Daily Market Outlook, March 23, 2022

Overnight Headlines

  • Zelenskiy: Talks With Russia Are Difficult, Sometimes Confrontational
  • Japan PM Kishida Likely To Order New Stimulus By End-March
  • Fed Policymakers Lean Into Bigger Rate Hikes To Fight Inflation
  • Mester Calls For Frontloading Rate Hikes, Sees Rise To 2.5% In 22
  • US Agrees To Ease Tariffs On UK Steel And Aluminium Products
  • US Pres Biden To Sanction Hundreds Of Russian Lawmakers - WSJ
  • EU To Unveil Landmark Legislation To Tackle Market Power Of Big Tech
  • Global Bond Losses Deepen To 11% From 2021 High, Most On Recor
  • Improved Risk Sentiment And High Commodity Prices Help Aussie, Hurt Yen
  • Oil Prices Rise As U.S. Stockpiles Decline Amid Tight Market, Gold Steady
  • Japan’s Nikkei 225 Rises Nearly 3% As SoftBank Group Shares Surge 7%

The Day Ahead

  • Asian equity markets are stronger this morning, led by Japan’s Nikkei index which closed 3% higher. US Treasury yields, especially at the short end of the curve, continued to rise on speculation that the Fed may frontload rate hikes. Fed Chair Powell has indicated that the US economy is strong and has not ruled out a 50bp rise at the next meeting in May. Front-month Brent crude oil moved above $116 a barrel, partly a result of reports that the West may announce new sanctions on Russia. US President Biden is due to attend a NATO emergency summit tomorrow.
  • UK inflation figures released earlier this morning showed an increase in the February annual headline CPI rate from 5.5% to 6.2%, the highest for thirty years. The outturn was stronger than both the market consensus. Core CPI inflation, excluding food and energy, increased to 5.2% from 4.4%. It is on track to accelerate further to around 8% by April, maintaining the pressure for the Bank of England to raise interest rates further.
  • Ahead today, Chancellor Rishi Sunak will unveil the Spring Statement (12:30GMT) which will take place amid sharply rising inflation and calls for additional support to deal with higher energy costs. He has room for manoeuvre because tax receipts have been better than expected since the Autumn Budget. Government borrowing looks on course to halve to around £160bn in the current financial year, compared with £183bn predicted last October. However, Russia’s invasion of Ukraine has increased economic uncertainties and the OBR’s economic growth forecasts are expected to be revised down. Media reports suggest next month’s National Insurance increase will probably go ahead (to fund the NHS), but the threshold may be raised to support the lower paid and there may be a reduction in fuel duty. There is also pressure to increase spending on defence and benefits. Surveys suggest over 40% of larger companies want help with energy bills, about a third would like lower VAT and greater employment/skills funding, and a quarter favoured increases in regional investment and investment in new energy technology. A surprise announcement cannot be ruled out.
  • Fed Chair Powell and BoE Governor Bailey are among participants on the second day of the BIS Innovation Summit. As the name suggests, the topic of conversation is likely to be focused on technology and innovation in banking rather than monetary policy. The Fed’s Bullard is scheduled to speak on the economic outlook. He has already indicated a preference for a quicker pace of policy tightening.

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: 1.1040-50 (444M), 1.1065-75 (970M)
  • 1.1100 (381M), 1.1200 (270M)
  • USD/JPY: 119.75-80 (295M). EUR/JPY: 132.15 (310M)
  • USD/CHF: 0.9370 (200M), 0.9450 (260M)
  • USD/CAD: 1.2630-40 (1.0BLN), 1.2650-60 (665M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.12 Bullish above

  • Consolidates as action confined to carry trades
  • EUR/USD opened +0.15% at 1.1030 after EUR/JPY demand underpinned
  • It consolidated 1.1021/43 range in Asia and was 1.1030 into the afternoon
  • Resistance is at the 21-day MA at 1.1052 and break would ease pressure
  • Support is at the 10-day MA at 1.1004 and yesterday's 1.0961 low
  • EUR on the sidelines with all the action in other JPY crosses
  • Bias is for lower based on central bank expectations and Ukriane concerns

GBPUSD Bias: Bearish below 1.3350 Bullish above.

  • Bid with risk into CPI and the budget update
  • +0.15% - U.S. dollar softer, stocks bid and JPY crosses up, GBP/JPY +0.35%
  • Traded in a 1.3260-1.3299 range with solid, heavy at times interest
  • U.S.-U.K. trade deal cuts tariffs on UK steel, U.S. goods
  • Britain to continue trade dialogue in April – positive news
  • Charts; momentum studies rise - 5, 10 & 21 daily moving averages conflict
  • 21 day Bolli bands contract- no bias- close above 1.3228 21 DMA was positive
  • Initial resistance at 1.3322, 50% of Feb-Mar fall, then 1.3397 61.8%
  • Charts support resilient sterling into UK budget update

USDJPY Bias: Bullish above 116 Bearish below

  • JPY hit, USD/JPY to fresh high, some JPY crosses too
  • Hits on JPY continue with USD/JPY and some crosses to fresh recent highs
  • USD/JPY to 121.41 EBS early before falling back to 120.80, volatile
  • Holding in range established earlier, bids and offers both sides
  • Japanese importers still buying dips, exporter offers trail up
  • Possible option barriers at 121.50, every 50-ticks up, defensive sales
  • Pair still tracking ascending hourly Ichi tenkan/kijun up, at 121.06/120.63
  • Firm US yields supportive, Treasury 10s to 2.417% in Asia, now @2.404%
  • Tokyo risk on, Nikkei +2.7% @27,947, most of AXJ too, E-Minis +0.1% @4511
  • EUR/JPY defies EZ/ECB negatives, to 133.82 before pull back to 133.25 EBS
  • GBP/JPY legs up, 160.10 to 161.09, AUD/JPY too, 90.04-64, best since Dec '15

AUDUSD Bias: Bullish above .7100 Bearish below

  • Recovers from early dip as risk buoyant in Asia
  • AUD/USD opened +0.95% at 0.7470 after AUD/JPY demand underpinned
  • AUD/USD dipped to 0.7450 in early Asia on profit taking by longs
  • AUD/JPY demand persisted and cross traded to a 6-year high at 90.60
  • The buying helped AUD/USD 0.7470 into the afternoon
  • AUD benefiting from investors seeking carry trade returns
  • AUD/USD trending higher with the 5, 10 and 21-day MAs in a bullish alignment
  • Only a break below 10-day MA at 0.7345 would warn of sagging momentum
  • Overbought technical conditions may limit gains in immediate term
  • Resistance is at the 50% of the 0.8007/0.6957 move at 0.7487