Daily Market Outlook, August 25, 2022

Overnight Headlines

Asian equities are up overnight possibly supported by the economic support package announced by China. The 19-point plan includes additional stimulus for infrastructure, property, energy, and agriculture, estimated to be worth around Yuan 1trn. Meanwhile, the oil price has continued to climb from recent lows with Brent crude touching above $102bbl its highest since late July.

The August German IFO survey will provide a timely update on economic conditions. So far this year it has showed a small fall in the assessment of current conditions and a much bigger decline in expectations. Given ongoing concerns, not least about rising energy prices, a further decline in both components is expected today.

The UK’s CBI retail survey will be an unofficial indication of August sales. Last week’s official release for July showed a rise in sales for only the second time in the last nine months. However, given the concerns about the squeeze on spending power from high inflation it will be no surprise if this month does not see another increase.

In the US, the Q2 GDP release is a second reading. The first outturn showed a second consecutive quarterly decline. The update is not expected to be revised significantly although some forecasters are forecasting a modest upward revision. The weekly jobless claims data will provide a timelier reading on labour market conditions. New claims are above the lows seen earlier this year, but they are nevertheless still low by historic standards. So overall they continue to suggest that the market is tight.

The minutes of the ECB’s July policy meeting, when interest rates were raised by a more than expected 50 basis points, will be watched for clues on the size of the expected second hike in early September. The ECB faces a similar dilemma to many other central banks with the inflation data arguing for aggressive action whereas the activity indicators point to the need for more caution. Nevertheless, markets think that a second successive 50bp hike is the most likely outcome.

The US Federal Reserve’s annual economic symposium at Jackson Hole starts tomorrow. The full agenda will be released overnight but we already know that Fed Chair Powell’s speech, which is the thing most likely to impact on financial markets, will be at 3pm BST on Friday.

EUR/USD: 0.9950-55 (1.24BLN), 1.0000-10 (2.7BLN), 1.0020 (280M), 1.0090-00 (1.05BLN), 1.0145-55 (970M)
USD/JPY: 135.75-85 (499M), 135.90-00 (760M), 136.256-30 (300M), 137.00 (633M)
GBP/USD: 1.1820 (574M)
USD/CHF: 0.9600 (302M)
AUD/USD: 0.6945-50 (482M)
USD/CAD: 1.2850-55 (700M)

EURUSD Bias: Bearish below 1.0250

GBPUSD Bias: Bearish below 1.2050

USDJPY Bias: Bullish above 133.40

USD/JPY off from monthly projected range resistance 137.50
Retail traders squaring books ahead of Jackson Hole event risk
Japanese importers and retail will be looking to buy the dips, likely close to 135.60
Dealers expect more chop ahead of more US data, Fed Jackson Hold meet
20 Day VWAP is bullish, 5 Day bearish

AUDUSD Bias: Bearish below .71

BTCUSD Bias: Bearish below 25.3K