Daily Market Outlook, July 22, 2020 

Eurozone leaders clinched their EUR750b recovery fund deal which lifted the EUR overnight, the USD is near its lowest level over the past 12 months. Alongside the improvement in market sentiment towards the EUR, the USD has been weighed down by the improvement in risk appetite (the 30-day correlation between the BBDXY and the S&P500 is near its highest level in five years).

US-China tensions appeared to notch higher after the US Justice Department accused two Chinese hackers of stealing data including Covid-19 research and Mike Pompeo called for a “coalition” to resist China in a meeting with Dominic Raab. Senator Mitch McConnell also cast doubt on whether a fresh stimulus deal can be reached this week, while President Trump warned the pandemic could get worse before it gets better in an about-turn. The S&P500 index added 0.2% to its highest since February amid higher oil prices, while VIX rose to 24.84. The UST bonds again traded a tad firmer with the 10-year bond yield at 0.60%. The 3-month LIBOR eased to 0.2555%. Gold is also inching towards its 2011 record of $1921.17 per ounce.

Fed’s Kohn expects the US economy to stabilize in the second half of this year in a gradual recovery, but with sizeable risks on both sides of the inflation forecast. Meanwhile President Trump’s Fed nominee Judy Shelton was confirmed by the Senate Banking Committee and now faces the full Senate confirmation vote, while Christopher Waller also advanced. On the earnings front, Texas Instruments’ profit forecast beat estimates, and Coca-Cola also tips things to improve. Microsoft, Blackstone Group, Intel, Unilever and Tesla are also reporting next.

Besides the trend in COVID cases, another market focus at present is whether Republicans and Democrats can broker a new fiscal stimulus package before the end of the month, when enhanced unemployment benefits are set to expire. Republican leader of the Senate Mitch McConnell said that he favoured sending a new round of cheques sent directly to households earning below a certain threshold, which is likely to find support from the Democrats. There are clear divisions between the two parties on other measures however. McConnell said he intended to put a new bill forward over the coming days.

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

  • EURUSD: 1.1365-75 (1.3BLN), 1.1450 (1.36BLN), 1.1500 (1.27BLN) 1.1555 (433M)
  • USDJPY: 106.75 (225M), 107.20-25 (325M), 107.80 (284M)
  • AUDUSD: 0.6880-85 (1.1BLN), 0.6915-20 (2.0BLN), 0.7020 (256M) 0.7050 (773M), 0.7075 (1.16BLN)

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

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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