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Technical analysis

The daily time frame shows that the USDJPY pair recently found technical support and strong dip-buying from the Ichimoku.

The RSI indicator on the four-hour time frame is heavily bearish and continues to create lower highs, meaning that sellers are still in control in the short-term horizon.

What the possible outcomes are

In our most likely scenario, the USDJPY pair will continue to head higher over the mid-term as the bearish head and shoulders pattern has recently been invalidated on the daily time frame.

Alternatively, the USDJPY pair may start to consolidate around the current trading level and then stage another downward move back towards the 109.00 support level.

Key levels

Support 109.00 108.50

Resistance 110.20 111.00

Technical analysis

The GBPAUD pair has recently reached the upside target of an invalidated head and shoulders pattern, meaning that selling pressure could increase due to profit taking.

According to the RSI indicator the GBPAUD pair has formed large amount of negative price divergence and could correct back towards the 1.8500 level.

What the possible outcomes are

In our most likely scenario, the GBPAUD pair correct towards at least the 1.8500 level as profit taking starts and the negative RSI price divergence starts to be reversed.

Alternatively, the GBPAUD could advance back towards the 1.8690 level, and then start to correct back towards the 1.8500 level.

Key levels

Support 1.8500 1.8450

Resistance 1.8690 1.8760

Technical analysis

The EMA(100) is higher than the EMA(50), which is advantageous for bears

These lines cross, which is favourable for opening a trade

The MACD is below 0, with the signal line pointing down

The RSI is below 50.

What the possible outcomes are

The EURUSD pair has been posting new daily lows for almost a week. The near-term picture is still bearish. Tomorrow the ECB will hold its monetary policy decision, which will show the ability of the pair to overcome bearish sentiment.

At the moment, the price may decline toward the first support level of 1.17566. Beneath lies the second support level of 1.17426.

If bulls defend the support level of 1.17566, the price may reverse towards the resistance level of 1.17999. A breakout of that level can push the price higher towards 1.18243.

Key levels

Support 1.17566 1.17426

Resistance 1.17999 1.18243

US stocks rebounded on Tuesday after having their worst trading day on Monday. The Dow Jones rose by more than 550 points while the Nasdaq 100 and S&P 500 rose by more than 1.5%. These gains narrowed in the futures market after Netflix released weak numbers. The company lost 430,000 customers in the US and Canada in Q2. Analysts were expecting the company would add 5.9 million new customers in the quarter. In its guidance, the company said that it would add more than 3.5m members in the third quarter. In the earnings call, the firm dismissed the idea that competition from companies like Disney and AT&T were behind the disappointing results.

The price of crude oil stabilised after it declined sharply on Monday. The price of Brent and West Texas Intermediate (WTI) are trading at $68.90 and $66.73, respectively. This is almost 10% below their highest level this year. The decline happened after Saudi Arabia and its OPEC+ allies agreed to gradually increase production to take advantage of higher prices. The news coincided with the reportedly rising number of Delta variant cases in countries like Australia, US, and the UK. Some of these countries have even started adding travel restrictions to curb the spread. Meanwhile, data published yesterday by the American Petroleum Institute (API) showed that the number of inventories increased by 806k barrels last week. Analysts were expecting a drawdown of more than 4.16 million barrels. The EIA will publish its official numbers today.

The US dollar retreated slightly as worries of the Delta variant subsided. The currency also reacted to the latest building permits and housing starts numbers. The data showed that the number of building permits declined from more than 1.683 million in May to 1.59 million in June. This decline was worse than the median estimate of 1.70 million. Housing starts, on the other hand, rose from 1.545 million to 1.64 million. Later today, the top numbers to watch will be the US mortgage data and South African inflation numbers. The earning season will continue, with companies like Johnson & Johnson, Harley-Davidson, and Coca-Cola expected to publish.

XBRUSD

The XBRUSD pair stabilised at the 69.00 level, which was close to this week’s low of 67.69. The price is also slightly below the neckline of the double-top pattern at 72.68. On the four-hour chart, it has moved below the 25-day and 15-day moving average while the commodity channel index (CCI) has moved from the oversold level. The pair has also formed a bearish flag pattern. Therefore, there is a possibility that it will resume the downward trend ahead of the US inventories data.

