Daily Market Outlook, April 20, 2022
Overnight Headlines
- Russia Pours In More Troops And Presses Attack In The East Of Ukraine
- Biden, Johnson, Trudeau Pledge Artillery For Ukraine In War With Russia
- Fed's Kashkari: If Supply Chains Worsen, The Fed Will Need To Do More
- Fed's Evans Sees Year-End Rates At 2.25%-2.5%, And Then Likely Higher
- Fed's Bostic Expresses Caution About The Pace Of Interest Rate Hikes
- Macron's Polling Lead Over Le Pen Widens Ahead Of France's Runoff
- Swiss National Bank Chairman Jordan Sees Inflation Rise As Temporary
- Chinese Banks Hold Lending Rates Despite PBoC Calls For More Easing
- Bank Of Japan Resumes Bond Buying As 10-Year Yield Rises To Limit
- Japan Posts Bigger-Than-Expected Trade Gap As Energy Imports Jump
- Dollar Scales Fresh Two-Decade Peak Versus Yen Before Retreating
- US 10-Year Real Yields Turn Positive For The First Time Since 2020
- Asian Equity Markets Mostly Higher; Chinese Property Stocks Slump
- US Equity Futures Fall; Netflix Craters 26% After Subscribers Decline
The Day Ahead
- Asian equity markets are mostly higher this morning although Chinese indices are down. Several US Federal Reserve policymakers warned that US interest rates are likely to move significantly higher this year. However, a couple of officials did note that was unlikely that the Fed would hike by 75 basis points at an upcoming meeting. Meanwhile, following the IMF’s downgrades to its forecasts for global economic growth and upgrades to inflation forecasts, an official noted that financial markets may come under pressure if monetary policy tightening is combined with a recession.
- Today’s data calendar is light with nothing of note in the UK. In the Eurozone, industrial production for February is unlikely to show significant impact from the Ukrainian crisis which only started late in the month. However, the data will be a gauge of the strength of the sector prior to the crisis, particularly the extent to which supply chain issues continued to hold back production. Already released outturns for some of the larger economies in the region have been mixed. French production fell and Germany only saw a small increase, but Spain and Italy saw much large gains. This likely adds up to an aggregate rise for the Eurozone of 0.8%.
- The performance of the US housing sector will be a good first indicator of whether higher interest rates are beginning to bite as the sector is particularly rate sensitive. Yesterday’s housing starts release posted an unexpected increase and so far there is little sign of production faltering. However, existing home sales fell by 7% in February and new home sales also declined. Therefore, another fall in existing sales in March may potentially be a significant pointer.
- US Fed policymakers now only have a few days to signal their near-term policy intentions before they go into a blackout period ahead of the 4th May policy update. However, all the indications from previous comments are that they are likely to raise interest rates by 50 basis points at that meeting. Moreover, the IMF yesterday seemed to endorse the view that the Fed needs to hike aggressively to cap inflation. Fed Chair Powell speaks tomorrow, which gives him a final opportunity to amend expectations and before him several other Fed policymakers speak today. However, it would now be a big surprise if the Fed’s message changes.
- The Fed will also publish its update of anecdotal economic evidence, the Beige Book, today. At a time when developments are moving so quickly, this may provide timely evidence not only on inflation but other factors such as the extent to which demand is being eroded by cost of living rises.
FX Options Expiring 10am New York Cut
- EUR/USD: 1.0790 (422M), 1.0800-10 (1.2BLN) 1.0875 (600M), 1.0930 (304M)
- USD/JPY: 127.00 (433M), 128.00 (270M),
- GBP/USD: 1.2900 (310M), 1.3090-00 (450M)
- EUR/GBP: 0.8250 (250M), 0.8355 (260M)
- AUD/USD: 0.7400-05 (583M), 0.7415-20 (320M)
- NZD/USD: 0.6995 (278M)
- USD/CAD: 1.2475 (555M), 1.2500 (390M), 1.2550 (200M) 1.2565-75 (600M), 1.2600 (575M), 1.2615 (249M)
Technical & Trade Views
EURUSD Bias: Bearish below 1.12 Bullish above
- Rallies after USD/JPY plunges from early highs
- EUR/USD opened a few pips higher at 1.0787 after EUR/JPY buying underpinned
- After consolidating 1.0785/1.0800 it popped higher late in the morning
- The catalyst was a 0.90% fall in the USD/JPY from the early highs.
- EUR/USD traded up to 1.0823 before settling around 1.0815
- Resistance is at 10-day MA at 1.0838 and break would suggest waning momentum
- Key resistance at 1.0920/30 where Thursday's high coincides with the 21-day MA
- Support is at last week's 1.0753 low and break targets trend low at 1.0636
GBPUSD Bias: Bearish below 1.3350 Bullish above.
- Bounced on the softer U.S. dollar, and cross flows
- +0.3% near the top of a 1.2995-1.3045 range amid moderate volumes on D3
- EUR/GBP -0.1%, traded a 0.8281-0.8303 range with occasional very heavy flow
- Sterling bounce caused by short JPY profit taking, pushing U.S. dollar lower
- GBP/JPY trades towards the base of a 167.03-168.41 range - off 0.2% in Asia
- Charts, mixed momentum studies, 5, 10 & 21 day moving averages edge lower
- 21 day Bolli bands contract - negative bias while 1.3087 21 DMA caps
- Earlier 1.2995 low and last week's 1.2973 2022 low first supports
USDJPY Bias: Bullish above 120 Bearish below
- USD/JPY showing good bounce from 128.07, importers
- USD/JPY seeing a good bounce from today's Asia 128.07 EBS low
- Good buying from Japanese importers, some specs after fall from 129.43
- 128.73 rebound high so far, equilibrium of sorts @128.50 now?
- Japanese exporters likely still have offers topside from 129.50
- Defense too of option barriers at 129.50 too, talk large but 130.00 larger?
- US yields also look to have based after fall from fresh highs earlier
- US Tsy 10s from 2.981 fresh cycle high to 2.925%, currently @2.944% TW
- Expect continued verbal intervention, maybe on IMF/World Bank sidelines
AUDUSD Bias: Bullish above .7300 Bearish below
- AUD/USD rises to escape bearish path but will it last?
- AUD/USD rallies to 0.7425, potentially altering course
- Remains to be seen if it will close above 0.7413
- That would nullify daily Bollinger downtrend channel
- Further strength might follow till 21 DMA 0.7470
- Tentative top in UST yields cools USD; 10y 2.938%
- USD/JPY pullback on intervention fears also dents DXY
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!