Daily Market Outlook, July 24, 2020 

Asian equity market is down this morning led by big falls in the Chinese indices. Concerns about the US economic outlook, following a rise in weekly jobless claims and criticism of China by US Secretary of State Pompeo, were cited as reasons for the move. There also appear to be doubts that a further US fiscal stimulus package will be passed before Congress’ summer recess. 

Following the latest round of EU-UK talks, the EU’s chief negotiator Barnier expressed doubt whether an agreement would be reached before the UK’s deadline for leaving the EU. Just released data showed that UK retail sales rose by a stronger-than-expected 13.9% in June, a second consecutive monthly increase following May’s upwardly revised 10.6% gain. However, the GK consumer confidence measure disappointed by holding steady at -27. This may add to concerns that the upturn in spending may not be sustained. 

Today’s July PMI updates for the Eurozone, UK and the US will provide timely insights on trends in both manufacturing and services. However, they appear to have so far underestimated the pace of the rebound compared to official measures. 

In the UK in May, both the manufacturing and service indices were below the 50 level, which signals a fall in activity, whereas the Office for National Statistics recorded GDP growth of 1.8%. Also in June, when lockdown measures were eased more substantially and so output would be expected to have accelerated the manufacturing reading only just crept above, and services stayed below, the 50 mark. This month we expect a stronger signal with manufacturing up to a 15-month high of 52.0 (from 50.1 in June) and services to a 4-month high of 53.0 (from 47.1). Also of interest will be the detail of the report, particularly the extent of the rise in new orders, an indication of the sustainability of the upturn. 

Eurozone PMI data may also be underestimating the pace of the upturn as both manufacturing and services indicators remained below 50 in June despite the loosening of restrictions. Expect some further mixed messages for July with the services measure rising to 51.0 (from 48.3 in June) but manufacturing holding just below 50 at 49.5 (from 47). 

In the US, yesterday’s news that jobless claims posted their first weekly rise since March has added to concerns that the US economy’s rebound may be faltering. That sharpens the interest in today’s US data. Look for a rise above 50 in both the manufacturing and services PMIs. June new home sales are expected to post a second consecutive monthly rise. 

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

  • EURUSD: 1.1470 (312M), 1.1500 (865M), 1.1525 (380M), 1.1600 (438M), 1.1680 (230M)
  • USDJPY: 106.00 (350M), 106.50 (300M), 106.70-75 (560M), 107.15-20 (500M)
  • AUDUSD: 0.6870 (950M), 0.6900 (638M), 0.6960 (481M), 0.7050 (255M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.1550 targeting 1.1650

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 UPDATE as 1.1550 acts as support look for a test of offers and stops above 1.1650, as discussed in yesterday’s live analysis session caution counselled here as DXY testing major support and risk sentiment seems to be souring

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 UPDATE 106.30 achieved as 106.75 now acts resistance lok for a test of 104.50’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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