Daily Market Outlook, August 23, 2022

Overnight Headlines

Asian equity markets are trading mostly lower following the biggest one-day fall on Wall Street for over two months. Investors are preparing for a potentially hawkish message from US Federal Reserve Chair Powell at the Jackson Hole Economic Symposium later this week. The risk-off sentiment has continued to support the US dollar and weighed on oil prices, although the latter rebounded on reports of possible supply cuts. Markets shrugged off weaker Australian and Japanese PMI reports.

This week’s data calendar is relatively light with no official releases in the UK. However, today’s August PMIs in the UK, Eurozone and the US will provide timely updates. Both the manufacturing and services measures have been trending down of late in all three economies. Overall, that trend seems set to continue this month although there may be small rebounds in the headline services readings for both the UK and the US.

Earlier this year, the primary message from the PMIs seemed to be that demand was still robust, but supply constraints were holding back production. Now it seems that demand is faltering, pointing to the risk that the economic downturn may gather pace. More positively, there have been consistent signs in recent readings that cost pressures are moderating as supply-side constraints let up. That holds out hope that consumer price pressures may soon peak. However, the evidence on labour market pressures easing is far less compelling, while the ongoing rise in natural gas points to inflation rising significantly further in the near term.

The UK CBI’s August industrial trends survey will also be released today. It covers similar ground to the manufacturing PMI and the consensus expectation is for headline net balances for total orders and selling prices to moderate further.

In the Eurozone, this afternoon’s consumer confidence release is forecast to fall to a new record low. US new home sales, meanwhile, are expected to provide further signs that the housing market is under pressure due to higher interest rates.

EURUSD Bias: Bearish below 1.0250

EUR struggled as a result of Chinese ripple effect and European energy trouble.
Sellers encountered at 0.9950, offers kept replenishing
Funds are short futures, betting Fed will stick to its hawkish tone at Jackson Hole
Bloomberg report Eurodollar futures, short bets from hedge funds are near this year’s highest levels at just over 2.6mln contracts, on a net basis.
More than €2bn of 0.9850 put strikes due this Friday
Monthly and weekly projected range support sited at 9830/50
20 Day VWAP bearish, 5 Day bearish

GBPUSD Bias: Bearish below 1.2130

USDJPY Bias: Bullish above 136

AUDUSD Bias: Bearish below .71

BTCUSD Bias: Bearish below 25.3K

BTC testing pivotal 21k
The grand crypto project has declined in 2022
Total user funds deposited has shrunk to about $61 billion from over $170 billion at the start of the year, according to figures from data aggregator Defi Llama
The U.S. intervention this month has forced many DeFi projects to block cash from wallets
Bulls need a close above 25k to gain significant upside momentum
Closing below 21k would be a noteworthy downside development
20 Day VWAP is bearish, 5 Day bearish