Markets Report - 08 August 2022

A daily breakdown of the markets for the 8th August 2022, provided to you by Sterlex.

🇪🇺💶On the economic data front, the Eurozone Sentix Investor Confidence index improved slightly from -26.4 in July to -25.2 in August. This might continue to act as a headwind for the shared currency and keep a lid on any meaningful upside for the EUR/GBP cross, warranting caution for bulls. This, however, did little to impress bulls or provide any impetus to the EUR/GBP cross. “Costly natural gas prices and ongoing supply threats leave the eurozone facing elevated recession risks.” “A data-dependent ECB may look to tighten again at its next meeting. However, recession concerns and fragmentation risks, due to rising credit concerns, point towards early December 2002 EUR/USD lows at 0.9863 remaining in view.” Investors remain worried that a halt of gas flows from Russia could trigger an energy crisis in the Eurozone, which could drag the region's economy faster and deeper into recession. Furthermore, the current situation was up slightly at -16.3 in August from the -16.5 previous and the Expectations Index came in at -33.8.

🇬🇧💷The Bank of England offered a bleak outlook last week, which continues to act as a headwind for the British pound and turns out to be a key factor that capped the GBP/USD pair. The pair is currently trading just a few pips above the daily low, around the 1.2075-1.2070 region. Investors will take cues from the prelim UK Q2 GDP report on Friday to determine the next leg of a directional move for the GBP/USD pair. The GBP/USD pair struggles to preserve its modest intraday gains and retreats nearly 50 pips from the intraday peak touched during the early European session. In fact, the UK central bank warned that a prolonged UK recession would start in the fourth quarter and indicated that the monetary policy is not on a pre-set path. This, in turn, suggests that the BoE is more likely to slow down the pace of its tightening cycle.

🇺🇸 🏦Nothing scheduled data wise in the US docket other than a short-term bill auction. The index exchanges gains with losses in the mid-106.00s and keeps the daily lack of direction well in place in the European midday, as market participants appear to have already digested Friday’s solid print from Nonfarm Payrolls (+528K jobs). It is worth recalling that the release of inflation figures measured by the CPI (Wednesday) will be the salient event this week. The inconclusive price action in the greenback so far comes amidst the mild drop in US yields across the curve after the post-NFP upside recorded at the end of last week. However, Friday’s stellar figures from July’s Payrolls reignited the prospects for another large rate hike (75 bps?) at the September event, opening the door to extra gains in the very near term. The outlook for the dollar has improved somewhat after the index bottomed out near the 105.00 yardstick (August 2) in response to recession-induced weakness, all following the release of the flash Q2 US GDP figures.