- Australia's ASX 200 index rose by 33.6 points (0.46%) and currently trades at 7,317.40
- Japan's Nikkei 225 index has risen by 74.59 points (0.23%) and currently trades at 32,493.89
- Hong Kong's Hang Seng index has fallen by -242.34 points (-1.27%) and currently trades at 18,773.38
- China's A50 Index has fallen by -62.49 points (-0.5%) and currently trades at 12,520.94
UK and Europe:
- UK's FTSE 100 futures are currently down -4.5 points (-0.06%), the cash market is currently estimated to open at 7,449.19
- Euro STOXX 50 futures are currently up 1 points (0.02%), the cash market is currently estimated to open at 4,370.73
- Germany's DAX futures are currently down -20 points (-0.12%), the cash market is currently estimated to open at 16,105.49
- DJI futures are currently up 11 points (0.03%)
- S&P 500 futures are currently down -2 points (-0.04%)
- Nasdaq 100 futures are currently down -13.5 points (-0.08%)
UK inflation date is the main calendar event at 07:00 BST ahead of the UK open, where everyone including the BOE is likely crossing their fingers for a much softer print. UK data has continued to outperform expectations overall, and in particular we’ve seen employment remain firm and wages rise which feeds back into higher inflation and a more hawkish BOE. A soft report could reduce expectations of another 50bp hike and send GBP pairs lower from arguably overbought levels. Whilst another undesirably hot report could send GBP/USD to new cycle highs.
It is then on to European inflation data at 10:00 BST where hopes of lower CPI numbers feeds into some of the more dovish (or perhaps less hawkish) comments we’ve heard from ECB members this week. Whilst another hike on July 27th is practically a given, the September hike is far less certain than it previously was and hinges upon economic data leading into it. Therefore, a soft CPI print today could weigh on the euro as hawkish bets are scaled back.
- Goldman Sachs, Tesla, Netflix, IBM and United Airlines report earnings
- The FTSE 100 failed to break beneath 7400 to confirm our bearish bias, although prices remain beneath Friday’s bearish pinbar high which keeps a break beneath 7400 on the cards for a potential swing trade short if sentiment sours. A break above Friday’s high could suggest a run for trend resistance from the April high.
- Gold posted strong gains yesterday and stopped just shy of the lower 1985 target, but a move to $2000 remains a possibility and we suspect dips will be bought by gold bugs ($1970 and 1964 are potential support levels)
- WTI crude oil has pulled back from yesterday’s high overnight, which means the $76 handle and YTD open at 75.67 remains to be a key level of resistance and a likely pivotal level for traders
- Volatility for FX majors was contained overnight overall, although there was little economic data beyond New Zealand’s CPI report.
- AUD/USD and NZD/USD daily ranges were just 57% and 81% of their ADR(20) despite the NZ CPI report, whilst USD/JPY was less than half.
- GBP/USD, EUR/USD traded in tight ranges ahead of key inflation reports for the UK and eurozone
- 1-day implied volatility amongst FX majors is GBP/USD at 94% of its ADR(20), so volatility is expected but not at an extreme level relative to a typical daily range
- The same measure for EUR/USD is just 60%, meaning traders suspect the UK inflation report is the more important where monetary policy is concerned
GBP/USD daily chart:
GBP/USD has produced a very clean and strong bullish trend on the daily chart, thanks to outperforming economic data and renewed bets of a higher terminal BOE rate. However, GBP/USD has now retraced for three days (and currently lower for its fourth) ahead of today’s key inflation print. And with it holding above 1.30 / April 2022 low, it may prove to be a springboard for prices as bulls step in if inflation is hot today. The 1day upper implied volatility band is around yesterday’s high which makes a potential target for bulls. But if inflation is too far above expectations, a break to new highs seems probable. A break below 1.30 invalidates the near-term bullish bias.
EUR/USD daily chart:
EUR/USD has risen just over 4% in the past eight days thanks to softer US inflation data. Whilst it made minced meat of the 1.10 and 1.11 handles, it appears a little more cautious above 1.1200, with an open-close range of just 9 pips and a bearish pinbar candle forming yesterday. Whilst a single candle do not mean a reversal is imminent, it does shows a failed attempt to close higher from the bull camp. And if eurozone CPI is soft enough today I suspect it could trigger a decent pullback below 1.1200 as mean reversion finally kicks in and retrace closer towards 1.1100. However, a hot print could send it closer to 1.13, although bulls may need to question how much juice is left in its bullish tank after such a strong rally and remain nimble.
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