Daily Market Outlook, January 5, 2022

Overnight Headlines

  • North Korea Fired What Could Be A Ballistic Missile – Japan Coast Guard
  • ANZ Australian Job Vacancies Slips 5.5% As Omicron Hurts Sentiment
  • New Zealand Average Home Price Exceeds NZ$1 Million For First Time
  • Japan, U.S. Ministers To Hold 'Two-Plus-Two' Talks On Friday January 7th
  • Fed’s Neel Kashkari Now Sees Two 2022 Rate Rises Amid Inflation Surge
  • Yen Wallows As Omicron Fears Subside And Fed Rate Hikes Loom
  • Goldman Strategists Bet On Tourism-Linked Currencies In Recovery
  • Bitcoin Gains May Be Limited In January, Altcoins Outperform - Analysts
  • Oil Falls As Surging U.S. Fuel Stockpiles Raise Demand Concerns
  • Barclays Maintains Oil Price Forecasts For 2022 At $80/BBL For Brent
  • Treasury Yield Curve Steepens On Bet Fed Sticks To Hawkish Path
  • Asian Shares Slip As Rising U.S. Yields Hit Technology Firms Lower
  • China Huarong Tumbles As Trading Resumes After Nine-Month Halt
  • China Evergrande To Hold Meeting With Bondholders On January 7-10
  • Chip Delivery Times Are On The Rise Again, Shortages Continue
  • Allegiant Air Close To Ordering 50 Boeing 737 MAX Jets

The Day Ahead

  • Market risk tone turned cautious overnight, with mixed equity market performances in the Asia-Pacific region. The main Japanese index ended slightly higher, but there were lower outcomes in China reflecting weaker tech stocks. Latest Covid figures show a record rise of 2.5 million new cases globally, although symptoms appear to be less severe than the delta variant. In the UK, PM Johnson said there was a “good chance” no further Covid restrictions will need to be imposed in England despite soaring Omicron cases.
  • The final readings of the Eurozone December services PMI are expected to confirm the preliminary ‘flash’ estimate showing a sizeable fall to 53.3 from 55.9 in November. At above 50, that still represents expansion in services activity but at the slowest pace since April amid rising Covid infection rates. Price pressures eased slightly but remained elevated. The survey indicates that German services activity was particularly hard hit, while France held up better. The first estimates for Italian and Spanish services PMI will be released and are expected to show softer pace of growth.
  • In the US, the December ADP employment report will provide an early indication of Friday’s official payrolls data. There is some uncertainty about the possible impact of Omicron, but labour market conditions are expected to have remained strong. Look for a 500k rise in ADP private sector jobs which would add confidence to our central forecast for a bigger rise in official payrolls than in November which rose by just 210k.
  • The minutes of the 14-15 December FOMC meeting will be released this evening. That was the meeting when the pace of tapering of asset purchases was accelerated and the word ‘transitory’ to describe inflation was dropped. The updated ‘dot plot’ also showed policymakers expecting three interest rate rises in 2022 with further increases forecast for subsequent years.
  • Prospects for higher UK interest rates and indications that there will likely be no further Covid restrictions in England saw GBP above 1.35 against the US dollar. Gilt yields also shifted higher, with the 10-year yield rising to 1.085%. Brent crude oil, meanwhile, rose above $80 a barrel as OPEC+ announced a modest rise in output.

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: 1.1095-00 (391M), 1.1190-00 (723M) 1.1285-90 (609M), 1.1300-10 (365M), 1.1340-50 (500M) 1.1400 (373M)

USD/JPY: 113.45 (560M), 113.55 (650M), 113.79-80 (384M) 116.50 (370M)

USD/CAD: 1.2815-25 (355M), 1.2950 (300M)

AUD/USD: 0.7200-10 (424M), 0.7280-85 (730M) 0.7300 (423M), 0.7320 (634M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • Edges higher after early dip
  • EUR/USD opened -0.12% at 1.1286 after EUR/JPY buying offset higher US yields
  • It dipped to 1.1277 before finding bids and moving higher
  • Heading into the afternoon it is near the session high at 1.1294
  • Support at a trend line at 1.1256 and break would increase downward pressure
  • Resistance is at 1.1386 where the 55-day MA converges with Friday's high
  • EUR/USD remains in consolidation mode with a bearish bias
  • Market may wait for Friday's US job numbers to establish clear direction

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • GBP/USD holds above 1.35 after hitting 8 – week top Tuesday
  • Cable remains above 1.3500 after scaling eight-week peak of 1.3556 Tuesday
  • Ascent to 1.3556 influenced by "risk on" vibe and U.S. ISM miss.
  • Risk appetite has been healthy since Dec 20 (1.3175 was cable low that day)
  • 100-day moving average helped define Tuesday's high (1.3550 was Dec 31 top)
  • IMM gross GBP shorts continued to dwarf gross GBP longs in week ended Dec 28
  • UK PM Johnson resists another lockdown

USDJPY Bias: Bullish above 112.50 Bearish below

  • Soft with risk in Asia, but trends higher
  • Off 0.15% in a low key session - trades toward base of a 115.90-116.24 range
  • Soft markets, E-mini S&P -0.25%, Nikkei flat and UST yields a touch softer
  • USD/JPY soars as higher US yields become 2022 conviction trade
  • Charts; 5, 10 & 21 day moving averages, plus the Tenkan line climb
  • Momentum studies are net positive - overall a bullish trending setup
  • Targets a test of the 118.60/66 Jan 2017 and Dec 2016 highs longer term
  • Close below 115.52 November and 2021 high needed to undermine topside bias
  • NY 115.96 low and Europe's 116.35 high initial support, resistance

AUDUSD Bias: Bearish below 0.7250 Bullish above

  • Consolidates as risk assets slip in Asia
  • AUD/USD opened +0.65% at 0.7238 after getting a boost from AUD/JPY demand
  • After trading 0.7243 it came under slight pressure during the Asian morning
  • It fell to 0.7231 when AXJ equity index fell 0.80% and E-minis slipped 0.26%
  • Bids emerged and AUD/USD is around 0.7235 into the afternoon session
  • Support at 21-day MA at 0.7193 and close below shifts pressure to downside
  • Resistance is at the 100-day MA at 0.7287 and break targets 61.8 at 0.7341
  • Moves in equities and AUD/JPY flows key for short-term direction