Daily Market Outlook, December 16, 2021
Overnight Headlines
- Fed Doubles Taper, Signals Three 22 Hikes In Inflation Pivot
- Democrats At Odd Over Biden $1.75Tln Social Spending Bill
- Democrats Block Uyghur Forced-Labour Bill Over Tax Credit
- China Said Likely Make 5% Growth Its Bottom Line For 2022
- RBA’s Lowe Signals Could End Quantitative Easing February
- Australia Jobs Soar As Lockdown Easings Set Wave Of Hiring
- ECB Set To Stay Course, Dial Back Stimulus One More Notch
- BoE To Hold Rates Despite Inflation Worries, Say Economists
- UK Facing Inevitable Surges In Hospital Cases From Omicron
- Germany Ration Covid Shot Doses Amid BioNTech Shortage
- Turkey Erdogan Reshuffles Officials Ahead Of Rate Decision
- CDC Advisers Weigh J&J Vaccine Limit Over Rare Blood Clot
The Day Ahead
- US equities halted two straight days of selloffs, as the expected hawkish shift by the Fed encompassing the doubling in asset tapering to $30bn a month ($15bn currently) and guidance for three interest rate hikes each in 2022 and 2023 (prior one and three hikes) spurred risk rally. The three major stock benchmark indices increased 1.1-2.2% d/d. Earlier, stocks ended mixed in European and Asian trading amid cautiousness ahead of the FOMC announcement.
- Investors continued to dump safer government bonds albeit at a more moderate pace. Yields of 10Y UST rose 2bps to 1.46%, UK gilts also added 1bps to 0.73%, while German bunds inched up less than 1bp to -0.37%.The dollar was hammered down for the first time in three days, weakening against all G10s except for the JPY and CHF amid paring of haven demand. The Dollar Index fell 0.25% to 96.33 as at Wednesday’s close. The NOK and AUD led the pack with close to 1.0% gain while the sterling went through some volatility following some knee-jerk gains triggered by a quicker than expected jump in inflation readings and Omicron fear. Major Asian currencies were mixed against the greenback.
- Other than the Fed decision, PBoC maintained its 1-year medium term lending rate unchanged at 2.95%. BOE and ECB policy announcement will be up next. As we have highlighted in our weekly publication earlier, the ECB will likely announce plans to unwind its PEPP program while the BOE will likely stay the course and maintain a cautious guidance in the wake of Omicron uncertainties even as quicker than expected acceleration in inflation could pose greater policy challenges.
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 )
USDJPY - 116.00/10 1.17bn (C). 115.50/60 598m. 115.00 652m. 114.40/50 1.57bn (1.44bn C). 114.20/30 3.49bn (2.94bn C). 114.00/10 974m. 113.50/60 534m. 112.90/113.00 816m. 112.00 485m.
EURUSD - 1.1500 887m. 1.1470/80 547m. 1.1450/60 1.30bn 1.13bn (C). 1.1390/1.1400 2.23bn (1.72bn C). 1.1360/70 608m. 1.1340/50 1.69bn (1.10bn C). 1.1320/30 1.53bn (916m C). 1.1300/10 1.74bn (951m C). 1.1270/80 717m. 1.1250 695m. 1.1190/1.1200 1.56bn (P). 1.1170/80 751m. 1.1150/60 713m. 1.1100/10 516m.
AUDUSD - 0.7160/70 1.14bn (984m P). 0.7140/50 679m.
USDCAD - 1.2810/20 818m.
EURGBP - 0.8600 612m.
AUDNZD - 1.0500 686m. 1.0250 660m.
EURSEK - 10.20 862m.
USDCNH - 6.40 690m. 6.38 522m. 6.35 885m.
Technical & Trade Views
EURUSD Bias: Bearish below 1.15 Bullish above
- Consolidates post – Fed gains ahead of ECB
- EUR/USD opened 0.34% higher at 1.1295 after late rally after FOMC
- Move higher was a 'sell the rumour-buy the fact' for EUR/USD
- EUR/USD consolidated between 1.1282/99 in a quiet Asian morning
- Sellers tipped around 1.1325 and capping for now
- EUR/USD clinging to 10-day MA at 1.1294 and 21-day MA at 1.1288
- More consolidation likely ahead of ECB decision later today
- EUR/USD may be choppy around ECB due to potential for wide range of outcomes
GBPUSD Bias: Bearish below 1.36 Bullish above.
- Tight range – BoE to weigh inflation against Omicron
- -0.05%, near the base of a 1.3250-1.3269 range with solid interest early
- Inflation risk or Omicron slowdown? BoE rate decision balanced
- UK pay settlements rise to 2.2% as wage pressure starts to show
- Charts; 5, 10 & 21 day moving averages conflict, 21 day Bolli bands contract
- Neutral setup suggests the recent period of consolidation can extend
- Well tested 1.3166, 38.2% of the 2020-2021 rise is pivotal support
- Close above 1.3298 falling 21 day moving average needed would be positive
- BoE, COVID and political uncertainty to cap sterling
USDJPY Bias: Bullish above 112.50 Bearish below
- USD/JPY holds on 114 post – FOMC, crosses buoyant with risk
- USD/JPY on 114 handle post-FOMC, Asia 114.04-25, high o/n 114.28 EBS
- USD/JPY up after bounce in US yields, despite USD pull-backs elsewhere
- Massive nearby option expiries today, tomorrow help contain action for now
- Today $5.9 bln+ between 114.00-50 strikes, large 113.75-115.00 tom too
- US yields well off recent lows but well below recent highs, Tsy 10s @1.459%
- Tokyo very risk-on, Nikkei +1.8% @28,960, E-Minis near par on day @4705
- JPY crosses buoyant with USD/JPY, risk on, also shifting CB expectations?
- GBP/JPY 151.07-47, AUD/JPY 81.49-82.01, CAD/JPY 88.67-89.00, better bid
- EUR/JPY better bid too with risk mood up, despite dovish ECB, 128.72-93
AUDUSD Bias: Bearish below 0.7250 Bullish above
- Eases in Asia as sellers emerge ahead of resistance
- AUD/USD opened 0.93% higher at 0.7172 after risk markets rallied after FOMC
- There was a muted reaction to RBA Lowe's comment that rates unlikely to rise in ‘22
- Pair traded as high as 0.7182 after stronger than expected Aus jobs data
- Sellers ahead of Dec 12 high at 0.7187 capped and longs pared back
- AUD/USD slid to 0.7146 at one stage before steadying around 0.7150/55
- Support is at the 10-day MA at 0.7123 and week's lows at 0.7090/95
- AUD/USD has topped out between 0.7175/90 six of last eight trading days
- A break above 0.7190 targets the 38.2 of the 0.7555/0.6994 move at 0.7208
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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!