Overnight Headlines

*USD mostly weaker following moderate US July CPI data

*US stocks mixed with record closes in the Dow and S&P500, Nasdaq lower

*Commodities bounced with oil pushing above $71

*UK GDP meets estimates with 4.8% q/q growth in Q2

USD touched the July highs before falling back after the CPI release slightly disappointed expectations. DXY ended its three-day winning streak and retreated from the July peak. This dashed bull’s hopes of beating the pivot top at 93.43. EUR bounced off March support putting an end to eight days of gains. GBP gained 0.18% to 1.3868. JPY dropped for the first day in six while AUD and NZD gained for a second consecutive day.

US equities were mostly boosted by the moderate US CPI report and trillion-dollar infrastructure package passed on Tuesday. Value companies were favoured again with financials, industrials and materials outperforming. Asian markets are generally muted except for the value-laden Nikkei in Tokyo. US and European futures are mixed and signalling a soft open.

Market Thoughts – Whippy Oil

Oil was volatile yesterday trading down to $69 before managing to settle above $71. The US administration urged OPEC and its allies to boost oil output to tackle rising gasoline prices. The Biden Presidency wants to see Americans “have access to affordable and reliable energy…at the pump”. The current increase by OPEC+ of 400m barrels per day is seemingly not enough.

Given the uncertainty around the spread of the Delta variant, it seems unlikely that the Saudis and OPEC will want to increase production just yet. The contradictory nature of Biden policies is also being questioned as it urges greener energy while asking foreign producers to open the taps to lower pump prices.

Chart of the Day – EUR/GBP new lows coming

We wrote a few weeks ago about how EUR/GBP failed at 0.8650 and a crack at the 0.8471 low was on the cards. The more hawkish commentary coming out of the BoE last week contrasts with the continued dovish guidance from the ECB. Today’s healthy 4.8% q/q bounce in Q2 GDP reflects the lifting of many restrictions, although the UK still lags other G7 countries.

Having hit EUR/GBP 18-month lows at 0.8450 earlier this week, the pair is now trading sideways just below the previous pivot bottom. Long-term trendline support looks to have been broken decisively. This consolidation is bearish and we should see more downside if we close below 0.8471 on a weekly basis. Targets include the cycle lows in 2019 and 2020 at 0.8275 and 0.8281.