Daily Market Outlook, August 1, 2022

Overnight Headlines

Fed’s Kashkari: Fed Committed To Slowing Inflation To 2% Goal
BoE Set To Consider Biggest Rate Rise For More Than 25 Years
Biden’s Covid ‘Rebound’ Case Keeps Him At White House Again
House Speaker Pelosi Begins Asia Tour, No Mention Of Taiwan
Midterm Misery For Biden As Vital Gauge Signals 30-Seat Loss
China’s Rebound Remains Fragile As Factories, Property Slump
China July Home Sales Plunge, Mortgage Revolt Deters Buyers
Japan’s Factory Activity Growth Slows As New Orders Contract
Australia’s Aggressive Policy Tightening To Weigh On Economy
Goldman Signals 25% Australia Recession Odds, 30-35% In NZ
UK’s Sunak Vows 20% Cut To Income Tax Within Seven Years
Lufthansa Faces More Turmoil As Pilots Back Possible Strikes

The Day Ahead

Asian equity markets are generally up this morning. However, US equity futures are down following hawkish comments from some US Federal Reserve policymakers that highlighted their concerns about ongoing inflationary pressures. Official China PMI data for manufacturing and non-manufacturing both slipped in July and the manufacturing fell back below the key 50-contraction level. China’s unofficial Caixin PMI for manufacturing also declined by more than expected.

This morning’s Eurozone and UK July manufacturing PMIs are final estimates, although we will get the first readings for Italy and Spain. The final PMIs are expected to confirm earlier ‘flash’ estimates. The Eurozone survey was particularly weak with the composite index dropping to 49.4, the first sub-50 reading since early 2021, reflecting a contraction in manufacturing and fading pent-up demand for services. In the UK, the composite PMI held above the 50-mark but softened to 52.8, a seventeen-month low, and the future output index pointed to further losses of momentum in the coming twelve months. Inflationary pressures remained elevated, but the price indices hinted at near-term peaks.

A key parallel across both the Eurozone and UK ‘flash’ surveys for July was the further moderation in new manufacturing orders, which were down for a second- and third-consecutive month in the UK and Eurozone, respectively. On a more positive note, falls in both the composite input cost and prices charged indices pointed to some cooling in inflationary pressures across both economies.

In the US, alongside the ‘final’ reading of the July manufacturing PMI report, the more widely watched manufacturing ISM survey will be released. In keeping with the slippage seen in the former, the latter is expected to record a decline in the headline index, from 53.0 to 52.5, which would be the weakest since June 2020.

Ahead of Thursday’s policy announcement from the Bank of England, the Reserve Bank of Australia (RBA) delivers its latest policy update early tomorrow morning. Expectations are centred on the RBA hiking interest rates by 50bp for the third successive meeting. At one-point markets were expecting a 75bp rise but this was cut after inflation picked up by less than expected in Q2. Nevertheless, the larger move cannot be ruled out.

CFTC Data

IMM: USD long position drops on CAD and GBP buying; JPY largest net short
USD spec long position pared in Jul 20-26 period $IDX +0.58%
EUR$ -1.35% in period, specs +1,161 contracts now short 41,584
Yen specs -2,256 contract in yen strength, short grows to 61,481 contracts
GBP specs +3,260 contracts now -53,990; GBP +0.41% in period pre-Aug 4 MPC
CAD specs +9,102 contracts, AUD specs -4,237
BTC specs +385 contracts now short 121
On net USD basis JPY short pulls slightly ahead of EUR short
Yen specs long $5.6bn, EUR long $5.3bn, GBP in 3rd place specs long $4.1bn
Source: Reuters Data

FX Options Expiring 10am New York Cut

EUR/USD: 1.0100 (647M), 1.0125 (496M), 1.0200 (698M), 1.0250 (650M)
EUR/USD: 1.0275 (411M), 1.0300 (958M). GBP/USD: 1.2125 (617M)
EUR/GBP: 0.8325 (482M), 0.8535 (352M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.0350

Quiet start after small gain on Friday
EUR/USD eked out a 0.29% gain Friday after a whippy session
Risk rally and lower US yields helped to underpin EUR/USD
EUR/USD remains in consolidation mode and isn’t trending in short-term
Resistance 1.0250/60 stronger offers seen to 1.0350/60, support 1.0100-05, 1.0070-75
20 Day VWAP is bullish, 5 Day bullish

GBPUSD Bias: Bearish below 1.2280

UK’s Truss gets the backing of several senior MPs for PM
Truss looks set to be the next UK PM – markets will likely be cautious
CBI survey expects zero UK growth for the next 3 months
Surging UK cost of living to hit domestic spending in the third quarter
Offers sited at 1.2280/1.23 bids 1.2090
20 Day VWAP is bullish, 5 Day bullish

USDJPY Bias: Bearish below 134

USD/JPY plunge late last week persists into the new month
Plenty JPY shorts forced to cover on move down from 137.45 on July 27
Japanese importer demand again eyed in Tokyo on big move down
Some option expiries in area – 132.75-85 $400 mln, 133.00 $300 mln
Also above 132.50 $283 mln, 134.00 $393 mln, nothing massive in area
Eyes still on US yields, short-end saw bounce Friday, long-end easier
Newly minted bears target a test of 130
Offers seen at 134
20 Day VWAP is bearish, 5 Day bearish

AUDUSD Bias: Bearish below .7050

AUD/USD recovers from China data disappointment, rising Sino-U.S. tensions
China’s factory activity contracts unexpectedly in July as COVID flares up
July official services PMI grows at slower pace
U.S.-China tensions weigh as Pelosi begins Asia tour
Tempering of aggressive Fed rate hikes expectations may limit downside
RBA meeting Tuesday in focus, 50bps rate hike widely expected
Offer at .70 being eroded as price is accepted above .70 bulls target .71 test
AUD/USD support now sited at .6950/40
20 Day VWAP is bullish, 5 Day bullish

BTCUSD Bias: Bearish below 25.3K

Range bound around the 23,300 level and Ethereum also eked mild gains but failed to hold above 1,700
Southeast Asia-focused crypto exchange Zipmex filed for bankruptcy protection
Crypto assets need new rights in law, UK legal body says
Bulls need a close above 25k to gain significant upside momentum
Closing below 21k will be a noteworthy downside development
20 Day VWAP is bullish, 5 Day bearish

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% and 68% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Written by Patrick Munnelly

Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!

Bitcoin is on the Rise

BTCUSD, H4 | Potential Bullish Continuation

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Daily Market Outlook, August 1, 2022