We are almost through the week of central bank monetary policy decisions and the majority of the central banks are worried about the continued disruptions being caused by the delta variant and supply chain bottlenecks. President Lagarde used the term Bottleneck more times than I could count! Today’s UK GDP will get a revision but in the context of history, it was a good number.
The office of national statistics released their most recent findings for UK GDP today. They had to preface the report with this statement: “GDP estimates for July 2021 are subject to more uncertainty than usual as a result of the challenges we faced estimating GDP in the current conditions.”
With that in mind, we should expect a revision in the coming weeks.
UK GDP Estimates YoY for July came in at 7.5% and under the expectations of 8.0%.
The ActivTrades sentiment indicator shows that retail traders continue to be bearish of the pound even as the price is rising again.
Having found support from a decent area of balance on Wednesday, yesterday's impulsive move higher looks set to continue into the end of the week, with traders targeting the swing high and the 1.3890 price level.
The forex heatmap at the London open today has flipped to risk-on, with traders moving into the Antipodeans and CAD and away from the likes of the yen and Swiss franc. This should be good for end-of-week bounce inequities. Lots of US traders will be looking to buy Thursday's Regular Trading Hours lows on the S&P500 today.
As an example, the daily 20 ema has acted as a great place to add into a trade but it should be noted that price does also tend to find the 50-day ema shortly after, so marrying a trade is probably not advisable over the weekend. The overall risk markets may be taking comfort from the 90-minute telephone call between President Biden and Chinese President Xi, where the conversation was productive whereas lower-level talks had not moved things forward.
Market analysts are picking over the bones of yesterday's ECB PEPP recalibration, where the European Central Bank decided to moderately reduce the asset purchases. The word on the street that the lack of tantrums in the markets may give the Fed more confidence that they could also moderately reduce their asset purchases.
Quantitative Easing is an asset swap and it’s basically designed to push the rates lower with an increase in QE. The chart above shows that as the Feds Effective Fund Rate was rising, their Total Reserves were being allowed to decline. The Redline is the 5-year TIPS which shows how the short-term rates get crushed with increasing inflation and accelerated asset purchases.
What a lot of people don’t talk about is the inverse relationship between Asset Purchases and Labour Force Participation. The above chart shows that the Fed’s dual mandate would be easier to achieve if they were able to reduce the QE program, as it appears the Labour Force finds it harder to rise when QE purchases accelerate too.
The daily EURUSD is trying its hardest to make a basing pattern after yesterday's indecision candle. The longer the bears fail to push the single currency lower the more likely the price rises due to the path of least resistance. The 20 and 50 ema are confluent with previous market structure forming support. President Lagarde speaks again today at a press conference that is being held at a Eurogroup Meeting in Slovenia today. I would imagine there would be some clarification around the statements from yesterday but nothing new to add.