Daily Market Outlook, July 22, 2022

Overnight Headlines

US Lawmaker: Biden Could Temporarily Lower China Tariffs
EU Solidarity Frays As Nations Question Plan To Slash Gas Use
Some ECB Officials Were Initially In Favour Of A Smaller Hike
Raimondo: US Dependence On Taiwanese Chips Is Untenable
Macron’s Government Charts Gradual Deficit Reduction Path
Italian President Dissolves Parliament, Election Set For Sep 25
UK Consumer Mood Stuck At Record Low, GFK Survey Shows
Poll Gives Truss Big Lead Over Sunak In Race To Become PM
Global Slowdown Fears Darken Prospects For Asian Factories
Japanese Inflation Picks Up Speed To Keep Pressure On BoJ
Oil Prices Rise As Tight Supply And Geopolitical Tensions Linger
Meta And Alphabet Knocked Down After Snap’s ‘Awful’ Results

The Day Ahead

Asian equity markets are mostly positive, although there were some signs of momentum fading towards the close. Nevertheless, stocks ended the week higher. UK GfK consumer confidence was unchanged at -41, remaining at its record low but better than the consensus forecast for another decline. US 10-year Treasury yields remained below 3% after yesterday’s weak activity data, including a decline in the Philadelphia Fed survey and another rise in weekly initial jobless claims. In Europe, PM Draghi resigned and the President called for new elections on 25 September. Italian/German 10-year spreads have widened.

Data released earlier this morning revealed UK retail sales fell by 0.1%m/m in June, while the May outturn was revised lower to a bigger 0.8%m/m decline. June’s fall occurred despite a boost to food store sales resulting from the Queen’s Platinum Jubilee celebrations. That was offset by lower non-store sales, led by clothing and household goods, and a drop in auto fuel sales due to record petrol and diesel prices. Non-store (mainly online) sales also fell. Compared with a year earlier, the volume of total retail sales was down 5.8%.

The July flash PMIs in the UK, Europe and the US will be a key focus today. As well as updates on key activity metrics, the survey’s price indicators will be examined for tentative signs that inflationary pressures may have started to ease, although they will remain very elevated.

Expect UK manufacturing PMI to edge up to 53.2 from 52.8, helping by a backlog of orders. However, lower non-essential spending is expected to result in services PMI moving down to 53.5 from 54.3. While official GDP figures are likely to be volatile because of the extra bank holiday for the Platinum Jubilee celebrations, the underlying picture from the PMI survey is expected to be one of moderating growth at the start of Q3.

In the Eurozone, expect the flash PMIs for both manufacturing and services to fall to 51.6 and 52.0, respectively, also consistent with further growth moderation. In fact, the output index in the manufacturing survey already fell below 50 into contraction territory last month for the first time in two years. As usual, the Eurozone release IS preceded by German and French figures which suggest weakness

The flash PMI survey tends to receive less focus in the US than in Europe. Nevertheless, it will likely attract some attention given that evidence of an economic slowdown is building. Look for both the manufacturing and services PMIs in July to move down to 52.0.

FX Options Expiring 10am New York Cut

EUR/USD: 1.000 (405M), 1.0050 (553M), 1.0080-85 (928M)
1.0100 (406M), 1.0140-50 (1.03BLN), 1.0200 (574M), 1.0300 (623M)
USD/JPY: 137.55 (230M), 139.00 (630M), 140.00 (990M), 141.00 (500M)
EUR/JPY: 139.00 (201M), 141.00 (485M), 143.00 (478M)
EUR/GBP: 0.8750 (780M)
AUD/USD: 0.6800 (1.24BLN) 0.6830 (290M), 0.6900 (1.21BLN)
USD/CAD: 1.2900 (925M), 1.3000 (602M), 1.2955-60 (596M)
1.2975-80 (391M), 1.3000 (602M), 1.3100 (525M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.0350

EUR/USD opened +0.50% at 1.0232 after ECB surprised many with a 50 BP hike
Under pressure early Asia when E-minis fell after poor after-hours report from Snap
Impact of ECB move faded as other negative factors continued to weigh
Energy shortfalls, political uncertainty in Italy and TPI plan scepticism still concern
Resistance 1.0250/60, support 1.0100-05, 1.0070-75
Price testing the 20 Day Bearish VWAP
20 Day VWAP is bearish, 5 Day bearish

GBPUSD Bias: Bearish below 1.2150

Cable dips to 1.1954 (intra-day low) after mixed UK retail sales data
June retail sales down 5.8% YY vs 5.3% f/c; ex-autos up 0.4% MM vs -0.4% f/c
May retail sales revised down by 0.3% to minus 0.8% MM
Race to become UK PM down to final two: Sunak and Truss
Offers sited at 1.2050 bids 1.1890
20 Day VWAP is bearish, 5 Day bearish

USDJPY Bias: Bullish above 134

USD/JPY off in early Tokyo trading to 137.03, bounce since to 137.60 EBS
Sales on back of sharply lower US yields on soft US data, Wall St rise
US yields have since bounced , Treasury 2s to @3.140%, 10s @2.900%
Good Japanese importer bids noted on early swoon towards 137.00
Interest likely trails down, from other players too
20 Day VWAP is bullish, 5 Day bullish

AUDUSD Bias: Bearish below .7050

AUD/USD opened +0.68% at 0.6936 after USD eased following ECB 50 BP hike
After trading at 0.6939 the mood turned sour after weak Snap after hours report
E-minis fell and the AUD/USD tracked lower through the morning
EUR/USD selling also added to the bullish USD tone and weighed on AUD/USD
AUD/USD is trading at session lows around 0.6905 into the afternoon
20 Day VWAP is bullish, 5 Day bullish

BTCUSD Bias: Bullish above 22k

BTC soft inline with risk sentiment
BTC surrenders gains as another exchange halts withdrawals
Needs to hold above 22.2k to keep rising near-term
Would also mark exit from VWAP uptrend channel
SE Asia exchange Zipmex suspends withdrawals
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.

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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!

PLATINUM FUTURES (PL1!), H4 Potential For Bullish Rise

Investment Bank Outlook 22-07-2022

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Daily Market Outlook, July 22, 2022