release Q2 GDP and July preliminary CPI inflation figures today. France will also release Q2 GDP at 6.30am tomorrow morning. The consensus forecast is for the German economy to have shrunk by about 9% on the quarter, while France is expected to have contracted by about 15%. The low point was likely in April; activity levels have picked up since then, but for the most part remain below pre-Covid levels. Eurozone unemployment is forecast to rise to 7.7% in June from 7.4%. As for German July CPI, the key story is that the temporary VAT cut is expected to drag inflation rates lower, although the degree will depend on how much of the reduction is passed on to the consumer. The EU-harmonised inflation measure for Germany is expected to fall to 0.3%y/y from 0.8% in June. Meanwhile, the country’s unemployment claims figures for July will also be watched. The pace of increase has slowed since April and claims are forecast to rise by about 40k compared with 69k in June. 

In the early hours of Friday, China’s official PMI surveys will be released. Markets are looking for further consolidation after rises to 50.9 and 54.4 respectively for the manufacturing and non-manufacturing reports last month.

CITIFX QUANT: Month-End Asset Rebalancing: July 2020 Estimate

The asset rebalancing signal notes a mild rotation from equities to bonds with a very weak signal at month end. More interestingly intra asset rebalancing—such as outflows from US equities and inflows in UK and European equities or inflows into all but UK and European bonds are likely to occur, albeit with weak signals overall. The FX signal from the rebalancing flows suggests USD selling against EUR at month end. 

Today’s Options Expiries for 10AM New York Cut (notable size in bold)

  • EURUSD: 1.1590-1.1600 (1BLN), 1.1650 (624M)
  • USDJPY: 105.00 (710M), 105.55 (524M), 105.75 (500M), 106.00 (1.9BLN)
  • AUDUSD: 0.7125 (240M), 0.7150 (230M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.16 targeting 1.1830

EURUSD From a technical and trading perspective, as 1.16 acts as support look for a test of the 1.1830 equality objective before a profit taking pause. A closing breach of 1.1550 would concern the near term bullish bias opening a deeper correction to 1.1450 UPDATE note Citi month end EUR buy signal, pullbacks to 1.1650/00 should see bids to take to price into a test of the pivotal 1.183/50.

GBPUSD Bias: Bullish above 1.28 targeting 1.2950

GBPUSD From a technical and trading perspective, as 1.25 attracts sufficient demand, look for a grind higher to test offers and stop at 1.28. A closing breach of 1.25 suggests return to range and a test of range support at 1.2250.UPDATE target achieved, as 1.29 contains the rally look for a pullback to test 1.27 support.UPDATE price stalling at equality objective at 1.29 as 1.28 supports look for a test of offers and stops to 1.2950 before a pullback to 1.27 UPDATE target achieved, as 1.29 support now lok for a test of offers and stops to 1.3010

USDJPY Bias: Bearish below 106.30 targeting 104.50 

USDJPY From a technical and trading perspective, anticipated test of the equality objective at 108.13 saw bearish reversal patterns, setting up a move for  another test of 106 enroute to a pivotal 105 test UPDATE equality objective achieved as 107.30 caps the upside look for a retest of 106.30’s UPDATE 106.30 achieved as 106.75 now acts resistance look for a test of 104.50’s

AUDUSD Bias: Bullish above .7090 targeting .7220

AUDUSD From a technical and trading perspective, as .7100 now acts as support, look for a move to testing projected ascending trendline resistance .7220  next leg higher to test stops and offers above .7220 before a corrective phase to test .6950 as support.

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