Trade ideas & Daily market report July 19th 2021
- US retail sales data was stronger than consensus forecasts which underpinned confidence in the US outlook.
- Risk appetite was, however, more fragile amid reservations surrounding coronavirus developments.
- US bond yields drifted lower despite the firm US data.
- Wall Street equities posted net losses during the day.
- Global bourses also lost ground amid vulnerable risk conditions with sharp selling in Hong Kong.
- The dollar secured tentative net gains and edged towards 3-month highs.
- EUR/USD was held close to 1.1800 while USD/JPY traded below 110.00 as the yen held firm.
- Sterling lost traction during the day with fragile global risk conditions sapping support.
- Commodity currencies lost ground amid the vulnerable risk conditions.
- Oil prices were again subjected to volatility with net losses as a new production deal created fresh uncertainty.
- Precious metals lost ground amid the firm dollar, but gold was resilient.
The Euro-zone CPI inflation rate was confirmed at 1.9% with the core rate also unchanged from the flash reading at 0.9%. The Euro was unable to make any headway ahead of Friday’s New York open and EUR/USD continued to test the 1.1800 support area against the dollar amid expectations of a dovish ECB policy stance.
US retail sales increased 0.6% for June and stronger than consensus forecasts of a 0.4% decline, although the May data was revised down to a decline of 1.7%. Underlying sales increased 1.3% for the month after a 0.9% decline the previous month while the control group posted a 1.1% increase on the month. There was a strong monthly increase in department store sales while auto sales declined on the month with furniture sales also declined sharply on the month.
There was subdued initial reaction to the data with the dollar holding a firm underlying tone and the US currency gained further net support later in the session.
CFTC data recorded a decline in long Euro positions to just below 60,000 in the latest week from 77,000 previously and the lowest reading since March 2020, lessening the potential for further Euro selling.
There will be further uncertainty ahead of Thursday’s ECB policy meeting and forward guidance from the bank. EUR/USD held fractionally above 1.1800 in early Europe on Monday, but was unable to make any headway as US dollar sentiment held firm.
There was a muted response in US Treasuries from the US retail sales data with the 10-year yield held around 1.32% while equity futures edged higher. USD/JPY was able to post net gains to 110.25 after the Wall Street open as the yen lost wider support. The yen gained renewed support late in US trading as equities moved lower and USD/JPY dipped to near 110.00 at the US close.
There should be no comments on monetary policy from Federal Reserve officials during the week with the blackout period coming into effect at the weekend ahead of the policy statement next week. This may dampen market volatility, although with the further risk of choppy trading amid lower than normal trading volumes.
CFTC data recorded a decline in short yen positions, but there is still scope for further position adjustment which could generate further yen gains. The Japanese currency maintained a firm tone on Monday, especially with risk appetite still fragile.
US equity futures lost ground on Monday and regional equity markets lost ground amid the more fragile risk conditions, although Chinese bourses were resilient.
In this environment, the yen maintained a firm tone and USD/JPY traded just below 110.00 with EUR/JPY around 129.75.
Sterling attempted to move higher after the European open on Friday, although it again failed to hold the gains with GBP/USD advance held around 1.3860. EUR/GBP was also resilient around the 0.8550 area as the UK failed to secure wider support.
There were no further comments on inflation and interest rates during the day from Bank of England officials. The UK currency continued to lose ground later in the day with a weaker tone in global equities contributing to the soft underlying tone and there was a GBP/USD dip below the 1.3800 level.
Comments from MPC member Haskel will be watched closely on Monday given the focus on Bank of England policy and hawkish comments from two members last week.
CFTC data recorded a sharp decline in long Sterling positions to 8,000 in the latest week from near 22,000 previously and the lowest level January this year.
Markets were uneasy over the continuing surge in new infections and potential negative impact on the economy from workers forced to self-isolate.
The housing sector data remained firm with Rightmove recording an increase in house prices of 0.7% for July with an annual increase of 5.7% from 7.5% previously.
Sterling was unable to make headway on Monday with fragile global risk conditions and delta variant concerns continuing to sap underlying support n domestic and global grounds. GBP/USD weakened to 1.3750 with EUR/GBP strengthening to just above 0.8580.
