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eFXdata reports that analysts at MUFG Research offer their expectations for this week's ECB policy meeting.

"Downward pressure on the EUR could intensify ahead of this week’s ECB meeting. There will be pressure on the ECB to back up their new policy framework with policy action to boost market credibility. It would be underwhelming if the ECB just updates their forward guidance to include: i) a reference to the new symmetric 2% inflation target and ii) a signal to tolerate modest and transitory inflation overshoots when the policy rate is at the zero bound."

"Potential options on the table for policy action include: i) committing to faster PEPP purchases beyond Q3 and/or extending the likely end date of PEPP beyond Q1 2022, and/or ii) providing more reassurance that when PEPP ends it will be followed by a beefed-up version of the APP to avoid a sharper drop off in total asset purchases."

FXStreet notes that the Canadian dollar went on its strongest run in more than a decade, rising to a six-year high of 83 US cents in early June. Has the loonie already reached its peak for the year? In the view of economists at RBC Economics, yes. The lift that the CAD got from rising prices from oil and other commodities may be running out of steam along with investor appetite for riskier assets.

“We see the loonie remaining within range of the 80 US cent level over the second half of this year and weakening slightly in 2022. Upside (higher oil prices, a persistently dovish Fed) and downside risks (less investor risk appetite) remain, so a relatively flat forecast doesn’t exclude some volatility along the way.”

“We expect oil prices to remain in their recent range into 2022, acting as neither a tailwind nor a headwind for the CAD. Meanwhile, some non-energy commodity prices have started to turn lower (lumber being one example), and could fall further as supply responds, and reopening-driven growth expectations top out.”

“Investor appetite for riskier assets remains robust. But concerns that this cycle’s best growth rates (for both GDP and corporate earnings) will soon be behind us could make further stock-market gains harder to come by. Waning risk appetite could put downward pressure on the CAD.”

The National Association of Homebuilders (NAHB) announced on Monday its housing market index (HMI) stood at 80 in July, down from 81 in June. This was the lowest reading since August 2020.

Economists had forecast the HMI to increase to 82.

A reading over 50 indicates more builders view conditions as good than poor.

The three HMI components were mixed this month. The indicator gauging current sales conditions declined 1 point to 86 and the component measuring traffic of prospective buyers plunged 6 points to 65, while the measure charting sales expectations in the next six months rose 2 points to 81.

NAHB Chairman Chuck Fowke noted: “Builders continue to grapple with elevated building material prices and supply shortages, particularly the price of oriented strand board, which has skyrocketed more than 500 percent above its January 2020 level. We are grateful that the White House heeded our urgent plea to hold a building materials meeting with interested stakeholders on July 16 to seek solutions to end production bottlenecks that have harmed housing affordability.”

Meanwhile, NAHB Chief Economist Robert Dietz said: “Builders are contending with shortages of building materials, buildable lots and skilled labor as well as a challenging regulatory environment. This is putting upward pressure on home prices and sidelining many prospective home buyers even as demand remains strong in a low-inventory environment.”

FXStreet notes that the Japanese yen is today's sole exception to USD strength and has rediscovered its traditional safe-haven role. Economists at TD Securities remain focused on downside risks as the pair’s technical backdrop continues to deteriorate and real yield differentials point to further downside potential.

“USD/JPY remains heavy after trading below near-term support around 109.72 tentatively established last week. While we are keeping an eye on the 110.30/40 pivot zone, we are more focused on downside risks for the pair.” 

“USDJPY's technical backdrop has deteriorated meaningfully and real yield differentials also point to further declines.”

“As we look lower, our initial attention is focused on the MTD lows and top of the Ichimoku cloud. Both of which cluster around the 109.55 mark.”

U.S. stock-index futures plunged on Monday amid growing concerns that surging Covid cases across the world, mostly as a result of the more contagious Delta variant, cloud slow global economic growth. 

Global Stocks:

(company / ticker / price / change ($/%) / volume)

Alcoa (AA) upgraded to Conviction Buy from Buy at Goldman Sachs; target $51

FXStreet reports that Ed Morse, Citibank’s Global Head of Commodities Research, said in his latest client note that oil prices remain exposed to further upside risks despite the OPEC and allies (OPEC+) deal to boost oil supplies.

“The market is very tight, supply increase of 400k bpd will turn out to be a pittance.”