EURUSD

The EURUSD pair remained in consolidation mode as traders focused on the upcoming ECB decision. The pair is trading at 1.1770, which is close to the lowest level this week. It moved below the 25-day moving average and is still inside the descending channel. The Relative Strength Index (RSI) and the MACD are also neutral. Therefore, the pair will likely remain inside this range ahead of the ECB.

EURGBP

The EURGBP pair rose to a multi-week high of 0.8670 as the UK reopened. On the four-hour chart, the pair managed to move above the upper side of the descending channel shown in red. The pair also moved above the 25-day moving average while the MACD has moved above the neutral level. The pair will likely keep rising, with the next key resistance being at 0.8700.

Market movers today

• Another day without much on the agenda. Some focus on delta outbreaks around the world (especially in Europe and in the US) after COVID-19 was blamed for the risk sell-off on Monday.
• Besides that, the US mortgage applications are somewhat interesting, as the US housing market is cooling after a hot start to the year.

The 60 second overview

Chip supply: Semiconductor manufacturers have had a difficult time meeting demand over the past year, which has been one driving force behind the recent surge in producer and consumer prices. For the U.S. car industry the lack of chips are putting a serious strain on production capacity, which has prompted the U.S. government to negotiate directly with manufacturers and local governments in South-east Asia. These negotiations are now paying dividends as supply has increased for auto manufacturers, according to the Biden administration. In the longer run both the U.S., EU and China are making efforts to reduce reliance on global chip supply chains, which have proved complicated during recent lockdowns. In the near future, however, supply disruptions will remain as both Vietnam and Malaysia, integral parts of the semiconductor industry, has been hit by record levels of covid-19 infections.

Lower growth momentum indicated in UK: Lloyd Bank's business survey shows that the overall pace of the U.K. recovery lost a bit of steam in June with 9 of 14 business sectors reporting a slowing expansion and most sectors were less optimistic regarding their own potential over the coming 12 months. The Bank of England will publish new economic forecasts on 5 August.

Equities: US equities rebounded strongly yesterday after Monday's setback with the S&P500 enjoying the best day since March at +1.5%. Thus, the positive sentiment indicated already in pre-trading hours was maintained throughout the day after Asian indices had declined. Performance was driven by cyclicals over defensives with small caps returning +3%. VIX also came lower ending the day at 19 points. This morning Asian stocks are generally higher, while futures indicates a mixed US open, while positive in Europe.

FI: 10y US treasuries ended the day roughly unchanged at 1.22% after briefly touching 1.13% during yesterday's session. Curves steepened 4-5bp as the short end continues to grind lower with 2y treasuries standing at +20bp. Thus, rates markets have taken out some hiking probability recently, however, still pricing a bit more than a 50% probability of a 25bp hike within the coming 12 months.

FX: Yesterday brought a volatile session for commodity FX and not least NOK. EUR/NOK temporarily traded as high as 10.70 before the US session returned the cross to 10.60. We emphasise that this NOK sell-off should be seen in light of global developments (deflated reflation trades) and not domestic news. EUR/SEK held surprisingly steady around 10.25 throughout the day. The strongest correlation remains with EUR/USD, and until we see the USD break new grounds in either direction it is likely that EUR/SEK will trade close to current levels.

Credit: The credit markets yesterday took a breather from the recent risk-off trend. Both itraxx main and xover were largely unchanged during the day, ending at +49bp and +246bp respectively.

General Trend

• Nikkei has pared gain ahead of the upcoming holiday [Automakers trade higher; Topix Iron & Steel index gains ahead of earnings from Tokyo Steel; Electric Appliances index rises before Nidec’s earnings; Banks rise after gains in US financials; Transports also move higher].
• Japan markets are closed for a holiday on Thursday and Friday (Jul 22-23rd).
• Hang Seng declines after a higher open.
• Shanghai Composite gained 0.5% during the morning session [Consumer Discretionary index supported by guidance from Great Wall Motor; IT and Industrial indices also rise; Financial, Consumer Staples and Property indices lag].
• S&P ASX 200 has outperformed [Gainers include Financial, Resources and Energy indices].
• Companies due to report during the NY morning include Anthem, Baker Hughes, Comerica, Interpublic, JNJ, Knight-Swift Transportation, Coca-Cola, Lithia Motors, NASDAQ, Northern Trust, Seagate Technology, Universal Stainless & Alloy Products, Verizon.

