Daily Market Outlook, April 8, 2022

Overnight Headlines

  • China’s Covid Zero Policy Defended As Shanghai Cases Top 21,000
  • Japan's Feb Current Account Swings Back To Surplus From Big Deficit
  • BoJ Is Likely To Adjust Policy As Soon As July, According To An Ex-Official
  • Congress Submits Bill Stripping Russia's Trade Status, Banning Their Oil Imports
  • House Approves $55Bln In COVID Aid For Restaurants, Other Hard-Hit Firms
  • Fed’s Bullard: Fed ‘Behind The Curve,’ Sees Rates Now At 3.5% By Year's End
  • New York’s $220Bln Election-Year Budget Is Stuffed With Tax Breaks
  • Canada Speeds Up Deficit Reduction In ‘22 Budget, Sees Deficits Of C$53Bln
  • Dollar Inches Up To New Two-Year Peak, Set For Best Week In Four
  • Treasury's Yellen Calls For Crypto Regulation To Reduce Risks, Fraud
  • 10-Year US Treasury Yield Touches 3-Year High Following Hawkish Fed
  • Oil Headed For 3% Weekly Fall On Emergency Stocks Release
  • IEA Agree To Release 120Mln Barrels Of Oil Over Six Month Period
  • India Says It Is Exploring Ways To Support IEA Members' Oil Release
  • Asia Stocks Slide Amid Fed, China Virus Worries; US Futures Waver
  • Toshiba Climbs On Plans To Review Privatization Bids

The Day Ahead

  • Stocks headed for a weekly loss on Friday as the prospect of aggressive global rate hikes finally began to rattle investors, while bonds fell and the dollar looked set for its best week in a month. MSCI's broadest index of Asia-Pacific shares outside Japan was steady in morning trade and down about 1.5% for the week so far. Japan's Nikkei fell 0.2% on Friday to head for a weekly loss of nearly 3%.
  • A late rally had lifted Wall Street indexes modestly, but they are also all down for the week led by a 2.5% loss for the rates-sensitive Nasdaq . U.S. futures were flat. Federal Reserve policymakers are ready to start cutting the central bank's asset holdings from May and are prepared to move rates higher 50-basis-points at a time to curb inflation, meeting minutes and remarks from officials showed this week.
  • War in Ukraine and the shockwave it has sent through commodity prices, as well as lingering damage to supply chains from the pandemic has heaped even more pressure on consumer prices and is adding to a sense of a major shift in trends.
  • Risk of a populist upset in French presidential elections has also sent jitters through markets – dragging on French debt and the euro – ahead of the first round of voting on Sunday. A victory for far-right leader Marine Le Pen over incumbent Emmanuel Macron, while still unlikely, is now within the margins of error, opinion polls show and the euro edged down to a one-month low of $1.0858 in morning trade.
  • Elsewhere long-end Treasuries have borne the brunt of this week's selling in hemorrhaging bond markets as traders see it hit hardest by the Fed cutting bond holdings. The benchmark 10-year Treasury yield is up 25 basis points (bps) to 2.6409% this week, and was steady in Asia trade on Friday. The 30-year yield is up 22 bps.The U.S. dollar has been the primary beneficiary and the dollar index , which measures the greenback against a basket of six major currencies, hit an almost two-year high of 99.904 on Friday.
  • Today’s economic data calendar is very light with nothing of note in the UK or the US. In the Eurozone, yesterday’s German industrial production data for February showed a monthly rise of 0.2%. That is a more modest gain than those seen in January and December but was the fifth consecutive increase. Output data for Spain, due imminently, are also expected to post a rise. The European industrial sector may for now be benefiting from some easing in supply chain restrictions. However, there are concerns that the Ukrainian crisis and new Covid restrictions in China could lead to new bottlenecks and that demand could fall off amid rising uncertainties.
  • The heads of the central banks of Cyprus, Greece and Ireland are scheduled to appear in a joint session at a Greek economic forum. Given rising expectations that the European Central Bank will may soon start to tighten monetary policy, markets are likely to be particularly interested in what they have to say about the likely impact on their respective bond markets. There have already been tentative signs of the spreads between the bond yields of various Eurozone members widening and there will be some concern that this could go further. However, ECB Chief Economist Lane earlier this week said that the ECB had a range of tools to combat any ‘fragmentation’ and today’s speakers can be expected to make similarly reassuring comments.
  • A strong Canadian labour market today will reinforce expectations that the Bank of Canada will tighten monetary policy aggressively next week. An interest rate rise is already seen as a near certainty and the majority of forecasters appear to expect a hike of 50 basis points rather than the more usual 25bp.

