Daily Market Outlook, August 24, 2023
Munnelly’s Market Commentary…
Asian equity markets gained ground as the region drew inspiration from the positive performance on Wall Street. The Nasdaq led the upward movement among the major indices, capitalising on declining yields following disappointing PMI data. Additionally, robust earnings from Nvidia provided a further boost to futures sentiment.
The Nikkei 225 index showed resilience building upon its recent recapture of the 32k handle. This growth was supported by semiconductor stocks in Asia, benefiting from the ripple effect of Nvidia's success. Hang Seng and Shanghai Composite mirrored the prevailing positive sentiment. The Hong Kong benchmark surpassed the 18k once again, fueled by strength in the technology sector. However, gains in the mainland were somewhat limited due to the People's Bank of China's (PBoC) liquidity reduction efforts, and market participants exhibited caution as they awaited the release of significant bank earnings.
In the upcoming session, the UK CBI distributive trades survey is set to provide an initial insight into retail activity for August. It's worth noting that this report generally doesn't significantly impact the markets. The retail balance in the survey experienced a decline, reaching a 15-month low of -25 during July. However, market consensus predicts an improvement for this month.The recent official retail sales figures for July depicted a notable decrease, attributed in part to adverse wet weather conditions. Garnering more attention is the UK GfK consumer confidence survey, which is scheduled for release overnight on Friday. After displaying a certain level of resilience, consumer confidence experienced a decline in July, marking the first such decrease in six months. This dip was partly linked to the rise in interest rates and ongoing pressures related to the cost of living. Nevertheless, an anticipated partial recovery is expected for August, with the index projected to rise to -27 from its previous value of -30 in July.
Stateside the annual Jackson Hole Symposium, hosted by the US Federal Reserve, is set to commence tonight. However, the pivotal central bank speeches, notably from Fed Chair Powell and ECB President Lagarde, are scheduled for Friday. The central theme for this year's symposium revolves around 'Structural shifts in the global economy.' This thematic focus could provide valuable insights into various factors reshaping the world economy, including shifts in global trade dynamics and elevated levels of debt. One significant consideration is the possibility that these structural changes could lead to interest rates stabilising at levels higher than those observed before the onset of the pandemic. This could have significant implications for monetary policy and global financial markets. As such, the speeches during the symposium are anticipated to shed light on the central banks' perspectives regarding these matters and how they might guide their respective policies to navigate these shifts effectively.
During the US session, there are several important releases on the agenda, including US durable goods orders and weekly jobless claims. These data points will offer additional insights into trends related to capital investment and the labour market. Additionally, two Fed policymakers, Harker and Collins, are slated to deliver speeches later in the day. Harker, who holds a vote on interest rate changes this year, could offer intriguing perspectives during an interview on CNBC. In a recent statement, he hinted that further increases in interest rates might not be necessary.
However, the primary focus of the market remains directed towards tomorrow's speech by Powell at the Jackson Hole Symposium, a gathering that brings together central bankers and other economic experts. Powell's address is highly anticipated, and it is expected to provide valuable insights into the Federal Reserve's future policy direction and its stance on various economic matters. This event has garnered substantial attention from investors and analysts alike.
FX Positioning & Sentiment
Significant options activities are acting as a substantial influence on and restraint for EUR/USD ahead of Powell's speech on Friday. Billions of euros worth of well-publicised options are exerting a notable impact on the price movement throughout this week. These options, set to expire soon, are generating associated cash hedging flows that are tied to specific strike prices.
Any setbacks in the EUR/USD exchange rate are expected to encounter heightened hedging flows, which could serve as a containment and support mechanism for the currency pair. Furthermore, discussions have arisen about option barriers at the 1.0800 level, along with measures in place to bolster and defend this level. Wednesday's low was marked at 1.0802, and substantial support has been identified at the 200-day moving average, which currently stands at 1.0801. This technical level is crucial for maintaining the currency pair's stability. The implied volatility of the options market indicates a softer tone, aligning with a potential decline in the USD as long as the 1.0800 support level holds. Anticipate further reductions in option volatility if the 1.0800 threshold remains intact following Powell's speech at the Jackson Hole Symposium on Friday.
CFTC Data As Of 15-08-23
Friday's IMM data release showed USD short grew by 0.55bn in Aug 9-15 period
Current Aug 16-22 reporting period will not include Jackson Hole Symposium
Data released 25 Aug likely to be mooted by J-Hole comments by Powell, et al
EUR$ -0.45% in prior period; -0.7% in new may stall EUR buying
Slow glbl growth tempers hawkish ECB outlook after China cut, lwr German PPI
$JPY +0.33% in new period, expect USD buying amid widening US-JP rate view
GBP$ +0.43% since Aug 16; UK CPI well-above target to keep BoE in hike mode
AUD, CAD big sellers in prior period on China slowdown short likely to keep growing amid less-dovish Fed view (Source: Reuters)
FX Options Expiries For 10am New York Cut
(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)
EUR/USD: 1.0800 (1BLN), 1.0820 (1.3BLN), 1.0850 (677M), 1.0870-80 (835M)
1.0890-95 (675M), 1.0900-10 (2BLN), 1.0925-35 (1BLN), 1.0940-50 (1.2BLN)
USD/CHF: 0.8700 (712M), 0.8750 (244M)
GBP/USD: 1.2700 (380M), 1.2725 (472M), 1.2800 (434M), 1.2840 (352M)
EUR/GBP: 0.8550 (221M), 0.8595-0.8605 (679M), 0.8625 (788M)
AUD/USD: 0.6350 (440M), 0.6400 (336M), 0.6500-10 (341M), 0.6550 (340M)
NZD/USD: 0.6020 (276M). USD/CAD: 1.3465 (795M)
USD/JPY: 144.40-50 (1BLN), 145.00-05 (2.8BLN), 146.00 (2.1BLN)
Overnight Newswire Updates of Note
‘Higher-For-Longer’ Rate Debate To Dominate Jackson Hole Meeting
JPMorgan Now Expects ECB To Pause In September Meeting
Wagner Chief Prigozhin Listed Aboard Crashed Jet, Reports Say
Bank Of Korea Holds Rate Steady Amid Concerns Over Growth
Yen’s Too Weak And Benefits Are Waning, Japan Bourse Chief Says
China, Japan Share Of US Bond Market Shrinks To Record Low
Oil Drops For Fourth Day With Venezuela Aiding Supply Outlook
Woodside Heads Off Australian Labour Dispute Roiling Gas Markets
Stocks Rally Thursday As Investors Rekindle Risk Appetite
Nvidia Tops Forecasts With Booming AI Chip Sales
(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
Technical & Trade Views
SP500 Intraday Bullish Above Bearish Below 4450
Above 4480 opens 4500
Primary resistance is 4510
Primary objective is 44560
20 Day VWAP bearish, 5 Day VWAP bullish
EURUSD Intraday Bullish Above Bearsih Below 1.0860
Below 1.830 opens 1.0780
Primary support is 1.830
Primary objective is 1.07
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 bullish, 5 Day VWAP bearish
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 bullish
BTCUSD Intraday Bullish Above Bearish below 27000
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!