Daily Market Outlook, August 3, 2022

Overnight Headlines

White House Aim To Calm Tensions Over Pelosi Taiwan Visit
Pelosi Vows US Won’t Abandon Taiwan In Faces Of Pressure
Fed’s Bullard: Can Slow Inflation Without Sparking Recession
Fed’s Mester: More Work To Do As Inflation Not Yet Peaked
China Imposes Taiwan Economic Curbs With Sand, Fruit Ban
China Services Activity Expand, Quickest Pace In 15 Months
Chinese Hub Yiwu Introduce Covid Restrictions, Locks Down
US Senate Votes Today On Finland, Sweden Nato Accession
Candidate Truss Extends Lead Over Sunak In Leadership Bid
UK Survey Report Now In Recession, Outlook For Stagflation
OPEC+ Watchers Sceptical Biden’s Call For Oil To Be Heeded
Samsung, SK Hynix Turn China Exposure Following Chips Act

The Day Ahead

Most Asian equity markets are up this morning. That may in part reflect relief that while the Chinese authorities have criticised the visit by US Congressional leader Pelosi to Taiwan they have not yet announced any major retaliatory actions. Indeed, reports suggest that the US and Chinese Presidents may still meet in person near term. In contrast to the weak outturns for other Chinese PMI data in July the services PMI unexpectedly rose to its highest level in more than a year. Meanwhile, Australian retail sales rose by more than expected in Q2. OPEC meets today but reports suggest that it is unlikely to significantly boost oil supply targets given the fall in the price over the past month.

Today’s data calendar is dominated by July PMI updates for the services sector. However, in the case of the UK and the Eurozone these are second readings and they are not expected to be revised significantly from their respective initial outturns. Those first estimates for July showed the UK services activity index at a 17-month low (53.3), although more positively it still held above the 50 level that signals expansion and some firms said they expected the slowdown to be short lived. There were also some signs of inflationary pressures easing, but wage pressures remained “intense”.

The initial July reading for the Eurozone services activity index held only just above the 50 level, as it recorded a 15-month low (50.6). The main drag was a fall in activity in Germany. Input cost inflation slipped to a five-month low but wage pressures still seemed to be elevated. Also, out in the Eurozone today is June retail sales. Already released data for German sales, which showed a sharp monthly decline, points to possible downside risks compared to a consensus forecast of no growth.

The US ISM services index for July is new data. Markets will be looking for signs of faltering activity and easing inflationary pressures to justify the recent sharp fall in Treasury bond yields. After the input price reading in the ISM manufacturing index fell to its lowest level in almost two years there is some expectation that the services measure may also slip sharply. Factory orders for June will provide a further indication of output trends with already released data for durable goods orders pointing to a sizeable rise.

Three Fed policymakers are scheduled to speak today. They are likely to repeat the rhetoric from other US central bank officials this week, that inflation remains their number one concern and so further interest rate hikes remain on the cards.

FX Options Expiring 10am New York Cut

EUR/USD: 1.0100 (695M), 1.0150 (687M), 1.0195/1.0200 (1.86B), 1.0250 (578M)
USD/JPY: 131.25 (530M), 131.50 (495M), 132.50 (550M)
EUR/JPY: 135.85 (325M), 136.00 (340M). AUD/USD: 0.7150 (1.01B)
USD/CHF: 0.9445 (350M), 0.9550 (401M). EUR/CHF: 0.9700 (520M), 0.9820 (1.05)

Technical & Trade Views

EURUSD Bias: Bearish below 1.0350

Hawkish Fed speak sent US yields higher
Mood shifted when US 10-year yield eased to below 2.71% now 2.76%
EUR/USD back to moving on swings in US Treasury yields
Key US data this week likely to dictate moves in bonds and FX
Resistance 1.0250/60 stronger offers seen to 1.0350/60, support 1.0100-05, 1.0070-75
20 Day VWAP is bearish, 5 Day bearish

GBPUSD Bias: Bearish below 1.2280

Modest risk on as China response to Taiwan mostly verbal so far
NIESR warns millions will join breadline in recession-hit UK
UK July final service PMI due at 0830 GMT
BoE rate decision Thursday; 50 bps hike is consensus forecast
Offers sited at 1.2280/1.23 bids 1.2090
20 Day VWAP is bullish, 5 Day bullish

USDJPY Bias: Bearish below 134

Market thin however, break of range not unthinkable on fresh flows
Big, one-off flows seen responsible for recent volatility
Japanese importers back in this morning, good buys into Tokyo fix
Talk of good, one-off sale from Japan player yesterday
Tokyo talk that the sales actually came from a Chicago hedge fund
Also talk Japanese long US assets bought back hedges on hold above 130.00
Bears target a test of 130
Offers seen at 134
20 Day VWAP is bearish, 5 Day bearish

AUDUSD Bias: Bearish below .7050

Recovers all of early losses as US yields off highs
AUD/USD is back above 0.6920 after trading down to 0.6886 earlier
USD was bid early and AUD/USD stops below 0.6900 became an easy target
With RBA decision out of the way, AUD/USD will be driven by external factors
Offer at .70 being eroded as price is accepted above .70 bulls target .71 test
AUD/USD support now sited at .6890
20 Day VWAP is bullish, 5 Day bearish

BTCUSD Bias: Bearish below 25.3K

BTC chopping around 23k
Michael Saylor steps down as MicroStrategy CEO
Saylor will assume the role of an executive chairman, focusing more on the company’s Bitcoin acquisition strategy and other crypto-related initiatives
Bulls need a close above 25k to gain significant upside momentum
Closing below 21k would 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.

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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!

US30USD, H4 | Potential Bearish Continuation

Micro Dow Jones Futures (MYM1!), H4 Potential For Bullish Rise

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Daily Market Outlook, August 3, 2022