“Demand is significantly higher.”

“Oil prices likely to climb much further by the time summer is over.”

FXStreet notes that AUD/USD brief consolidation has come to an end as the pair drops under 0.74. Economists at Credit Suisse maintain their core bearish view for 0.7209 – the 78.6% retracement of the rally from last November.

“With a major top in place we maintain our core bearish view with next minor support seen at 0.7379/72, then 0.7338 and then 0.7209 – the 78.6% retracement of the rally from last November.

“Whilst we would look for the 0.7209 support to hold at first, below in due course should see support next at 0.7159/45 and eventually our core objective at 0.7085/43 – the ‘measured top objective’ and 38.2% retracement of the entire 2020/2021 bull trend.”

“Near-term resistance moves to 0.7418, with the immediate risk seen lower whilst below 0.7444."

GBP weakened against most of its major rivals in the European session on Monday as optimism about the reopening was overshadowed by fears about accelerating coronavirus infections, and investors flocked to safe-haven currencies. The pound fell against USD, JPY, CHF and EUR, but rose against CAD, AUD and NZD.

Britain reported a world-high 48 thousand new coronavirus cases on Sunday, mostly as a result of the more contagious Delta variant. Surges in Covid cases were also recorded across Europe and Asia. Moreover, positive COVID-19 tests were revealed among athletes in the Olympic Village in Tokyo. The UK’s prime minister (PM) Boris Johnson agreed to self-isolate after coming into contact with the infected health secretary.

Despite the spike in infections, England dropped nearly all of the remaining Covid restrictions today, as it was planned in the UK’s government's roadmap.

Investors, however, worry that the UK, as well as other world’s major economies, could impose fresh lockdowns to contain the spread of the virus that could hurt the global recovery. 

Market participants also digested the remarks of the BoE’s Monetary Policy Committee (MPC) member Jonathan Haskel, who said that he did not think that tight policy is the right option for now. He also added that in his view “the risk of a pre-emptive monetary tightening curtailing the recovery continues to outweigh the risk of a temporary period of above-target inflation”.

FXStreet notes that GBP/USD is under pressure in its range. According to Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, cable could slump as low as 1.3457.

“GBP/USD is range trading between its 55 and 200-day moving averages at 1.4000 and 1.3697. While the former caps, we should see further losses to the 200-day ma at 1.3697 and the late May and early June lows at 1.3670/69.” 

“Failure at 1.3640 would target 1.3457, the 50% retracement of the move higher from September 2020.”

NFXStreet reports that economist at UOB Group Lee Sue Ann and senior FX strategist Peter Chia assess the latest RBNZ event.

“While the Official Cash Rate (OCR) was kept steady at 0.25% and the Funding for Lending Programme (FLP) was left unchanged following its July meeting, the Reserve Bank of New Zealand (RBNZ) agreed to reduce the current stimulatory level of monetary settings by halting additional asset purchases under the Large Scale Asset Purchase (LSAP) programme by 23 July.”

“In all, the accompanying media release was more hawkish than we expected from the RBNZ, whereby it explicitly described its latest move as a reduction of monetary stimulus, and noting that the level of stimulus could be reduced now to minimise the risk of overshooting its inflation and employment mandates.”

“The RBNZ left the commentary about the timing of OCR hikes vague. This is not unusual. Typically, when the RBNZ loosens or tightens monetary policy, it often focuses on explaining its latest decision rather than signalling what might come afterwards. But considering how drastically the RBNZ has changed its tone, the swap market is now pricing in 19bps of tightening in the next three months and 38bps of tightening in the next six months.”

FXStreet notes that a positive start to the week for USD/CAD leaves the pair staging a concerted challenge on the major cluster of resistances at 1.2632/53. Economists at Credit Suisse continue to look for a clear and sustained move above here to establish a major base to turn the broader risks higher. 

“USD/CAD is staging a concerted challenge on the major cluster of resistances at 1.2632/53, which includes the 200-day average, the 23.6% retracement of the entire 2020/2021 bear trend and a cluster of price highs. With weekly MACD momentum having already turned higher we continue to look for a clear and sustained move above here to establish a major base to turn the broader risks higher.” 

“We would see initial resistance at 1.2751/64, the highs from February, then 1.2881, with the size of the potential base suggesting a move to 1.3024 is possible, the 38.2% retracement of the 2020/2021 fall.” 

