Daily Market Outlook, July 21, 2022

Daily Market Outlook, July 21, 2022 Overnight Headlines Nord Stream: Russian Gas Flows Have Restarted After Maintenance ECB To Finally Join Rate Hike Club With Big Move On The Agenda Biden Expects To Speak With Chinese President In Coming Days Raimondo Warns Of Recession’ If US Cut Off From Taiwan Chips BoC Governor: Inflation Rate Will Remain 'Painfully High' All Year Draghi Faces The End After Italy’s Coalition Refuses To Back Him Rishi Sunak And Liz Truss In The Final Runoff Vote For UK PM Job Sunak And Truss In A Straight Fight To Become The Next UK PM China’s Covid Cases Remain Elevated, Residents Fear Lockdowns BoJ Stands Pat, Putting Growth Fears Ahead Of The Weak YenThe Day Ahead Asian equity performance is mixed this morning. Italian PM Draghi won a confidence vote in parliament yesterday, but with key coalition partners not taking part, reports suggest that his government is close to collapse. President Biden said he will speak to Chinese President Xi as he considers lifting some sanctions on Chinese exports. Reports suggest that Tokyo will lift its Covid warning level to the highest rating amidst a surge in cases. Meanwhile, the Bank of Japan left monetary policy unchanged after its latest meeting. UK public finances data for June showed net borrowing at £22.1bn, about £3.5bn higher than at the same point a year ago. The European Central Bank is expected to raise interest rates for the first time since 2011. The announcement is due at 1.15pm and the press conference at 1.45pm. Conditions for interest rate lift-off have already been met and the ECB has signalled its intention to raise rates today and at forthcoming meetings. A hike of 25bp is expected although there has been speculation that ECB policymakers may opt for a larger move of 50bp. Policymakers have already indicated that a further increase is likely at the subsequent policy meeting in September and that they might then move by 50bp ‘if the medium-term inflation outlook persists or deteriorates’. Given the prospect that interest rate rises may lead to a widening of euro area peripheral bond spreads, the ECB has promised to unveil a new anti-fragmentation policy tool. Markets will be hoping for some details on this today, including its size and how it would be deployed. However, press reports suggest that discussions on the new instrument are still ongoing. The latest weekly jobless claims will provide a timely insight into the state of the US labour market ahead of next week’s Federal Reserve monetary policy update. The Fed remains concerned that a tight labour market could further fuel wage growth. The June monthly NFP report showed little sign of those pressures easing. However, since then, the weekly jobless reports have moved upwards. They are still low by historic standards, but the recent turnaround is nevertheless tentative evidence that the jobs market may be softening. Early Friday, UK July GfK consumer confidence and June retail sales will give indications of the impact of the ‘cost of living squeeze. Confidence has dropped sharply this year. We look for a small rebound in July but it is still forecast to be close to all-time lows. June retail sales may have been boosted by preparations for the Jubilee celebrations. However, any such impact is likely to be temporary.FX Options Expiring 10am New York Cut EUR/USD: 1.0000 (1.21BLN), 1.0200-10 (1.84BLN) 1.0250 (228M), 1.0300 (405M), USD/JPY: 138.15 (230M), 138.25 (259M) EUR/CHF: 0.9925 (718M), 1.0000 (625M), 1.0075 (440M) AUD/USD: 0.6820 (513M), 0.6950 (472M) NZD/USD: 0.6150 (273M), 0.6225 (200M), 0.6300 (500M) USD/CAD: 1.2700 (520M), 1.2900 (730M), 1.3150 (250M) 1.3195-1.3200 (740M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.0350 ECB decision at 1215 GMT, press conference at 1245 GMT Choice is between 25 bps and 50 bps rate hike EUR/USD is entrenched near the lows of a major downtrend A 50bps move has the potential to lift EUR/USD ahead Jul 27 Fed meeting There is little to fuel a sustained rise as few traders are short as per CFTC If ECB hikes 25bps EUR/USD may sink towards parity before Fed meeting Resistance 1.0250/60, support 1.0100-05, 1.0070-75 Price testing the 20 Day Bearish VWAP 20 Day VWAP is bearish, 5 Day bullishGBPUSD Bias: Bearish below 1.2150 Cable has traded 36 pip range thus far Thursday ECB rate decision at 1215 GMT set to impact GBP/USD (as well as EUR/GBP) Cable could follow EUR/USD south if ECB delivers conservative 25 bps hike Whereas 50 bps ECB hike might lift EUR/USD, and GBP/USD Race to become UK PM down to final two: Sunak and Truss Offers sited at 1.2050 bids 1.1890 20 Day VWAP is bearish, 5 Day bullishUSDJPY Bias: Bullish above 134 BoJ decided to keep policy easy as is, ready to ease more if necessary Economy showing signs of improving, inflation moving to around 2% Downside effects of COVID, supply disruptions and Ukraine conflict still Asked about the passing of former PM Abe and effect on BoJ policy BoJ aim to end deflation, create environment for steady growth unchanged Maintaining current policy important for Japan now JPY crosses bid with shift in central bank expectations 20 Day VWAP is bullish, 5 Day bullishAUDUSD Bias: Bearish below .7050 AUD/USD was idled in Asia and only managed a 0.6880/98 range Market is waiting for reaction to ECB meeting later today before committing Resilient risk appetite and hawkish RBA expectations underpin AUD for now Global growth uncertainty will likely cap exaggerated rallies Price testing pivotal .6940/50 resistance through here opens .70 test 20 Day VWAP is bullish, 5 Day bullishBTCUSD Bias: Bullish above 22k BTC -2.0% to $22,743, fading towards key chart support Needs to hold above $$22,200 to keep rising near-term Would also mark exit from VWAP uptrend channel Those cues may prompt long-trimming till $20k support SE Asia exchange Zipmex suspends withdrawals 20 Day VWAP is bullish, 5 Day bullish

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