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened +0.3%.
• (AU) Australia PM Morrison: Had significant challenges with vaccine program, lockdown to impact on Q3 GDP.
• BPT.AU Reports Q4 Production 5.96 MMBOE v 6.8 y/y; Rev A$421M v A$320M y/y.
• (NZ) Reserve Bank of New Zealand (RBNZ) buys NZ$90M in government bonds in QE auction v NZ$90M sought.
• (AU) Australia Jun Preliminary Retail Sales M/M: -1.8% v -0.7%e.
• (AU) Currently about 50% of Australia is in some sort of lockdown or restriction due to COVID.

Japan

• Nikkei 225 opened +1.3%.
• (JP) Bank of Japan (BOJ) June Meeting Minutes: Members agree to not hesitate to add easing if needed.
• (JP) Bank of Japan (BOJ) Dep Gov Amamiya: Corp profits under pressure from rising commodity costs, like to continue improving; Domestic Economy picking up as a trend.
• (JP) Japan govt to extend employment subsidy program through the end of December – Nikkei.
• 7267.JP Said to be halting production in Suzuka Factory for 5 days in August – Press.
• (JP) Total number of COVID cases related to Tokyo Olympics since July 2nd now at 71; Organizing committee chief Muto did not rule out canceling the Games if cases spiked.
• (JP) Japan Jun Trade Balance: ¥383.2B v ¥460.0Be; Adj Trade Balance: -¥90.2B v ¥22.6Be.
• (JP) Shigeru Omi (top COVID adviser in Japan) said daily virus cases in Tokyo could hit a new record high [~3,000 cases] during the first week of Aug - Japanese press.

Korea

• Kospi opened +0.6%
• (KR) South Korea Jun PPI Y/Y: 6.4% v 6.6% prior (8th consecutive rise).
• (KR) South Korea Jul 1-20 Exports y/y: 32.8% v 29.5% prior; Imports y/y: 46.1% v 29.1% prior; Chip Exports y/y: 33.9% v 28.5% prior.
• (KR) South Korea Fin Min Hong reiterated warning about a possible decline in housing prices, as market undergoes a correction - South Korea press.

China/Hong Kong

• Hang Seng opened +0.3%; Shanghai Composite opened +0.2%.
• (CN) Local government bond sales in China have become more 'market driven', cites recent bidding results related to the sale of new bonds - Shanghai Securities News.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY10B in 7-day reverse repos v CNY10B in 7-day reverse repos prior; Net CNY0B v Net CNY0B prior.
• (CN) China PBOC sets Yuan reference rate: 6.4835 v 6.4855 prior.
• (CN) China State Council: To optimize fertility rate and promoting long-term balanced development of population - Xinhua.

North America

• (US) US Senate to vote on Infrastructure after 14:30 on Weds (July 21st).
• (US) Deputy Sec of State Sherman: Will engage with China when it is in our good interests and in a direct manner.
• AAPL Said will not introduce new 4G phones or iPhone Mini next year (2022), will only introduce 5G phones - Nikkei.
• (US) Weekly API Crude Oil Inventories: +0.8M v -4.1M prior (1st build in 9 weeks).
• US after the market close
• NFLX Reports Q2 $2.97 v $3.16e, Rev $7.34B v $7.31Be; Confirms in early stages of further expansion in Gaming business.
• UAL Reports Q2 -$3.91 v -$4.17e, Rev $5.47B v $5.31Be.
• JNJ New study finds one dose of J&J COVID vaccine is less effective against Delta and Lambda variants; adds to evidence that those inoculated with J&J vaccine may need the second dose, ideally of mRNA variety - NYT.

Europe

• (UK) Said that the UK Navy will permanently base 2 ships in Asia (exact location undisclosed) - Press.

Levels as of 01:15ET

• Hang Seng -0.4%; Shanghai Composite +0.6%; Kospi -0.4%; Nikkei225 +0.4%; ASX 200 +1.0%.
• Equity Futures: S&P500 -0.0%; Nasdaq100 -0.2%, Dax -0.2%; FTSE100 +0.1%.
• EUR 1.1784-1.1770; JPY 109.98-109.83 ;AUD 0.7340-0.7303; NZD 0.6934-0.6907.
• Commodity Futures: Gold -0.2% at $1,807/oz; Crude Oil -0.7% at $66.75/brl; Copper -0.6% at $4.23/lb.

