Daily Market Outlook, August 18, 2023
Munnelly’s Market Commentary…
Asian equity markets traded on the back foot, following the downward trajectory observed in both US and European markets the previous day. Asian stocks, as measured by an index, have now experienced a continuous decline for six consecutive sessions. This trend is shaping up to result in the poorest weekly performance in the past eight weeks. The driving forces behind these market movements include persistent concerns about the situation in China and apprehensions that global interest rates might remain elevated for an extended period. In Japan, the annual Consumer Price Index (CPI) inflation for July has remained steady at 3.3%, maintaining the same level as observed in June. Moreover, when excluding the impact of fresh food and energy prices, inflation rose from 4.2% in June to 4.3% in July. This increase could potentially bolster the argument for a shift in Japan's policy of ultra-loose monetary measures.
Today's economic data docket is relatively light. The second reading of the Eurozone Consumer Price Index (CPI) for July is not anticipated to deviate from its initial estimate. The initial estimate indicated an annual headline inflation rate of 5.3%, a decrease from June's 5.5%. However, this is only half of the peak inflation rate of 10.6% observed in the recent past, which occurred in October. Meanwhile, core inflation, excluding certain volatile components, remained unchanged at 5.5% compared to June. These inflation figures continue to significantly surpass the European Central Bank's target of 2.0% inflation. This reinforces market expectations that the ECB might implement another interest rate hike in the upcoming month. Even if there are minor revisions to today's data, their impact on the markets is expected to be limited. Market attention is now primarily directed toward the forthcoming August flash CPI release, scheduled for August 31, just two weeks before the ECB policy update. The day's only other notable data release pertains to Eurozone construction output. While not generally considered a significant market influencer, it remains of interest due to its sensitivity to interest rate changes. It serves as an indicator of whether increasing rates are beginning to have an impact. The previous reading for May displayed a marginal annual increase of 0.1%.
Looking ahead to the coming week, a quiet start is anticipated. Early on Monday, the UK Rightmove house price index for August will be released. In the previous reading for July, there was a decline of 0.2%, with only a 0.5% increase compared to the previous year. Given the prevailing trend in interest rates, there might not be much improvement in this month's news either..
FX Positioning & Sentiment
The MSCI world equity index has fallen below the 100-day moving average (DMA) at 669. This bearish breakdown suggests a more substantial correction for the upward movement seen from March to July. The next target on the downside is 657, marking a 50% retracement of the March to July ascent. Simultaneously, Bitcoin has experienced a decline, closing below the 200-day moving average, and subsequently trading within a range well below that level. A decisive close below 26,422 is likely to trigger more extensive losses, potentially revisiting the low recorded in June. As this risk-averse sentiment takes hold, foreign exchange (FX) traders might find encouragement to make parity bets. The prevailing market sentiment seems to favour short positions on the USD and JPY, while holding long positions on EUR, GBP, and MXN as the most significant positions being taken.
CFTC Data As Of 15-08-23
EUR$ -0.47% in Aug 9-15 period hints at further reduction in EUR long
EUR specs have sold 27k contracts last 2-wks as Fed seen high-for-longer
$JPY +1.55% in period; pair hits new 2023 high amid steady BoJ view
Fri's data will hint at degree of intervention fear as yen approaches 150
GBP$ -0.36% in period, support at rising daily cloud base
Well-above target UK inflation to keep BoE hiking, even as Fed halts
AUD$ -1.29%, $CAD +0.59%; China econ woes weigh on commod-centic pairs
BTC -2.7% in period; higher rate view capping BTC gains even as more fin'l firm seek to gain ETF approvals (Source: Reuters)
FX Options Expiries For 10am New York Cut
(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)
EUR/USD: 1.0850 (1.4B), 1.0900 (1.7B), 1.0925 (700M), 1.0950 (515M)
EUR/USD: 1.1000 (1.1B). GBP/USD: 1.2500 (450M), 1.2600 (435M)
GBP/USD: 1.2675 (370M), 1.2785 (445M), 1.2975 (580M)
USD/JPY: 142.00 (530M), 142.50 (530M), 143.00 (1.2B), 145.00 (1.3B)
USD/CAD: 1.3100 (1.2B), 1.3550 (590M), 1.3600 (480M)
EUR/NOK: 11.20 (950M), 11.50 (1.5B).
Overnight Newswire Updates of Note
Powell To Speak Aug. 25 At Jackson Hole Economic Symposium
Japan's Core Inflation Eases, Bolstering View BoJ Will Stand Pat
RBNZ’s Silk Sees Housing Recovery As Reason To Keep Rates High
Dollar Set For Fifth Winning Week On Fed Bets, PBoC Supports Yuan
China Targets Yuan Bears With Most Forceful Fixing Guidance Ever
BofA’s Warning Of A ‘5% World’ Sinks In With Yields Pushing Higher
SEC Set To Greenlight Ether-Futures ETFs In Win For Crypto Industry
Oil Set To Snap 7-Week Winning Streak On China Woes, Fed Rate Outlook
Asian Shares Head For Third Week Of Losses On China Woes, US Rates
China Evergrande Group Files Chapter 15 Bankruptcy In New York
Applied Materials Gives Strong Forecast As Chip Slump Eases
Meta’s Next AI Attack On OpenAI: Free Code-Generating Software
US Hedge Funds Snap Up Nvidia, AMD While Exiting Google, Alibaba
Goldman Plans Hiring Spree To Fix Lapses After Increased Fed Scrutiny
(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
Technical & Trade Views
SP500 Intraday Bullish Above Bearish Below 4400 - 4380 Target Hit, New Pattern Emerging
Above 4410 opens 4440
Primary resistance is 4510
Primary objective is 4335
20 Day VWAP bearish, 5 Day VWAP bearish
EURUSD Intraday Bullish Above Bearsih Below 1.10
Below 1.890 opens 1.0830
Primary support is 1.830
Primary objective is 1.13
20 Day VWAP bearish, 5 Day VWAP bearish
GBPUSD: Intraday Bullish Above Bearish Below 1.28
Below 1.2680 opens 1.2620
Primary support is 1.2590
Primary objective 1.3850
20 Day VWAP bearish, 5 Day VWAP bullish
USDJPY Bullish Above Bearish Below 145
Below 144.90 opens 143.90
Primary support 141.90
Primary objective is 147.20
20 Day VWAP bullish, 5 Day VWAP bullish
AUDUSD Intraday Bullish Above Bearish Below .6450
Above .6500 opens .6600
Primary resistance is .6670
Primary objective is .6200
20 Day VWAP bearish, 5 Day VWAP bearsih
BTCUSD Intraday Bullish Above Bearish below 29300 -27000 Target Hit, New Pattern Emerging
Above 29000 opens 30000
Primary resistance is 28750
Primary objective is 24757
20 Day VWAP bearish, 5 Day VWAP bearish
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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!