G10 FX Options Expiries for 10AM New York Cut

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

- EUR/USD: EUR amounts

  • 1.0825 711m
  • 1.0850 617m
  • 1.0975 450m
  • 1.0995 3.2b
  • 1.1050 368m

- GBP/USD: GBP amounts

  • 1.3195 330m
  • 1.3220 452m

- USD/JPY: USD amounts

  • 121.50 325m
  • 123.00 425m
  • 123.25 355m
  • 124.00 936m
  • 125.00 400m

- USD/CHF: USD amounts

  • 0.9300 250m

- USD/CAD: USD amounts

  • 1.2350 599m
  • 1.2395 595m
  • 1.2475 528m
  • 1.2500 589m
  • 1.2635 350m
  • 1.2650 975m
  • 1.2665 581m

Technical & Trade Views

EURUSD Bias: Bearish below 1.12 Bullish above

  • EUR/USD opened -0.13% at 1.0881 after USD broadly strengthened
  • EUR/USD came under pressure early Asia and remained heavy throughout
  • Heading into the afternoon it is at the session low at 1.1856
  • EUR moved lower against most currencies in Asia as Ukraine uncertainty persisted
  • Market has stopped pricing in a swift, diplomatic end to the Russia-Ukraine crisis
  • EUR/USD seems destined to at least test the March 7 trend low at 1.0806
  • Sellers tipped ahead of 1.0940 with resistance at 1.0990 where 10 & 21-day MAs converge

GBPUSD Bias: Bearish below 1.3350 Bullish above.

  • Short lived early gain, 1.3000 remains vulnerable
  • -0.05% at the base of a 1.3067-1.3088 range with modest interest on D3
  • EUR/GBP trades near base of a 0.8305-0.8326 range with occasional heavy flow
  • UK hiring growth slows in March due to worker shortages
  • Skills shortages post Brexit, and older workers retiring fuel wage pressure
  • Charts; momentum studies conflict - 5, 10 & 21 day moving averages ease
  • 21 day Bollinger bands slip - setup suggests the base is the weak side
  • First major support 1.3001 2022 low, then 1.2996 lower 21 day Bolli band
  • Thursday's 1.3108 high then last week's 1.3181 top are key resistance

USDJPY Bias: Bullish above 120 Bearish below

  • USD/JPY up to 124.23 EBS early Asia before charging down to 123.66
  • Japanese exporters good sellers on 124, offshore longs, specs join in later
  • Catalyst for steep decline comments from ex-BoJ Hayakawa
  • Talk preposterous given recent BoJ pronouncements but hit a nerve
  • Some players likely wanted to pare down longs pre-weekend anyway
  • Good bounce since to 124.00 area, Japanese importers buy from lows
  • 123.50-124.50 core range for now affirmed? Should hold into weekend
  • Large, $936 mln option expiries at 124.00 exert some gravitational pull
  • US yields also lower from fresh cycle highs early, but bouncing again
  • Yield on US Treasury 10s @2.658%, 2s @2.508% currently

AUDUSD Bias: Bullish above .7300 Bearish below

  • Trades with heavy tone in narrow range in Asia
  • AUD/USD opened -0.40% at 0.7481 and traded in 0.7473/87 range
  • Heading into the afternoon it is trading just below 0.7480
  • AUD/USD vulnerable as equity and commodity markets looking toppish
  • Support at last week's 0.7456 low as close below would complete bearish outside day
  • More support at 21-day MA at 0.7439 as break would suggest top is in place
  • Resistance is at the 10-day MA at 0.7507 and break would ease pressure