Daily Market Outlook, April 6, 2022

Overnight Headlines

European stock index futures are pointing to a slightly negative open this morning following losses in Asia and a slump in tech stocks on Wall Street as hawkish remarks from U.S. Federal Reserve Governor Lael Brainard spooked investors. Brainard, one of the Fed's usually more dovish policymakers, said she expects a combination of interest rate increases and a rapid balance sheet runoff to bring monetary policy to a "more neutral position" later this year. Her comments, which come ahead of minutes from last month's Fed meeting at 1800 GMT, gave fresh impulse to a selloff across U.S. bond markets, driving Treasury yields to multi-year highs.

The threat of new sanctions on Russia raised concerns over supply in the oil market, helping crude prices edge up and counter fears of weaker demand following a build in U.S. crude stockpiles and Shanghai's extended lockdown.

Balance Sheet To Be Focus Of Fed Minutes Amid Recession Warnings. Shedding light on US central bankers’ hawkish stance, minutes from the Federal Reserve March meeting are expected to reveal a committee leaning towards more aggressive monetary tightening. Likely to mirror post-meeting rhetoric, the Fed minutes are set to reinforce an urgency to frontload policy and included more details on the balance sheet run-off, according to analysts.In March, the Fed raised its benchmark interest rate by just a quarter point as war raged in Ukraine and domestic inflation hit a four-decade high. Since then, price pressures have only increased, and labour market data has shown solid employment growth and an acceleration in wage growth.

Traders in Treasury bills will be closely watching minutes from the Federal Reserve last meeting for clues on the plan to unwind its $9 trillion balance sheet that could signal an easing in the supply imbalance. Fed Chair Jerome Powell said last month details on the mechanics for the so-called quantitative tightening, or QT, will likely be revealed in the minutes. That has set the stage for the market to look at how the Fed will treat its portfolio of Treasury bills at a time when a scarcity of short-end paper commands a premium. Meanwhile, expectations are largely baked in that the monetary authority will announce the beginning of the unwind as early as next month, with coupon holdings likely subjected to a reinvestment cap used in the last round of QT that started in 2017

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

EURUSD Bias: Bearish below 1.12 Bullish above

Below 1.0900 as tone remains heavy
EUR/USD opened -0.58% after hawkish Brainard comments sent US yields soaring
From the opening price at 1.0908 it traded in a 1.0891/1.0908 range
Heading into the afternoon it is trading just below 1.0900
The US 2-year yield moved higher in Asia and helped cap EUR/USD gains
Bids between 1.0890/1.0900 helping to underpin price action for now
The objective of the move lower is the March trend low at 1.0806
Resistance is at 1.1009 where the 10 & 21-day MAs converge
A break above 1.1010 would ease pressure and suggest bottom forming
EUR/USD likely to remain pressured while threat of more Russian sanctions remain
Diverging central bank expectations also likely to maintain bearish sentiment

GBPUSD Bias: Bearish below 1.3350 Bullish above.

USDJPY Bias: Bullish above 120 Bearish below

AUDUSD Bias: Bullish above .7300 Bearish below