CNH: USD/CNH Holding Above 7.1500, Equity Outperformance Moderates

Today NZ filled jobs for June print which will round out the quarter and give an indication for the direction of Q2 employment which prints on August 6. Filled jobs rose only 0.1% m/m in May and fell 0.3% in April and so the labour market likely remained soft in Q2.

• In other data ANZ business confidence for July is released on Wednesday. It continues to point to a gradual recovery in the economy. Cost and price components remain elevated and inflation expectations at 2.7% off their low.
• ANZ July consumer confidence is out on Friday. It rose sharply in June to 98.8, the highest this year but still off December’s 100.2. Rate cuts, which take time to feed through to mortgage payments, have helped with households’ financial situation and improved the time to buy component.
• June building permits also print on Friday. They rose 10.4% m/m in May and indicators suggest that the construction sector is recovering. 

The AUD/USD had a range overnight of 0.6551- 0.6583, Asia is trading around 0.6575. The pair traded with a heavy tone all through Friday but has bounced this morning as the market gets news of a US-EU trade deal. The pair failed to gain any momentum above 0.6600 last week and now awaits a very busy calendar this week which could have meaningful implications for risk. Locally the Australian Q2 CPI on Wednesday will be closely watched and could provide a catalyst for some movement. Worth keeping in mind we are approaching the corporate month-end so there could be a demand for some USD’s today but more likely that flow will be done tomorrow.

• (Bloomberg) -- Iron ore shipments from Australia’s largest bulk-export terminal swelled to a record in June, in a sign of ample seaborne supplies just as concerns mount about the outlook for Chinese demand.
• “China and the US will pause tariffs for another 90 days, the SCMP reported.” - BBG
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6600(AUD608m), 0.6550(AUD555m). Upcoming Close Strikes : 0.6600(AUD968m July29), 0.6600(AUD1.38b July 31), 0.6465(AUD1.01b July31) - BBG
• CFTC Data shows Asset managers added a decent clip to their shorts -53959(Last -38267), the Leveraged community reduced their own shorts to -12010(Last -20048).
• Data/Event:

Fig 1: AUD/USD spot 120min Chart

Source: MNI - Market News/Bloomberg Finance L.P

The global bank updates its major USD viewpoints below, noted 10-15% tariff levels for the EU are unlikely to shift EUR/USD meaningfully. It stays short USD versus a number of the major currencies, see below for more details. 

J.P. Morgan: "Focus on payrolls (this will override FOMC), BoJ and trade deals next week. Real US rates fell further against USD on higher inflation expectations. Systematic models that had turned USD-bullish have neutralized/turned outright bearish. 10-15% EU tariffs wouldn’t be meaningful for EUR/USD; 20% tariffs ~2% on EUR/USD but expect dips to be shallow. ECB has been re-priced hawkishly; even a dovish outcome wouldn’t have derailed the bullish euro view. BoJ to be hawkish post-trade deal, which should be yen-supportive.

Macro Trade Recommendations: August USD seasonality has macro offsets. Stay short USD vs EUR, JPY, AUD, NZD, CAD. Keep fiscal space and carry-to-value rotation trades (short GBP, USD vs EUR, Scandis, CHF, AUD). Stay short CAD/NOK. Stay short GBP/CHF but unwind EUR/CHF.

Emerging Markets FX:We stay MW FX. Our EM FX risk appetite returns to neutral territory but risks linger from next week’s events. We retain our bullish structural bias supported by US moderation. We prefer EM Asia ‘creditor’ currencies, CEE euro-proxies and select commodity and frontier FX longs.

FX Derivatives: Event pricing looks subdued for August. Buy cheap delta-hedged risk reversal in USD/CAD (buy call, sell put). Buy cheap protection via AED NZD/USD put. Harvest the EUR/ZAR riskie that screens rich on several metrics..

Technicals:EUR/USD ranges below key medium-term resistance but holds key short-term bull trend support for now. Cable builds potential bearish reversal pattern. USD/JPY rally faded in the upper end of the recent range. AUD/USD continues to churn higher toward 0.6683-0.6722 resistance."