Daily Market Outlook, August 6th, 2021

Overnight Headlines

  • Japan Household Spending Falls Before Latest Virus Surge
  • China Sees Highest Daily Coronavirus Cases In Current Outbreak
  • US Sen Manchin: Fed Should Reverse Easy-Money Policies
  • Fed's Kashkari: Delta May Throw Wrinkle Into Taper Plan
  • Schumer Sets Up Saturday Vote On Infrastructure Bill
  • US Business Groups Call On Biden To Restart Trade Talks With China
  • CBO Sees Infrastructure Bill Widening Budget Gap By $256 Billion
  • FDA Covid-19 Vaccine Booster Plan Could Be Ready Within Weeks
  • Novavax Again Delays Seeking U.S. Approval For COVID-19 Vaccine
  • Dollar Drifts Higher As Markets Await Jobs Data For Fed Clues
  • Oil Heads For Biggest Weekly Loss This Year On Delta Concerns
  • Asian Shares Fall As Delta Variant Casts Shadow Over Growth
  • South Korea’s Kakao Bank Shares In Soar In Market Debut
  • Bayer Starts Latest Roundup Trial With Leg Up After Three Losses
  • AIG Profit Beats Estimates On General Insurance, Retirement Gains

The Day Ahead

  • The monthly US employment report will, as usual, command a lot of attention from markets. In his press conference last week, Fed Chair Powell noted that a further fall in unemployment would be pivotal in helping determine when they would start to phase out their asset purchases. He also noted the present unusual combination of a high level of job vacancies, which suggests strong demand for workers, alongside continued elevated unemployment. That makes the numbers particularly difficult to interpret right now.
  • Expect the July report to show a monthly jobs rise of 950k which would be the largest since last August, and we also expect the unemployment rate to fall to 5.6% from 5.9%. Both moves would highlight the buoyancy of the labour market. The wage data will be watched for any evidence they are being boosted by recruitment difficulties. We look for a 0.4% monthly increase.
  • Earlier this week saw rather mixed signals for the US labour market. Monthly private sector jobs growth for July in the ADP report was disappointing at 330k, but the ISM survey pointed to strong rebounds in employment for both manufacturing and services. Initial jobless claims have also fallen in the past two weeks.

G10 FX Options Expiries for 10AM New York Cut

(Hedging effect can often draw spot toward strikes pre expiry if nearby)

  • EUR/USD: 1.1800 (1.1BLN), 1.1825 (645M), 1.1865-75 (561M)
  • 1.1895-1.1900 (554M)
  • EUR/GBP: 0.8400 (1BLN), 0.8475 (415M), 0.8500 (550M), 0.8515 (400M)
  • GBP/USD: 1.3900 (202M), 1.4000 (250M)
  • AUD/USD: 0.7390-0.7400 (1BLN), 0.7460 (297M), 0.7480-90 (510M)
  • USD/CAD: 1.2450-60 (1.7BLN), 1.2500 (440M), 1.2525 (1.1BLN), 1.2600 (1BLN)
  • USD/JPY: 109.50-60 (480M), 110.00 (500M). EUR/JPY: 130.55 (464M)
  • AUD/JPY: 79.00 (300M), 80.50 (530M), 82.00 (395M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.1950 Bullish above

  • EUR heavy across board in Asia, central bank expectations playing part
  • EUR/USD 1.1834 to 1.1819 EBS despite EUR/JPY buoyancy, cross 129.87-94
  • More hawkish Fed talk, bouncing US yields, maybe strong US jobs data weigh
  • German-US 10-year interest rate differential widening again, @172 bps
  • Support good at 1.1800 however, E1.1 bln in option expiries there today
  • Other nearby option expiries - 1.1825 E645 mln, 1.1865-1.1900 E1.1 bln
  • EUR/GBP heavy too, Asia indicated 0.8492-97, EUR/CHF doesn't trade, @1.0722

GBPUSD Bias: Bearish below 1.40 Bullish above.

  • 0.05% with the USD a shade firmer in a low key 1.3915-1.3932 range
  • Record UK starting salaries as jobs squeeze tightens - REC...
  • Decision for the BoE - is this the start of a sustained wages rise?
  • Charts; 5, 10 & 21 daily moving averages climb - momentum studies base-rise
  • Positive signals - bias remains higher while 1.3838 21 DMA holds
  • 1.3991 61.8% June-July fall and 1.4015 upper 21 day Bolli pivotal resistance
  • Break would bring 1.4090 76.4% retracement of June-July fall into play
  • 1.3899 NY low and 10 DMA and 1.3932 Asian top first support resistance

USDJPY Bias: Bullish above 109 Bearish below

  • USD/JPY up another small leg in Asia, 109.75 to 109.88 EBS
  • Upside going facing more resistance, especially pre-US jobs report
  • Dealers suggest likely range between 109.62 100-DMA, 110.04 55-DMA
  • USD/JPY already back in ascending Ichi cloud, 109.57-110.68 today
  • Specs long from lower levels, Japanese exporters to help cap upside
  • Some bids eyed from @109.75, option expiries to help contain action
  • Today 109.50-80 $976 mln, 110.00 $500 mln, to 110.25 $423 mln more
  • Continuing bounce in US yields supportive, Treasury 10s to 1.238%
  • Risk more off in Asia despite Wall St rise, Nikkei near par @27,744
  • JPY crosses buoyant but quiet, EUR/JPY 129.87-94, GBP/JPY 152.80-97
  • AUD/JPY, NZD/JPY in favour on CB expectations, 81.05-30, 77.30-47

AUDUSD Bias: Bearish below .75 Bullish above

  • -0.25% towards the base of a 0.7380-0.7406 range with consistent interest
  • Delta sweeps Sydney as Australia widens COVID-19 restrictions...
  • RBA - fiscal stimulus 'more appropriate' tool to curb virus hit...
  • RBA Governor Lowe generally upbeat - "return to strong growth next year"
  • Charts; 5, 10 & 21 DMAs conflict, momentum studies climb - neutral setup
  • 0.7395 21 DMA a magnet - 0.7306-0.7484 21 day Bolli bands define broad range
  • Thursday's 0.7377 low and earlier 0.7406 high initial support and resistance