Daily Market Outlook, July 28, 2022

Overnight Headlines

Fed Raises Rates By 0.75 Points For Second Month In A Row
US Expected To Dodge Technical Recession With Weak Q2 Growth
Australia’s Retail Sales Cool As Rising Rates, Prices Take Toll
Australia Cuts GDP Growth Outlook On Inflation, Higher Rates
BoJ Dep Gov Amamiya: BoJ Needs To Continue With Easing
China Paper Sees Low Chance of Further Drop in Short-Term Rates
N.Korea’s Kim: Country Ready To Mobilise Nuclear War Deterrent
Joe Manchin Backs Senate Deal On Tax, Spending And Climate
Yen Climbs To Strongest Level In Three Weeks As Dollar Drops
Oil Extends Gains After US Crude Stockpiles Drop, Exports Soar
BofA Sees Japan Voiding Treasuries As Hedge Costs Erase Yields
Most Asia Stock Indexes In The Green, US Futures In The Red
Samsung Electronics Q2 Net Profit Up 15.2 Pct On Strong Chip Biz
Facebook-Parent Meta Forecasts Revenue Below Estimates

The Day Ahead

Asian equity markets are mostly up this morning but the gains are generally smaller than those seen in US equities yesterday. As expected, the US Federal Reserve raised interest rates by 75 basis points yesterday, the fourth consecutive increase. Fed Chair Powell warned of further rate rises but markets seemed to take comfort from hints that the pace of tightening may now slow. However, former New York Fed President Dudley warned that financial markets are under-estimating just how far the Fed will go. US President Biden will talk with Chinese President Xi today. Meanwhile, Russia has signalled more problems with gas supplies to Europe via the Nord Stream pipeline.

The Q2 US GDP release seems set to provide further confirmation that growth disappointed in H1. The unexpected fall in Q1 GDP was generally thought at the time not to be a major concern as both consumer and investment spending had speeded up. However, retail sales fell in real terms in Q2 and overall consumer spending growth seems to have been modest, while business investment also slowed. Q2 growth is now forecast to be only a very modest 0.5% annualised rise and there is a risk of a second quarterly decline.

Eurozone GDP data for Q2 due early tomorrow is expected to show only modest growth, at best. Ahead of that, July industrial and service sector confidence data for the Eurozone are due today. Given the falls seen in already released PMI and German IFO measures it seems likely that both of the confidence measures will have fallen.

Today’s July German CPI report will be watched for clues on tomorrow’s outturn for the Eurozone as a whole. Annual headline inflation is expected to have slipped modestly compared to June, primarily due to the slide in energy prices. However, given the recent rebound in gas prices that trend seems unlikely to continue in the near term. Meanwhile, ‘core’ inflation is expected to be up modestly possibly suggesting a broadening out in inflationary pressures.

It’s been a light week for UK data but the Lloyds Business Barometer, which is out early Friday, could provide some interesting new insights. So far it has showed business confidence holding up relatively well this year, but the June headline reading did fall by 10 points. Nevertheless, that still only took it back down to its long-term average so the July measure will be watched keenly for indications of further slippage.

FX Options Expiring 10am New York Cut

EUR/USD: 1.0050-55 (547M), 1.0200 (844M), 1.0250 (620M), 1.0300-05 (1.30B)
USD/JPY: 136.20 (1.40B). NZD/USD: 0.6000 (857M), 0.6075 (495M)
AUD/USD: 0.7000 (325M), 0.7020-25 (463M), 0.7150 (414M)
USD/CAD: 1.2810 (810M), 1.2850-55 (902M), 1.2915 (540M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.0350

Fading after early JPY bid supported
EUR/JPY pulling back and weighing, Tokyo’s reaction to the FOMC
Far-right leader Giorgia Meloni in pole position for Italian PM
Market weighing response to a potential Italian shift to the right impacts the EU
Resistance 1.0250/60, support 1.0100-05, 1.0070-75
Price continues to rotate around the 20 Day Bearish VWAP
20 Day VWAP is bearish, 5 Day bullish

GBPUSD Bias: Bearish below 1.2280

Bid in Asain session testing towards pivotal 1.22
Mixed UK data – strong car production in June
Weak outlook for UK commercial real estate according to RICS
GBP traders unsure of +25 or +50 at Aug 4 MPC
Offers sited at 1.22 bids 1.2090
20 Day VWAP is bullish, 5 Day bullish

USDJPY Bias: Bullish above 134

Slides in the Asain session as JPY bears weigh Fed rate expectations
USD/JPY drops 0.8%, weighed down by broad reduction of short JPY positions
Undermined by Fed flagging softening of economy after raising rates 75bps
Tokyo traders sell from the outset, triggering stops at 135.90-136.00
Offers sited 137.30/50 bids at 135.10
20 Day VWAP is bearish, 5 Day bearish

AUDUSD Bias: Bearish below .7050

Rally capped by retail sales miss combined with, AUD/JPY supply
AU June retail sales +0.2% m/m against 0.5% expected
AUD bid by less hawkish than expected Powell Wednesday
Commodity recovery adds support iron ore up 3.5% Thursday
Iron Ore recovered 20% from July 20 low
Offers sited .7000/10
AUD/USD support is at Friday’s 0.6876 low and break targets 0.6840/45
20 Day VWAP is bullish, 5 Day bullish

BTCUSD Bias: Bearish below 25.3K

BTC surges 8.0% Wed as FOMC delivers expected hike
Rally puts price back into the VWAP uptrend channel
But that might not be enough to keep momentum going
Bulls need a close above 25k to gain significant upside momentum
Closing below 21k will be a noteworthy downside development
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!

SOYBEAN，H4 | Potential Bullish Continuation

USDJPY, H4 | Potential Bearish Continuation

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Daily Market Outlook, July 28, 2022