Daily Market Outlook, August 17, 2023

Munnelly’s Market Commentary… 

Asian equity markets mostly experienced another day of selling, in line with losses on Wall Street. Yields in the market continued to rise following the release of FOMC Minutes, which highlighted that most officials saw significant upside risks to inflation, possibly necessitating further tightening measures.

The Nikkei 225 index in Japan declined, driven by soft data releases that included a miss on machinery orders. Although exports and imports saw declines that were not as severe as anticipated, exports registered contraction for the first time in 29 months. The Hang Seng index  and the Shanghai Composite index opened under pressure. The Hang Seng index's decline of more than 20% from its January high pushed it into bear market territory, attributed to disappointing earnings results from companies like Tencent and JD.com. However, the Chinese markets managed to recover most of their earlier losses following another liquidity injection by the central bank and recent economic commitments by Premier Li.

With no major data on the docket in the UK for the day, attention shifts to Friday's early releases, which include the August GfK consumer confidence survey and official retail sales figures for July. Earlier this week, key labor market and Consumer Price Index (CPI) inflation reports indicated upside surprises in wage growth and services inflation. This has heightened expectations for another interest rate hike by the Bank of England next month. However, concerns remain that the impact of interest rate increases in the UK will be more pronounced in the second half of the year. The upcoming July retail sales figures could provide insight into this scenario, with a projected 1.5% monthly decline – equal to the largest drop observed in the past two years. Retail sales data can be volatile, though, and this potential outcome might partly be attributed to unseasonably wet weather. Nevertheless, it may raise concerns regarding the impact of interest rate hikes. The August GfK confidence measure is also expected to rise, albeit only partially reversing the drop seen in July. Overall, while these data points may not significantly alter market expectations for another rate hike in September, they are likely to contribute to the ongoing economic narrative.

Stateside there are expectations for initial jobless claims to ease slightly following last week's larger-than-expected increase. Additionally, continuing claims are projected to be slightly lower. Market participants will also be closely watching the Philadelphia Fed regional manufacturing report, particularly in the context of the disappointing Empire survey data released earlier in the week. 

FX Positioning & Sentiment

Traders have placed bets totaling over $16 billion on the anticipation of a decline in the US dollar. These short positions are taken against major currencies including the Euro, British Pound, Mexican Peso, and Brazilian Real. The EUR/USD has seen particularly large bets, reaching $20.5 billion. The USD index, which is weighted about 58% against the EUR, has surpassed the 200-day moving average and risen to 103.59. Should the index remain bid above 103 the next target is 104.39, a level that could open a move to test the March high of 105.88.

The MSCI Emerging Markets FX index has declined close to its low for 2023, suggesting potential challenges ahead. Given these developments, hedging against the risk of an increase in foreign exchange volatility could be a prudent move.

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 (700M), 1.0880 (1.1B), 1.0940 (1.3B), 1.0950 (2.6B)

  • EUR/USD: 1.0985 (975M), 1.0995 (1.2B), 1.1000 (915M)

  • USD/JPY: 142.00 (1.5B), 142.50 (975M), 143.00 (1.5B), 145.00 (1.2B)

  • USD/JPY: 145.50 (1.1B), 146.00 (600M). EUR/JPY: 158.00 (450M), 160.00 (1.7B)

  • GBP/USD: 1.2500 (600M), 1.2530 (385M), 1.2700 (725M), 1.2845 (465M)

  • EUR/GBP: 0.8600 (460M), 0.8750 (1.3B). EUR/NOK 11.5000 (530M)

  • AUD/USD: 0.6550 (1.5B), 0.6675 (600M). AUD/NZD: 1.0850 (1.0B), 1.1075 (1.2B)

  • USD/CAD: 1.3210 (865M), 1.3490 (1.2B).

Overnight Newswire Updates of Note

  • Hong Kong Stocks On Edge Of Bear Market As Contagion Fears Mount

  • Fed Saw ‘Significant’ Inflation Risk That May Merit More Hikes

  • Australia Unemployment Rises To 3.7% As Rate Hikes Take Toll

  • Japan Exports Fall For First Time Since 2021, Stoking Outlook Concerns

  • RBNZ’s Orr Says Recession Is Bare Minimum To Tame Inflation

  • China’s Housing Slump Is Much Worse Than Official Data Shows

  • China’s Troubled $137Bln Shadow Bank Plans Debt Restructuring, Taps KPMG

  • China PBoC Expected To Maintain Liquidity With Various Tools - CSJ

  • Morgan Stanley Sees China Missing Its Growth Target This Year

  • China Is Headwind For US, Global Economy, Treasury Official Says

  • Treasury Market 2023 Gains Evaporate Once Again In Latest Rout

  • Japan 20-Year Bond Auction Has Longest Tail Since 1987

  • China Escalates Battle Against Yuan Bears With Fixing Guidance

  • China's Major State Banks Sell Dollars For Yuan In London, NY Hours

  • Oil Prices Wobble On Jitters Over China Economy, US Rates Path

  • Hong Kong Stocks On Edge Of Bear Market As Contagion Fears Mount

  • Cisco Gives Tepid Annual Forecast, Renewing Fears Of Slowdown

  • Goldman Sachs Blames Zero-Day Options For Fuelling S&P 500 Selloff

(Sourced from Bloomberg, Reuters and other reliable financial news outlets)

Technical & Trade Views

SP500 Intraday Bullish Above Bearish Below 4460

  • Above 4460 opens 4500

  • Primary resistance  is 4560

  • Primary objective is 4380

  • 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 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 bearsih

BTCUSD Intraday Bullish Above Bearish below 29300

  • Above 29400 opens 30000

  • Primary resistance  is 30200

  • Primary objective is 27000

  • 20 Day VWAP bearish, 5 Day VWAP bearish