Daily Market Outlook, August 9, 2023

Munnelly’s Market Commentary… 

Asian equity markets are predominantly trading lower against the backdrop of a flurry of earnings releases. Participants are also processing the latest inflation data from China, which presented a mixed picture by indicating consumer prices in deflationary territory for the first time in over two years.

The Nikkei 225 index is experiencing uncertain trading as a result of an influx of corporate earnings releases. The index’s most significant gainers and losers are influenced by corporate performance, including SoftBank, which finds itself closer to the bottom of the spectrum following an unexpected loss. Both the Hang Seng index and the Shanghai Composite index are subdued, with the markets reflecting on China’s conflicting inflation data. The data revealed that the Consumer Price Index (CPI) year-on-year slipped into deflation territory. However, the drop in prices was narrower than anticipated, and monthly consumer prices unexpectedly increased. On the other hand, China’s factory gate prices continued to decline at a more pronounced pace than forecast.

The remainder of the day’s data docket lacks noteworthy economic releases in the UK, US, or the Eurozone, and is devoid of any planned addresses from economic policymakers as the summer lull in activity takes hold.

Therefore, while the calendar for today seems light, the market’s focus will turn to tomorrow’s release of US CPI inflation data. This marks the first of two US inflation reports to be disclosed prior to the next US monetary policy announcement, which holds paramount importance in determining the possibility of a Fed interest rate hike. Following closely, on Friday, there will be a consequential release of UK GDP data. Looking further ahead into the next week, an eventful calendar includes UK reports on inflation and the labour market, both of which will significantly influence the BoE’s forthcoming rate decision.

CFTC Data As Of 25-07-23

  • USD spec net short pared in Jul 26-Jun 1 period, $IDX -0.72%

  • EUR$ -0.58% in period specs -5,168 contracts, now short 172,062

  • $JPY +1.75% in period, specs -1,464 contracts into strength now -79,216

  • GBP$ -0.95% in period, specs -9,433 contracts, specs sell into dip

  • AUD$ -2.61% in period spec -591; $CAD +0.82% specs +835- just noise

  • BTC -0.05% in period, specs +106 contracts now -539

  • Prevailing theme was more-dovish c.bank guidance, USD firm amid high-for-longer vibe (Source: Reuters)

FX Options Expiries For 10am New York Cut

(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)

  • EUR/USD: 1.0890-1.0905 (2.3BL), 1.0930-40 (577M), 1.0980 (673M), 1.10 (251M)

  • GBP/USD: 1.2600 (683M), 1.2650 (355M), 1.2800 (200M), 1.2825 (277M)

  • AUD/USD: 0.6500 (426M), 0.6620 (300M), 0.6640 (566M)

  • NZD/USD: 0.6215 (339M).

  • EUR/NOK: 11.20 (280M), 11.25 (248M), 11.40 (1.1BLN)

  • USD/JPY: 142.00 (1.5BLN), 142.35-45 (1BLN), 142.75 (1.8BLN), 143.00 (2.2BLN)

  • 143.25 (325M), 144.50 (730M).

  • USD/CAD: 1.3385 (655M)

FX Options Positioning

FX option implied volatility experienced a decrease due to anticipated reduced volatility in August, aligning with historical patterns. However, the USD saw a slight increase in value as the market approached Thursday’s release of US Consumer Price Index (CPI) data, which prevented more significant drops for the time being. Traders displayed a tendency to purchase declines in AUD/USD implied volatility. This suggests that concerns are present regarding potential further declines in the currency pair towards the 2023 lows situated at 0.6459. These concerns emerged after the 0.6500 barrier options were erased on Tuesday. The EUR/USD currency pair finds itself confined within a range of 1.0900 to 1.1050, characterised by a region of long gamma. This situation serves to limit the movement of the spot rate while also influencing implied volatility. Despite testing the lower boundary of this range, the 1-month implied volatility has managed to hold its ground above the level of 6.5 for the time being.

Overnight Newswire Updates of Note

  • China Stocks Fall As Consumer Prices Drop For First Time In More Than 2 Years

  • China Slides Into Deflation As Consumer, Factory Prices Drop

  • Japan’s Defense Ministry To Seek More Than JPY7 Tln Budget

  • Italy Backtracks With Cap On Windfall Tax After Bank Shares Slide

  • NIESR: Risk Of UK Recession At Next General Election Is 60%

  • US Set To Limit Scope Of China Investment Ban With Revenue Rule

  • Dollar Firm On Safe-Haven Demand As Markets Fret Over China, Banks

  • Oil Prices Slip As Bearish China Data Fuels Demand Concerns

  • Nvidia Unveils Faster Chip Aimed At Cementing AI Dominance

  • Amazon In Talks To Become Anchor Investor In Arm Ahead Of IPO

(Sourced from Bloomberg, Reuters and other reliable financial news outlets)

Technical & Trade Views

SP500 Intraday Bullish Above Bearish Below 4520

  • Below 4480 opens 4460

  • Primary support is 4370

  • Primary objective is 4630

  • 20 Day VWAP bearish, 5 Day VWAP bullish

EURUSD Intraday Bullish Above Bearsih Below 1.1020

  • Below 1.890 opens 1.0830

  • Primary support is 1.830

  • Primary objective is 1.13

  • 20 Day VWAP bearish, 5 Day VWAP bullish

GBPUSD: Intraday Bullish Above Bearish Below 1.28

  • Below 1.2750 opens 1.2650

  • Primary support  is 1.26

  • Primary objective 1.3850

  • 20 Day VWAP bearish, 5 Day VWAP bullish

USDJPY Bullish Above Bearish Below 139.60

  • Above 143.50 opens 145

  • Primary resistance 143.40

  • Primary objective is 136.20

  • 20 Day VWAP bullish, 5 Day VWAP bearish

AUDUSD Intraday Bullish Above Bearish Below .6660

  • Above .6750 opens .6820

  • Primary resistance  is .6730

  • Primary objective is .6466

  • 20 Day VWAP bearish, 5 Day VWAP bearsih

BTCUSD Intraday Bullish Above Bearish below 30000

  • Below 29400 opens 28300

  • Primary support  is 28300

  • Primary objective is 32750

  • 20 Day VWAP bearish, 5 Day VWAP bullish