Daily Market Outlook, July 22, 2020 

Asian equity market is mixed this morning. Chinese indices are down, possibly reflecting concerns about escalating tensions with the US, but others are little changed or up.

The Italian government has proposed EUR25bn extra spending to help businesses with temporary layoffs and provide subsidies to local/regional authorities. The Australian Federal budget showed an expectation of a more than doubling of the budget deficit in the current financial year. The finance minister said Australia was still in better economic shape than most countries but cautioned against relying on taxpayer funded support for too long. 

The CBI will release both its monthly industrial survey and the more detailed quarterly readings this morning. The former will provide the latest gauges of overall and export orders, which seem likely to have risen but still be at relatively low levels. The latter includes firms’ investment net intentions. Those dropped to record lows in April and given the pressures on businesses are likely to have stayed very low.  

Bank of England policymaker Haskel, one of the external members of the Monetary Policy Committee, is scheduled to speak by webinar at midday. He voted with the majority for a further increase in the asset purchases at the BoE’s last policy meeting. However, he was ahead of the pack in suggesting such an increase at the previous meeting and is generally considered to be one of the most dovish members of the Committee. 

US weekly jobless claims will be watched particularly closely for signs that the improvement in the labour market is faltering. Last week’s outturn, which showed only a small drop from the previous week, fuelled concerns that the recent rise in Covid-19 cases is having a negative impact on the economy.  

In contrast in the Eurozone, Monday’s agreement at the EU summit of a fiscal stimulus package has boosted hopes that a strong recovery is possible. Although that news was too late to impact on today’s consumer confidence reading for July, a third successive increase from the March low is still expected.

Early Friday, June UK retail sales are expected to post a second successive big gain. Expect a 11.5% rise to follow May’s 12% increase. Nevertheless, there continue to be doubts about the sustainability of the rebound. Some anecdotal reports suggest that after an initial surge, reflecting pent up demand, spending in stores has subsequently slowed. The July GfK consumer confidence measure may give some indication whether such concerns are justified.

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

  • EURUSD: 1.1400 (2BLN), 1.1425 (464M), 1.1445 (324M) 1.1470 (876M), 1.1500-10 (1.5BLN), 1.1545-50 (965M)
  • USDJPY: 108.25 (250M). 
  • GBPUSD 1.32 (360M)
  • AUDUSD: 0.6990-00 (285M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.1150 targeting 1.15

EURUSD From a technical and trading perspective, increasingly looking like a buy the rumour sell the fact set up, price looks poised to probe offers and stops to 1.15, watch for bearish reversal patterns on a fade the news play as initial optimism over the deal develops into a lack of detail in the plan and profit taking kicks in. Anticipate the potential for a pullback 1.14/1.1380 UPDATE target achieved, anticipate profit taking pullback from current levels to test 1.1450 before another leg higher to test 1.1577 to complete the current cycle.UPDATE 1.1577 achieved look for profit taking pullback to test 1.1420 as support

GBPUSD Bias: Bullish above 1.25 targeting 1.28

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

USDJPY Bias: Bullish above 107.50 Bearish below

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

AUDUSD Bias: Bullish above .6830 targeting .7100

AUDUSD From a technical and trading perspective, as 6830 attracts buyers there remains scope to retest and break prior cycle highs en route to a .7100 test. Expect bids towards .6900 to act as support. A closing breach of .6900 opens another test of bullish appetite at .6880 UPDATE target achieved, look for profit taking pullback from .7160’s to retest .7050 as support before next leg higher to test stops and offers above .7250

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