“Near-term support moves to 1.2608, then 1.2577/72, with 1.2561 ideally holding to keep the immediate risk higher.” 

• Tight policy isn't the right policy for now
• That is the case for foreseeable future
• Immense support might have helped economy avoid deep scarring

July 19

After the Close:

IBM (IBM). Consensus EPS $2.29, Consensus Revenues $18298.60 mln

July 20

Before the Open:

Travelers (TRV). Consensus EPS $2.38, Consensus Revenues $7433.75 mln

After the Close:

Netflix (NFLX). Consensus EPS $3.15, Consensus Revenues $7324.56 mln

United Airlines (UAL). Consensus EPS -$3.96, Consensus Revenues $5331.25 mln

July 21

Before the Open:

Coca-Cola (KO). Consensus EPS $0.56, Consensus Revenues $9300.20 mln

Johnson & Johnson (JNJ). Consensus EPS $2.29, Consensus Revenues $22558.25 mln

Verizon (VZ). Consensus EPS $1.29, Consensus Revenues $32708.50 mln

July 22

Before the Open:

American Airlines (AAL). Consensus EPS -$1.71, Consensus Revenues $7475.28 mln

AT&T (T). Consensus EPS $0.79, Consensus Revenues $42389.65 mln

Dow (DOW). Consensus EPS $2.31, Consensus Revenues $12690.94 mln

Freeport-McMoRan (FCX). Consensus EPS $0.75, Consensus Revenues $5892.94 mln

After the Close:

Intel (INTC). Consensus EPS $1.07, Consensus Revenues $17797.93 mln

Snap (SNAP). Consensus EPS -$0.01, Consensus Revenues $845.77 mln

Twitter (TWTR). Consensus EPS $0.07, Consensus Revenues $1062.11 mln

July 23

Before the Open:

American Express (AXP). Consensus EPS $1.61, Consensus Revenues $9571.94 mln

Honeywell (HON). Consensus EPS $1.95, Consensus Revenues $8661.52 mln

FXStreet reports that the Credit Suisse analyst team discusses GBP/USD prospects. 

“Below 1.3742/34, GBP/USD can resolve the range lower for a test of more important medium-term support seen starting at the 200-day average at 1.3697 and stretching down to 1.3669/48 – the April low and 38.2% retracement of the rally from last September.” 

“Whilst we would expect fresh buyers at the 1.3669/48 region, failure to hold would instead mark a major top and change of trend lower with support then seen next at 1.3567, then 1.3514.”

“Resistance is seen at 1.3801/05 initially, above which can see a move back to the high from Friday and 21-day exponential average at 1.3863.”

CNBC reports that global scientists have criticized the U.K. government’s plans to ease almost all Covid-19 restrictions, calling it unethical and dangerous for the entire planet.

Leading scientists and government advisors from all over the world warned that Britain was heading for disaster by removing most of its remaining restrictions on Monday.

England will see most of it last remaining restrictions, including mandatory mask-wearing and social distancing, removed on Monday, which Johnson has said will be an “irreversible” move.

Johnson has fiercely defended his new strategy and has argued that now is “the right time to proceed,” before the weather turned colder and as “the natural firebreak of the school holidays” approached.

Christina Pagel, director of the Clinical Operational Research Unit of London’s UCL, warned that there was potential for a new variant of Covid to emerge this summer.

“Any mutation that can infect vaccinated people better has a big selection advantage and can spread,” she said. “And because of our position as a global travel hub, any variant that becomes dominant in the U.K. will likely spread to the rest of the world — we saw it with alpha, and I’m absolutely sure that we contributed to the rise of delta through Europe and North America.”

Clinical epidemiologist Deepti Gurdasani saying on Twitter that “the world is watching the current avoidable crisis unfold in the U.K.”

Michael Baker, a professor of public health and a member of the New Zealand Ministry of Health’s advisory group, said he was “amazed” by the British government’s plans to lift almost all restrictions on Monday.

Baker suggested the U.K. government seemed to be reverting to a “herd immunity approach,” which he dubbed “completely unacceptable,” arguing that the strategy had “failed dismally around the globe.”

According to the report from Eurostat, in May 2021 compared with April 2021, seasonally adjusted production in the construction sector increased by 0.9% in the euro area and by 0.7% in the EU. In April 2021, production in construction fell by 0.4% in the euro area and by 0.1% in the EU.