The Swiss franc edged lower during Friday, although overall moves were limited as markets continued to focus on global developments and wider risk conditions.
EUR/CHF edged above the 1.0850 level while USD/CHF hit selling interest close to the 0.9200 level.
A weaker tone in global equities helped limit potential selling pressure on the Swiss currency, especially later in the US session. The franc maintained a firm tone on Monday with USD/CHF continuing to trade just below the 0.9200 level as markets continued to monitor risk conditions.
AUD/USD + USD/CAD
The Australian dollar gradually lost ground during Friday with support undermined by weaker equities and a firm dollar with AUD/USD retreating to lows just below 0.7400.
There were further reservations over domestic coronavirus developments with lockdown measures to be extended while global risk appetite remained fragile with AUD/USD posting 2021 lows around 0.7375 before a marginal recovery.
There was no support for the Canadian dollar from oil prices during Friday with USD/CAD posting net gains to 1.2610 due to a combination of weaker equities and a firm US currency.
Underlying Canadian dollar sentiment remained negative on Monday, especially with oil prices lower and USD/CAD advanced to 3-month highs near 1.2650.
The Norwegian krone attempted to recover ground on Friday, but was eventually pulled lower by the combination of weaker risk appetite and a dip in oil prices and EUR/NOK strengthened to near 10.45.
The krona remained on the defensive on Monday with EUR/NOK trading close to 10.47 with USD/NOK at 2021 highs around 8.87.
Overall Swedish krona volatility was again measured with EUR/SEK settling just above 10.25 and USD/SEK just below 8.70 as expectations of a dovish Riksbank stance continued to limit underlying support.
Euro-zone equities lost further ground on Friday with reservations over demand conditions at the luxury level with reservations over the global recovery also hampering confidence.
The German DAX index declined 0.55% with significant losses across all major bourses.
Major UK stocks were undermined by on-going concerns over the risk of higher interest rates with global losses also contributing to the weaker tone. The FTSE 100 index was resilient and closed 0.05% lower amid buying interest below 7,000.
Wall Street equities undermined support amid concerns over domestic and global delta-variant developments. Solid retail sales data provided an element of support, but the S&P 500 index declined 0.75%.
Risk appetite remained more vulnerable on Monday which hampered sentiment in Asia.
Japan’s Nikkei 225 index declined 1.3% as the yen maintained a firm tone with a 0.85% retreat for the Australian ASX index as metals moved lower.
China’s Shanghai index was resilient with a marginal advance in late trading, but Hong Kong’s Hang Seng index posting sharp losses with a 2.1% retreat amid fresh losses in the tech sector.
Oil prices demonstrated some resilience on Friday, but were unable to make headway amid weaker equities and stronger US dollar.
Baker Hughes data recorded a slight increase in US oil drilling rigs to 380 from 370.
WTI dipped to lows below $70.50 p/b before recovery to near $71.50.
Over the weekend, Saudi Arabia and UAE agreed fresh production limits with an overall increase of 2.0mn barrels until the end of 2021 with supply management due to be extended until the end of 2022.
Crude was unable to make headway on Monday with WTI around $70.85 p/b and Brent just below $73.0 p/b.
Precious metals were undermined by weaker risk appetite and a firm US dollar during Friday.
Gold retreated to lows to just below $1,810 per ounce while there was a sharp retreat in silver to near $25.50 per ounce.
Gold was little changed just above $1,810 on Monday, but silver retreated further to near $25.30 per ounce.
Cryptocurrencies were subjected to considerable volatility during Friday.
Bitcoin dipped ahead of the New York open before finding strong support and securing strong gains to above $32,200 from lows close to $31,000.
There was some negative impact from a firm dollar and a decline in equities.
Choppy trading continued during the weekend with a bitcoin peak near $32,500 before a fresh retreat to near $31,000.
Volatility eased slightly on Monday with bitcoin above $31,500 despite fragile risk conditions.
Ether was also subjected to volatile trading and continued to hit selling pressure on approach to the $2,000 level with a retreat to below $1,900.
Major events for the day ahead: (times in BST)
11.00: Bank of England Haskel speech