Daily Market Outlook, July 20, 2022

Overnight Headlines

Market risk tone brightened during the Asian trading session. It followed positive closes in Europe and the US yesterday. However, it remains to be seen whether the latest equity market rally continues, as markets assess how quickly and how far interest rates will rise, and whether the impact on economic growth is appropriately reflected in asset prices. Meanwhile, media reports suggest Russian energy supplies to Europe via Nord Stream will restart, albeit at reduced capacity.
UK headline CPI inflation, released earlier this morning, increased for a ninth consecutive month, to a new 40-year high of 9.4% in June, lifted by higher food and petrol prices. The outturn was above a forecast rise to 9.3% from 9.1% in May. The core measure (excluding food and energy) fell for a second month, to 5.8% from 5.9%, albeit a marginally smaller decline than forecast, and it remains at an elevated level. The data will maintain pressure on the Bank of England to continue to raise interest rates, with the next policy update due in early August. Yesterday, Governor Bailey said that a 50bp hike is ‘on the table’ but ‘not locked in’.

In contrast to other major central banks, the Bank of Japan is expected to keep policy unchanged. It will announce its policy decision early tomorrow. The ECB policy update on Thursday is the key focus for markets, with reports suggesting that the Governing Council is considering a 50bp rise. The consensus is that it will raise rates by 25bp, the first increase since 2011, and possibly by 50bp in the following meeting in September.

Today’s Eurozone data are likely to receive limited attention, but they include the current account and consumer confidence. The current account balance last month swung into deficit for the first time in over a decade, while we anticipate a new low in consumer confidence – both related to the issue of energy security.

Canadian CPI inflation data and US existing home sales are due this afternoon. Headline annual CPI is expected to rise to 8.4%, while existing home sales may have fallen for a fifth straight month.

In UK politics, the final round of the Conservative leadership contest takes place today, with the final two candidates selected by the party’s MPs. The two will then go forward for a vote among the wider party membership and a new PM is expected in early September. In Italy, PM Draghi will decide whether to stay in his post ahead of a scheduled confidence vote this evening.

EURUSD Bias: Bearish below 1.0350

GBPUSD Bias: Bearish below 1.2150

UK June CPI above forecast, new 40yr highs at +9.4% YY
New 40-year high for UK inflation adds weight to a potential 50bps move by the BoE
BoE's Bailey commented Tuesday that 50 bps hike on the table for Aug 4 meeting
Sunak, Mordaunt and Truss head into key leadership vote Weds
Offers sited at 1.2050 bids 1.1890
20 Day VWAP is bearish, 5 Day bearish

USDJPY Bias: Bullish above 134

AUDUSD Bias: Bearish below .7050

BTCUSD Bias: Bullish above 22k

Crypto stocks bid as bitcoin rises to test towards 23,800
Bitcoin trading at best levels for over a month bid with Nasdaq.
Crypto miners leap: Hut 8 Mining , Marathon Digital , Riot Blockchain , Core Scientific rise between 13% and 25.7%
Blockchain farm operator Bitfarms Ltd jumps 14.3%, BTC buyer MicroStrategy gains 18.6%
Crypto exchange Coinbase Global up 11.8%
Bulls eye a 25k test next, support sited back at 22k
20 Day VWAP is bullish, 5 Day bullish