In May 2021 compared with May 2020, production in construction increased by 13.6% in the euro area and by 11.6% in the EU.

In the euro area in May 2021, compared with April 2021, building construction increased by 1.2% while civil engineering decreased by 0.3%. In the EU, building construction increased by 0.9% while civil engineering decreased by 0.1%.

In the euro area in May 2021, compared with May 2020, building construction increased by 15.0% and civil engineering by 7.2%. In the EU building construction increased by 12.8% and civil engineering by 6.0%.

Among Member States for which data are available, the highest annual increases in production in construction were observed in France (+23.9%), Austria (+21.0%) and Hungary (+18.7%). Decreases were recorded in Sweden (-5.2%) and Slovenia (-2.6%).

CNBC reports that former Prudent Bear Fund manager David Tice warns it’s a “very dangerous period” for investors right now - from the S&P 500 to Big Tech to bitcoin.

“The market is very overpriced in terms of future earnings. We are adding debt like we’ve never seen,” Tice said. “We have the Treasury market acting very strange with rates falling dramatically.”

He acknowledges it’s tough to time the next major pullback, and he’s often early. However, Tice is convinced a market meltdown is unavoidable.

“We’re not out of the woods yet, and this is a dangerous market,” Tice reiterated.

He’s encouraging investors to weigh the risks: Try to earn 3% to 5% near-term gains while contending with the threat of a 40% pullback? Tice thinks it’s a bet not worth taking.

Tice is particularly worried about Big Tech and the FAANG stocks, which include Facebook, Apple, Amazon, Netflix and Alphabet, formerly known as Google.

“A lot of money has been thrown at Alphabet and Microsoft, Apple and Facebook, Twitter, etc.,” noted Tice. “Costs are going up in that sector.”

FXStreet reports that strategists at ANZ Bank pulled back their short term target for Brent to $78/bbl.

“The new agreement allows for the 400kb/d increase to start in August 2021 until phasing out the 5.8mb/d production adjustment. The alliance will continue to hold monthly meetings at which it can adjust production according to market fundamentals.”

“OPEC’s ability to reach an agreement should dispel concerns that the alliance is at risk of breaking up. Its monthly reviews of the agreement should allow it to make adjustments should fundamentals shift. This will provide some stability to the market over the coming months. Nevertheless, the likelihood of prices surging higher over the next month or two has diminished. As such, we are pulling back our short term (0-3 month) target for Brent crude to $78/bbl.”

Reuters reports that the Bank of Japan said that rising global commodity prices are likely to push up Japan's consumer inflation, though only for a temporary period, and to a smaller extent than in Western economies.

As the inflation is driven by robust overseas demand, Japan's corporate profits will see the hit from higher import costs more than offset by the benefits of solid exports, the central bank said.

"The underlying increase in commodity prices will worsen Japan's terms of trade for the time being," the BOJ said in a report. "But that will be outweighed by positives, such as rising exports and capital expenditure."

Even when demand is strong, Japanese firms tend to be slower to pass on costs than Western counterparts, which will keep any rise in consumer inflation moderate, the BOJ said.

"Looking at past experiences, any rise in consumer inflation driven solely by raw material costs will not broaden, and end up being transitory," it said.

FXStreet reports that economists at JP Morgan believe the headwinds to inflation have eased and the tailwinds have strengthened, potentially pushing inflation to a new range of 2-3% over the long-term.

“The widespread rollout of vaccinations has unleashed powerful pent-up demand in the US economy, sending prices higher across a variety of sectors. Although inflation is now tracking well above the Fed’s 2% target, we agree with the Fed that much of this surge is likely transitory.”

“As we look to 2022 and beyond, we believe a shift from secular headwinds to secular tailwinds could result in modestly higher inflation in the long term. Consequently, we may be entering a ‘new-old’ normal where inflation runs persistently between 2-3%.”

“Higher trend inflation and a normalization of monetary policy should result in higher interest rates, which may leave us with a different set of winners and losers than in the prior expansion. As valuations become more important, the rotation from mega-cap stocks to the rest of the market should continue, along with the rotation from growth to value and from domestic to international stocks.”

During today's Asian trading, the US dollar rose against the euro, the pound and the australian dollar, and was almost almost unchanged against the yen.

