Daily Market Outlook, April 13, 2022

Overnight Headlines

  • Fed Officials Split On Post-Pandemic Inflation Landscape
  • Fed’s Bullard: Need More Aggression To Tame Inflation
  • Fed’s Barkin: Best Path To Hike Rates To Neutral Rapidly
  • Biden Indicts Putin Of Committing ‘Genocide’ In Ukraine
  • US Sets Up Massive New Surge Of Ukrainian Military Aid
  • US Renews Embassy Push In Solomons After China Pact
  • Shanghai Cases Top 26,000 As Covid Zero Resolve Holds
  • Markets Bet On A Hawkish Hike From BoC Policymakers
  • Japan's Finance Minister: Rapid Yen Moves Undesirable
  • RBNZ Hikes Rates By Hefty 50Bps Over Inflation Worries
  • PM Johnson Seen To Survive As Tory MPs Shrug Off Fine
  • French Economy Slows, Ukraine War Fallout Hits Industry

The Day Ahead

  • Equity markets are mostly higher after a late rally in the Asia-Pacific. Risk sentiment is supported by lower US Treasury yields after yesterday’s US inflation data. While headline US CPI rose to a forty-year high, underlying core inflation (excluding food and energy) was softer than expected. China has also reportedly eased Covid restrictions in Shanghai and other cities. Overnight saw the Reserve Bank of New Zealand raise interest rates by 50bp to 1.50% in response to rising inflationary risks, more than the 25bp that markets were expecting.
  • Data released this morning showed UK annual headline CPI inflation jumping up to 7.0% in March, stronger than the consensus forecast for 6.7%. Headline inflation has surprised on the upside for a sixth consecutive month. Core inflation, excluding food and energy, also exceeded expectations, rising to 5.7%. Headline inflation is on track to exceed 8% in April as the sharp rise in regulated Ofgem prices takes effect. Depending on how wholesale prices evolve in the coming months, there could be another big increase in October.
  • Later today, the Bank of Canada is expected to hike interest rates by 50bp to 1% on top of the 25bp increase last month, reflecting higher inflation and positive economic fundamentals including higher energy prices. It would be the first G7 central bank to increase rates by half a point. The BoC is also expected to announce the start of the reduction of its balance sheet.
  • Recent comments from Fed officials suggest the US central bank is set to raise interest rates by 50bps on 4 May. Governor Brainard yesterday said that rates would rise ‘expeditiously’ and also indicated that the start of the reduction of the balance sheet could also be announced then with the process beginning in June.
  • Elsewhere, the ECB will provide a policy update tomorrow and China’s central bank (PBoC) on Friday. The upward march in Eurozone inflation is leading to pressure for the ECB to start raising interest rates in the second half of the year after it ends QE. In contrast, China’s economy is being buffeted by rising Covid cases and lockdown measures, so the PBoC is expected to ease policy.

FX Options Expiring 10am New York Cut

  • EUR/USD: 1.0800 (214M), 1.0865-70 (1.03BLN) 1.0900 (1.34BLN), 1.0960 (288M), 1.0980 (331M) 1.0995-05 (3.0BLN), 1.1005-15 (1.1BLN)
  • USD/JPY: 123.90-00 (655M), 125.25 (550M)
  • GBP/USD: 1.2975 (205M), 1.3085 (394M)
  • EUR/GBP: 0.8340 (409M). EUR/JPY: 136.00 (682M)
  • AUD/USD: 0.7300 (675M), 0.7380-85 (423M), 0.7400 (500M)
  • 0.7425-30 (315M), 0.7450 (588M).
  • NZD/USD: 0.6800 (300M) 0.6850 (403M).
  • USD/CAD: 1.2500 (486M), 1.2550 (410M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.12 Bullish above

  • EUR/USD traders should anticipate a fall below 1.0800
  • EUR/USD traders are still betting on a riseIMM/FX
  • Oversold situation has been alleviated, scope for a fall
  • Base 20-day Bollinger bands is 1.0798, base 20-week is 1.0804
  • Stops below 1.0800 option barriers are likely to attract
  • Techs are bearish, interest rates to rapidly widen, traders losing
  • This is the recipe for a sustained and deep EUR/USD decline

GBPUSD Bias: Bearish below 1.3350 Bullish above.

  • GBP/USD hits intraday high before reversing lower on hotter than forecast UK CPI
  • Cable rises to 1.3026 on 7% UK March CPI print vs 6.7% forecast
  • 1.3026 = intra-day high. 1.2987-1.3013 was Asian session range (pre-UK CPI)
  • Asian session base was 4.5 pips shy of last Friday's 17-month low (April 8)
  • 1.3054 was Tuesday's high on sub-f/c U.S. core CPI (1.3057 was Monday's top)
  • Hot UK CPI underpins expectation of 25 bps BoE hikes in May, June and Q3
  • Humbled UK PM apologises after fine for lockdown birthday bash

USDJPY Bias: Bullish above 120 Bearish below

  • USD/JPY spike higher, BoJ Kuroda talk so far limited to economy
  • BoJ Gov Kuroda speaking to the Japan's trust bank association
  • Notes economy showing some weakness now but picking up as a trend
  • Sees pandemic effects, supply constraints easing, Ukraine uncertainty
  • Inflation to pick from current 0.5% area
  • He may touch on FX later but likely to stick to recent mantra
  • Like FinMin Suzuki earlier today, to reiterates stable FX important
  • Volatility, rapid moves undesirable but weak JPY positive for economy
  • USD/JPY reacted almost immediately to lack of forceful FX-speak
  • Though recent highs, 125.86 June '15 high, presumed 126.00 option KOs
  • High so far 126.22 on the back of stops, best since 129.15 in May 2002

AUDUSD Bias: Bullish above .7300 Bearish below

  • Bid in a busy session dominated by heavy AUD/NZD flow
  • +0.15%, towards the top of a 0.7443-0.7475 range with heavy flow post RBNZ
  • AUD/NZD also saw solid interest - trades at the top of a 1.0830-98 range
  • Sell the rumour buy the fact in AUD/NZD after 50pt RBNZ hike
  • Charts; momentum studies conflict 21 day Bollinger bands contract
  • 5, 10 & 21 day moving averages coil - signals suggest consolidation
  • 0.7347 and 0.7593 21 day Bollinger bands likely define the broad range
  • Earlier 0.7443 low and 0.7481 NY high initial support and resistance