July 20, 2022 18:23 GMT
- Renewed Euro positivity, largely stemming from the likely return of Nordstream 1 gas flows and a potentially more hawkish ECB, was dealt a blow on Wednesday. Fresh headwinds have emerged relating to developments in Italy and the probable collapse of the current government.
- Despite EURUSD sitting marginally in the red for much of the US session, late weakness saw gradual but consistent selling through the intra-day lows of 1.0174. While there has not been significant follow through, the pair continues to trade with an offered tone around the 1.0160 mark.
- Overnight vols are very high for EURUSD, the highest since the depths of the covid crash, pointing to a potentially turbulent session on Thursday. Initial tech support resides at 1.0120, Tuesday’s intra-day low.
- The late single currency weakness has naturally lent support to the USD index (+0.5%), which has reversed the majority of yesterday’s downtick. With key central bank event risk upcoming, other G10 major currencies held much narrower ranges on Wednesday with USDJPY registering a notable 47 point range, well below the most recent average.
- The Bank of Japan takes focus for the upcoming APAC session. The BoJ will leave policy settings unchanged at its July meeting, however, markets should expect a markup in the Bank’s immediate CPI forecast and a moderation in its immediate GDP growth forecast.
- The ECB decision will be the focus for global markets on Thursday: markets pulled back 50bp hike pricing slightly as Italian political noise developed, but show about a 60/40% split between 25bp/50bp.
- Jobless Claims and Philly Fed Manufacturing data highlight the US docket.