At the same time, the dollar index is near the three-month high reached last week amid continuing concerns about the spread of the coronavirus.

Positive statistics from the United States, including an unexpected increase in retail sales in June, contribute to the growth of optimism. The chairman of the US Federal Reserve System Jerome Powell made it clear last week that the Federal Reserve does not intend to rush to curtail incentives and still considers the increase in inflationary pressure in the country temporary.

The acceleration of inflation, according to him, is concentrated in a limited range of sectors, including cars, as well as air transportation. The dynamics of prices in the United States is "unique", and the leadership of the Federal Reserve is closely monitoring it to understand whether its opinion about a temporary acceleration of inflation is correct or inflationary pressure will persist for an extended period, Powell said.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose by 0.12%.

FXStreet reports that according to economists at ANZ Bank, negative real yields and rising inflation should offset headwinds from the macro backdrop for gold .

“The macro backdrop for gold is being challenged by fear of fiscal tightening. But negative real yields and rising inflation should offset those headwinds. Negative real yields appear to be driving gold prices in the face of a stronger USD. We expect US dollar to weaken as other central banks hike rates. Inflows in gold-and silver-backed ETFs are steady as talk of fiscal tightening increases. Lean speculative positioning in both gold and silver leaves room for a price rise.”

Reuters reports that Japan kept the overall assessment of its economy unchanged for a second straight month in July.

In a monthly report the government said full attention should be given to the way infection trends are affecting the domestic economy as well as those abroad.

"The economy shows increased weakness in some parts, though it continued picking up amid severe conditions due to the coronavirus," the government said.

Authorities kept their view of key economic components such as private consumption - which accounts for more than half of gross domestic product (GDP) - as well as exports and output unchanged.

They said Japan's exports were gradually increasing due to a recovery of overseas economies.

The government raised its assessment of business conditions for the first time in four months, largely because the Bank of Japan's tankan business sentiment survey for April-June showed signs of recovery in business conditions.

Authorities now describe business conditions as showing signs of picking up, although they say conditions remain severe in some areas. That was a notch better than the prior month's assessment, when they said a pickup in business conditions was stalling.

eFXdata reports that Credit Agricole CIB Research discusses its expectations for ECB policy meeting.

"The focus now turns to the 22 July policy meeting as investors try to learn more about the impact of the changes of the ECB’s inflation target on its policy outlook and tools from here. The updated policy framework should make the Governing Council more committed to its dovish policy stance. In particular, this would imply using PEPP and APP, as well as keeping rates low for longer than before. A confirmation of this view by President Christine Lagarde would reaffirm the market’s perception that the ECB has turned more dovish and thus boost the appeal of the EUR as a funding currency," CACIB adds.

FXStreet reports that analysts at Goldman Sachs discuss Brent oil prospects.

"The agreement had two distinct points of focus: a moderate increase in production which will keep the market in deficit in the coming months, as well as guidance for higher capacity which will be needed in coming years given growing under-investment.”

"OPEC should focus on maintaining a tight physical market all the while guiding for higher future capacity and disincentivizing competing investments.”

"The OPEC+ deal represents $2 per barrel "upside" to its $80 per barrel summer Brent price forecast and a $5 upside to its $75 per barrel forecast for next year.”

EUR/USD

Resistance levels (open interest**, contracts)

$1.1928 (1354)

$1.1896 (1726)

$1.1870 (134)

Price at time of writing this review: $1.1805

Support levels (open interest**, contracts):

$1.1752 (2002)

$1.1720 (5542)

$1.1683 (10638)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date August, 6 is 60567 contracts (according to data from July, 16) with the maximum number of contracts with strike price $1,1700 (10638);

GBP/USD

$1.3937 (1033)

$1.3903 (709)

$1.3874 (363)

Price at time of writing this review: $1.3754

Support levels (open interest**, contracts):

$1.3733 (815)

$1.3696 (690)

$1.3671 (910)

Comments:

- Overall open interest on the CALL options with the expiration date August, 6 is 11214 contracts, with the maximum number of contracts with strike price $1,4000 (1382);

- Overall open interest on the PUT options with the expiration date August, 6 is 16042 contracts, with the maximum number of contracts with strike price $1,3950 (1618);

- The ratio of PUT/CALL was 1.43 versus 1.49 from the previous trading day according to data from July, 16

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.