Daily Pivots: (S1) 1.3570; (P) 1.3630; (R1) 1.3687; More....

Intraday bias in GBP/USD remains on the downside at this point. Current fall from 1.4248 is in progress for 1.3482 resistance turned support next. Decisive break there will indicate that it's already correcting whole up trend from 1.1409. Next target will then be 38.2% retracement of 1.1409 to 1.4248 at 1.3164. On the upside, above 1.3688 minor resistance will turn intraday bias neutral first. But further fall will remain in favor as long as 1.3908 resistance holds.

In the bigger picture, as long as 1.3482 resistance turned support holds, up trend from 1.1409 should still continue. Decisive break of 1.4376 resistance will carry larger bullish implications. However, firm break of 1.3482 support will argue that the rise from 1.1409 has completed. GBP/USD would then be seen in another leg of long term range pattern between 1.1409 and 1.4376. Deeper fall could then be seen to 61.8% retracement of 1.1409 to 1.4248 at 1.2493, and even below.

While US stocks staged a strong rebound overnight, the moves didn't follow through in mixed Asia. There is also little reaction in the currency markets. Yen and Dollar remain the strongest ones for the week, despite retreating mildly. New Zealand Dollar is the worst performer, followed by Aussie and then Sterling. Euro is not performing too badly, given some support in crosses. With a light economic calendar today, focuses will stay on developments in the risk markets, and then turn to ECB's new forward guidance tomorrow.

Technically, we'd continue to pay attention to some Sterling pairs. As noted before, firm break of 0.8670 resistance in EUR/GBP could argues that whole rebound from 0.8470 is ready to resume through 0.8718 resistance. Sustained break of 149.03 support in GBP/JPY could open up the bearish case for deeper decline to 142.71 resistance turned support. GBP/USD could also test 1.3482 resistance turned support and firm break there would confirm correction to whole rise from 1.1409.

In Asia, at the time of writing, Nikkei is up 0.44%. Hong Kong HSI is down -0.56%. China Shanghai SSE is up 0.65%. Singapore Strait Times is down -0.07%. Japan 10-year JGB yield is down -0.0037 at 0.011. Overnight, DOW rose 1.62%. S&P 500 rose 1.52%. NASDAQ rose 1.57%. 10-year rose 0.028 to 1.209.

BoJ Masayoshi: Inflation sluggish and powerful easing necessary

BoJ Deputy Governor Amamiya Masayoshi said speech, an uptrend in private consumption is expected to "become evident" as the impact of COVID-19 wanes gradually and employee income increases". The "virtuous cycle" in the "corporate sector" will spread to the "household sector", and "intensifying the cycle in the overall economy." Nevertheless, the baseline scenario entails "high uncertainties" with risks "skewed to the downside" on the spread of variants. But activity could improve more than expected as vaccine rollout accelerates.

Masayoshi also said that it will "take time" to achieve price stability target of 2% inflation. He added, "while the inflation rate has risen clearly of late in the United States and other countries, it has been sluggish in Japan." Giver this, "it is necessary for the Bank to persistently continue to conduct powerful monetary easing with a view to achieving the price stability target."

Japan exports rose 48.6% yoy in Jun, 4th month of double-digit growth

Japan's exports rose 48.6% yoy to JPY 7220B in June. That;s the fourth straight month of double-digit growth, even though it's largely exaggerated by the pandemic plunge last year. By destination, exports to China jumped 27.7% yoy, led by demand for chip-making equipment, raw materials and plastic. Exports to US also rose 85.5% yoy, driven by cars, auto parts and motors. Imports rose 32.7% yoy to JPY 6837B. Trade surplus came in at JPY 383B.

In seasonally adjusted terms, exports rose 2.4% mom to JPY 7040B. Imports rose 4.0% mom to JPY 7130B. Trade balance turned into deficit of JPY 0.09T, versus expectation of JPY 0.02T surplus.

Australia retail sales dropped -1.8% mom in Jun on return to restrictions

According to preliminary estimate, Australia retail sales dropped -1.8% or AUD -515.1m in June 2021. Comparing to June 2020, sales rose 2.9% yoy. Victoria (-3.5 per cent) led the state falls in June, with the impact of the state's fourth lockdown more pronounced in June than May (-0.9 per cent). New South Wales (-2.0 per cent) and Queensland (-1.5 per cent) also fell due to stay-at-home restrictions and reduced interstate mobility.

