> AU June Preliminary Retail Sales : -1.8% v. -0.7% exp.
> AU June MI Leading Index : -0.1% v. -0.1% prev.
> US EIA Crude Oil Inventories : 2.1Mio v. -4.6Mio exp.
Overnight Headlines (BBG)
> EU/UK tensions ramp up as the UK attempts to renegotiate the terms around Northern Ireland in their divorce deal from the EU
> The still in development infrastructure bill from US President Biden hit a slight snag, with Senate Republicans blocking the debate on the bill, although likely to resume next week
What you need to know
There was a fair amount of doom and gloom during the Asian session yesterday, with the AUDUSD breaking lower and setting yet another fresh YTD low below the 0.7300 handle. The preliminary numbers for the AU retail sector in June were released in the morning, and although there was only a small amount of time of the lockdown included in the numbers, they showed a significant retraction and raised further concerns about the health of the sector. Weighing heavy was the announcement of the NSW case numbers, with over 40 people not in isolation during their infectious period and now only eight days away from the supposed lockdown end it becomes very unlikely that restrictions are eased next week for NSW.
The AUDUSD did recover quite well after setting a fresh YTD low of 0.7290, mounting a comeback throughout the European and US session and touching a high of 0.7363 in the process. The theme across the overnight session was reflation as UST yields rose across the curve, and the price of WTI crude recovered sharply and up over 4% on the day. Risk sentiment shifted back to positive after what has been a tough start to the week, as the S&P500 closed the day up 0.8% on some strong earnings numbers out of major US companies. Iron Ore and Gold were two of the worst performers of the session for commodity markets, with former down a whopping 5.6% as the historic flooding in China is likely to weigh on demand in the short term. In FX, the Dollar is down a marginal 0.2% in DXY terms as investors looked elsewhere on the bout of positive risk appetite. The NZD outperformed the AUD and saw the AUDNZD cross jolt lower, as the interest rate expectations between the two central banks drags on the pair. AUDJPY was able to recover following its recent slide, up 0.7% for the session.
The Day Ahead
> AU June Goods Trade Balance : 13.32Bio prev.
> AU NAB Quarterly Business Confidence : 17 prev.
> UK MPC member Broadbent to speak
> EU ECB Monetary Policy Meeting & Statement : 0.00% exp.
> US Weekly Unemployment Claims : 350K exp.
> EU July Consumer Confidence : -3 exp.
It seems fairly safe to expect business confidence to suffer in light of the current situation across Australia, as the lack of real movement in the vaccine rollout and rising virus cases across the country paints a fairly dark picture for what the next few months will look like.
The main event tonight will be the ECB, as they attempt to shift their forward guidance to reflect what the economy will need in a post-pandemic Eurozone. EURUSD is expected to trade sideways for the majority of the session as markets await the ECB, however no real changes to policy are expected but the wording will be important.
The AUDUSD looks better than it did at the end of yesterday’s session, back up towards 0.7360 although there are still plenty of downside risks on the horizon with the stubborn case numbers across NSW the key this morning with the data unlikely to be positive.
Range Today : 0.7330 – 0.7390
Support at the November 2020 high of 0.7289 seems to have held up quite nicely, with the pair bouncing off of the fresh low of 0.7290 and recovering throughout the day. The medium term trend for the pair is clearly bearish, with the last six weeks seeing a sharp drop in the pair. The sharp reprice of negative growth for the back half of 2021 seems to have happened, with the upside target now 0.7420 with a ways to go before the July high of 0.7508 is pressured.
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