Daily Market Outlook, July 11, 2022

Overnight Headlines

Asia Shares Open Under Pressure On U.S. Inflation, Earnings Season
Treasuries Sit Out Haven Trades As Large CPI Event Risk Looms
Rampant Dollar Hits New 24 Year Peak Through 137 On The Yen
Japan Ruling Bloc Easily Wins Vote Held Days After Abe’s Murder
Japan Orders Fall But Data Good, BoJ Easy, Money Supply Up
Kuroda Warns Of High Economic Uncertainty, Repeats Easy Policy Bias
RBNZ Shadow Board Recommends Half-Point Hike This Week – NZIER
China’s June Factory Inflation Cools Counter To Global Trends
ECB’s Holzmann Foresees Steep Rate Hikes to Stem Fast Inflation
ECB’s Stournaras: Strong’ ECB Crisis Tool Could Stay On Shelf
Biden Decision On China Tariffs May Come Shortly, Raimondo Says
Tories Look To Narrow Leadership Field Quickly As Rancour Grows
Oil Mixed As Market Weighs Tight Supply Against Recession Jitters
Europe On Edge As NS Russian Gas Link Set For Planned Shut-Down
China Watchdog Fined Alibaba, Tencent Over Reporting Past Deals
Twitter Assembles Legal Team To Sue Musk Over Dropped Takeover

The Day Ahead

Most Asian equity markets traded lower on the day as concerns over the Covid situation in China weighed on sentiment. Shanghai reported its first case of the BA.5 Omicron variant yesterday, prompting warnings of further lockdowns to contain its spread. 9 districts and areas of Shanghai where infections were found are due to undergo 2 rounds of mass testing between Tuesday and Thursday. Stocks across Japan were the exception, trading higher on the day following the ruling LDP/Komeito coalition expanding its majority in the yesterday’s Upper House election, opening the way for the current administration to face a “golden three years”, in which it would not need to face a national election.

Over the past week, financial markets have remained volatile as the focus seesawed between inflation and growth concerns. This week, updates on China and UK GDP will provide key insights on global growth, with Wednesday’s US CPI report for June keenly watched for news on the latest inflation trends. More immediately, today’s calendar is void of any major data releases, leaving the focus on a handful of central bank speakers, although the extent to which monetary policy outlooks will be discussed remains uncertain. In the US, Fed member Williams is due to speak at event on the Libor transition, while the ECB’s Nagel will talk about the ‘digital euro’. Domestically, Bank of England Governor, Andrew Bailey is scheduled to appear in front of a parliamentary committee, alongside a number of Financial Policy Committee colleagues, to discuss the latest Financial Stability Report.

The UK Conservative Party’s 1922 Committee of backbench MPs is expected to elect a new executive later today. The Committee is then expected to confirm the process for selecting a new permanent leader of the Party who will be invited to form a government by the Queen. The current process is that Conservative MPs will whittle down the candidates to two and the winner will be chosen by the wider party membership. Reports suggest the aim is to have a new leader in place by early September. As of this morning, 11 Conservative MPs have announced their intention to stand in the contest.

CFTC Data

IMM: USD long position grows as EUR, GBP, AUD specs sell into weakness
USD net spec long grew in Jun 29-Jul 5 period; $IDX +1.9%
EUR$ -2.44% in period specs -6,256 contracts now -16,852; spec eye parity
$JPY -0.15% in period, specs sell 1,875 now short 54,445 contracts
GBP$ -1.85%, specs sold 3,090 contracts now -56,208 prior to PM resignation
CAD specs -4,804, AUD -4,641 contracts; recession fears weigh on commods
BTC specs -665 contract long reduced to 420; crypto co.’s liquidity issues stir unwind

(Source: Reuters)

FX Options Expiring 10am New York Cut

EUR/USD: 1.0050 (658M), 1.0125 (208M), 1.0200 (243M)
1.0225 (589M), 1.0250 (1.34BLN), 1.0300 (1.32BLN)
1.0350 (545M)
USD/JPY: 136.50 (855M), 137.00 (200M)
GBP/USD: 1.2035 (351M)
USD/CHF: 0.9745 (205M). USD/CAD: 1.2985 (200M)
EUR/CHF: 1.0150 (439M). AUD/USD: 0.6825 (418)

Technical & Trade Views

EURUSD Bias: Bearish below 1.05

Opens the week under pressure trading sub 1.0150
Upside capped by US Yields on increasing Fed rate hike bets
ECB/FED policy divergence remains in focus, CPI Wed’s next catalyst
Soaring energy costs, inflation and recession concerns pile on the pressure
Bids eyed at 1.0070 offers sitting above 1.02
Bears eyeing a parity test; offers seen at 1.0340/60
20 Day VWAP is bearish, 5 Day bearish

GBPUSD Bias: Bearish below 1.2150

GBP soft in light Asian session
Political power void likely to constrain BoE action in August
Wednesday sees 1.15Bln options at 1.2035
Energy price inflation, recession fears and political unknowns weigh on GBP
Bears breach YTD lows en-route to a test of 1.18
Offers seen at 1.20 Bids 1.1770
20 Day VWAP is bearish, 5 Day bearish

USDJPY Bias: Bullish above 134

USDJPY trades at a 22 year high in the Asian session
US Yields seen as supporting the upside
Surge came as BoJ Kuroda reaffirmed the banks policies
Tuesday sees 1.1Bln 137.60 option expiries
Japanese importer bids seen at 135
Traders see range expansion 135/140
US10Y trad above 3% although retreating from best levels overnight
Initial offers seen at 137.55/65
20 Day VWAP is bullish, 5 Day bullish

AUDUSD Bias: Bearish below .7050

AUD weighed by souring risk sentiment
Fresh Covid concerns out of China, Shanghai finds new subvariant
Commodities rolling over again Nickel falling as much as 3%
Offers seen at .6870’s with bids .6770’s
Next major support seen at the 50% retracement
of the 0.5510/0.8007 move at 0.6758
20 Day VWAP remains untested confirming downside
20 Day VWAP is bearish, 5 Day bearish

BTCUSD Bias: Bearish below 22k

BTC briefly tests 22k but quickly rejected
20 VWAP band contracting ready for next directional drive
Trend remains down as within broader bearish channel
Support seen at 19k then 18300 the base of the daily VWAP bands failure here opens a retest of lows
Concerns regarding increasing Crypto scandals and scams leaves BTC vulnerable
Additional pressure seen from BTC miners liquidating positions on declining profitability
20 Day VWAP is bullish, 5 Day bullish

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 Forecast: Potential Jump Ahead

Investment Bank Outlook 11-07-2022

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Daily Market Outlook, July 11, 2022