Daily Market Outlook, July 29, 2020
<h2><span>Daily Market Outlook, July 29, 2020 </span></h2>
<p><strong>Asian equity market is mostly down this morning ahead of tonight’s policy announcement update from the US Federal Reserve. However, Chinese equities are showing gains of around 2%. </strong></p>
<p><span><strong>Yesterday, the Fed confirmed that it would be extending its emergency lending programs to the end of the year</strong>. Meanwhile, a White House policymaker was reported as saying that he didn’t know if “anything has been definitively ruled in or out” with regard to a new fiscal stimulus package. </span></p>
<p><span><strong>In the UK, PM Johnson warned a ‘second wave’ of Covid-19 cases has started in Europe and it was revealed that travellers to Belgium, Luxembourg and Croatia face quarantine measures on return to the UK</strong>. The International Air Transport Association was reported as not seeing global air travel returning to pre-Covid-19 levels until at least 2024. </span></p>
<p><span><strong>This evening’s policy update from the US central bank will probably be the event of the day for markets.</strong> The Federal Reserve left monetary policy unchanged in June but Fed Chair Powell emphasised that they would take further action if necessary. This time, the Fed may feel the need to send a stronger signal given growing concerns among policymakers that the economy’s rebound may be faltering. If so, the most likely move is that it hardens its forward guidance on the future path of policy. This was discussed extensively at the last two meetings but policymakers failed to reach an agreement. However, it now seems possible that they will make policy more explicitly ‘data dependent’ possibly by saying that any tightening (including interest rate rises), will not be considered until inflation moves above the Fed’s target. Such an announcement is potentially important because it may put a cap on market interest rates and may even cause them to fall further. </span></p>
<p><span><strong>Other policy moves seem unlikely at this stage.</strong> The Fed may in time decide that it needs to raise its weekly asset purchase target but doesn’t seem ready to do so, nor do the majority of policymakers seem to be in favour of explicit yield curve control. Least likely of all is a cut in policy interest rates below zero. Indeed, this doesn’t even seem to have been discussed at the last meeting. Powell will probably use his press conference to emphasise the message that the Fed will do what it takes to support the economy. </span></p>
<p><span><strong>Ahead of the Fed announcement, today’s data releases seem unlikely to have much impact on markets</strong>. The Bank of England’s June data for bank lending is likely to note a pickup as lockdown restrictions were eased. In particular, mortgage approvals are forecast to have risen sharply. However, this will tell us little about the sustainability of the rebound. In the US, the advanced trade report and pending home sales are expected to provide further evidence that economic growth accelerated in June as restrictions were lowered. However, they may not quell concerns that it is now slowing again. </span></p>
<p><span><strong>CITIFX QUANT: Month-End Asset Rebalancing: July 2020 Estimate</strong> – </span><span>The asset rebalancing signal notes a mild rotation from equities to bonds with a very weak signal at month end. More interestingly intra asset rebalancing—such as outflows from US equities and inflows in UK and European equities or inflows into all but UK and European bonds are likely to occur, albeit with weak signals overall. The FX signal from the rebalancing flows suggests USD selling against EUR at month end. </span></p>
<h3><b>Today’s Options Expiries</b><span> for 10AM New York Cut (notable size in bold)</span></h3>
<ul>
<li><span>EURUSD: 1.1650-55 (300M), 1.1700 (272M)</span></li>
<li><span>USDJPY: 105.00 (1BLN)</span></li>
</ul>
<h3><b>Technical & Trade Views</b></h3>
<p><b>EURUSD Bias: Bullish above 1.16 targeting 1.1830</b></p>
<p><span>EURUSD From a technical and trading perspective, as 1.16 acts as support look for a test of the 1.1830 equality objective before a profit taking pause. A closing breach of 1.1550 would concern the near term bullish bias opening a deeper correction to 1.1450 UPDATE note Citi month end EUR buy signal, pullbacks to 1.1650/00 should see bids to take to price into a test of the pivotal 1.183/50 as discussed in today’s Chart Hit</span></p>
<p><img class="aligncenter size-full wp-image-47848" src="http://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.00.56.png" alt="" width="2145" height="1237" srcset="https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.00.56.png 2145w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.00.56-300x173.png 300w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.00.56-1024x591.png 1024w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.00.56-768x443.png 768w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.00.56-1536x886.png 1536w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.00.56-2048x1181.png 2048w" sizes="(max-width: 2145px) 100vw, 2145px" /></p>
<p><b>GBPUSD Bias: Bullish above 1.28 targeting 1.2950</b></p>
<p><span>GBPUSD From a technical and trading perspective, as 1.25 attracts sufficient demand, look for a grind higher to test offers and stop at 1.28. A closing breach of 1.25 suggests return to range and a test of range support at 1.2250.UPDATE target achieved, as 1.29 contains the rally look for a pullback to test 1.27 support.UPDATE price stalling at equality objective at 1.29 as 1.28 supports look for a test of offers and stops to 1.2950 before a pullback to 1.27 UPDATE target achieved, as 1.29 support now lok for a test of offers and stops to 1.3010</span></p>
<p><img class="aligncenter size-full wp-image-47849" src="http://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.03.15.png" alt="" width="2155" height="1237" srcset="https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.03.15.png 2155w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.03.15-300x172.png 300w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.03.15-1024x588.png 1024w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.03.15-768x441.png 768w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.03.15-1536x882.png 1536w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.03.15-2048x1176.png 2048w" sizes="(max-width: 2155px) 100vw, 2155px" /></p>
<p><b>USDJPY Bias: Bearish below 106.30 targeting 104.50 </b></p>
<p><span>USDJPY From a technical and trading perspective, anticipated test of the equality objective at 108.13 saw bearish reversal patterns, setting up a move for another test of 106 enroute to a pivotal 105 test UPDATE equality objective achieved as 107.30 caps the upside look for a retest of 106.30’s UPDATE 106.30 achieved as 106.75 now acts resistance lok for a test of 104.50’s</span></p>
<p><img class="aligncenter size-full wp-image-47850" src="http://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.03.52.png" alt="" width="2152" height="1241" srcset="https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.03.52.png 2152w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.03.52-300x173.png 300w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.03.52-1024x591.png 1024w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.03.52-768x443.png 768w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.03.52-1536x886.png 1536w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.03.52-2048x1181.png 2048w" sizes="(max-width: 2152px) 100vw, 2152px" /></p>
<p><b>AUDUSD Bias: Bullish above .7090 targeting .7220</b></p>
<p><span>AUDUSD From a technical and trading perspective, as .7100 now acts as support, look for a move to testing projected ascending trendline resistance .7220 next leg higher to test stops and offers above .7220 before a corrective phase to test .6950 as support.</span></p>
<p><img class="aligncenter size-full wp-image-47851" src="http://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.04.37.png" alt="" width="2154" height="1238" srcset="https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.04.37.png 2154w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.04.37-300x172.png 300w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.04.37-1024x589.png 1024w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.04.37-768x441.png 768w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.04.37-1536x883.png 1536w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-29-08.04.37-2048x1177.png 2048w" sizes="(max-width: 2154px) 100vw, 2154px" /></p>
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