Ben James, Director of Quarterly Economy Wide Surveys, said: "June's fall in turnover was due to the impact of coronavirus restrictions across multiple states. Victoria saw restrictions from the start of the month, which were gradually eased from the 11th of June.  New South Wales, in particular Greater Sydney, saw stay-at-home orders issued towards the end of the month.  Other states and territories saw interrupted trade due to mini-lockdowns, as well as reduced mobility between states with the tightening of border restrictions."

Australia Westpac leading index dropped to 1.34, RBA to use flexibility in asset purchases

Australia Westpac leading index slowed from 1.68% to 1.34% in June. The index peaked at 5% back in November last year and then gradually fallen back. It's still comfortably above zero and signals outlook for above trend growth. Still, Westpac expected -3.1% contraction in GDP in Q3 in New South Wales and -0.1% in Victoria due to renewed lockdowns.

Westpac added that RBA would be advised of significant downward revisions for Q3 growth at the meeting on August 3. It said it's an "appropriate time" for RBA to use the "flexibility" on asset purchases. At the least it could announce to defer the tapering from AUD 5B to AUD 4B a week, which is scheduled to start in September. Further, "a decision to immediately lift purchases to $6 billion per week would certainly send the right signal that the Bank is responsive to economic developments and is prepared to use its new flexible policy tool accordingly."

Looking ahead

Economic calendar continues to be light today, with UK public sector net borrowing and Canada new housing price index featured.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.3570; (P) 1.3630; (R1) 1.3687; More....

Intraday bias in GBP/USD remains on the downside at this point. Current fall from 1.4248 is in progress for 1.3482 resistance turned support next. Decisive break there will indicate that it's already correcting whole up trend from 1.1409. Next target will then be 38.2% retracement of 1.1409 to 1.4248 at 1.3164. On the upside, above 1.3688 minor resistance will turn intraday bias neutral first. But further fall will remain in favor as long as 1.3908 resistance holds.

In the bigger picture, as long as 1.3482 resistance turned support holds, up trend from 1.1409 should still continue. Decisive break of 1.4376 resistance will carry larger bullish implications. However, firm break of 1.3482 support will argue that the rise from 1.1409 has completed. GBP/USD would then be seen in another leg of long term range pattern between 1.1409 and 1.4376. Deeper fall could then be seen to 61.8% retracement of 1.1409 to 1.4248 at 1.2493, and even below.

Economic Indicators Update

Australia Westpac leading index slowed from 1.68% to 1.34% in June. The index peaked at 5% back in November last year and then gradually fallen back. It's still comfortably above zero and signals outlook for above trend growth. Still, Westpac expected -3.1% contraction in GDP in Q3 in New South Wales and -0.1% in Victoria due to renewed lockdowns.

Westpac added that RBA would be advised of significant downward revisions for Q3 growth at the meeting on August 3. It said it's an "appropriate time" for RBA to use the "flexibility" on asset purchases. At the least it could announce to defer the tapering from AUD 5B to AUD 4B a week, which is scheduled to start in September. Further, "a decision to immediately lift purchases to $6 billion per week would certainly send the right signal that the Bank is responsive to economic developments and is prepared to use its new flexible policy tool accordingly."

Full release here.

According to preliminary estimate, Australia retail sales dropped -1.8% mom or AUD -515.1m in June 2021. Comparing to June 2020, sales rose 2.9% yoy. Victoria (-3.5 per cent) led the state falls in June, with the impact of the state's fourth lockdown more pronounced in June than May (-0.9 per cent). New South Wales (-2.0 per cent) and Queensland (-1.5 per cent) also fell due to stay-at-home restrictions and reduced interstate mobility.

Ben James, Director of Quarterly Economy Wide Surveys, said: "June's fall in turnover was due to the impact of coronavirus restrictions across multiple states. Victoria saw restrictions from the start of the month, which were gradually eased from the 11th of June.  New South Wales, in particular Greater Sydney, saw stay-at-home orders issued towards the end of the month.  Other states and territories saw interrupted trade due to mini-lockdowns, as well as reduced mobility between states with the tightening of border restrictions."

Full release here.