Daily Market Outlook, June 20, 2022

Overnight Headlines

Global equities remain under pressure at the start of the week with most Asian stock exchanges lower on the day reflecting concerns that aggressive US monetary policy action will lead to a marked slowdown in growth. Speaking yesterday, US Fed member Mester said that the Fed would need to see “compelling evidence” that prices pressures are easing and that the risk of a US recession were rising to ease policy, albeit she was not expecting one in her base case.

Meanwhile, yesterday’s French legislative elections saw President Macron fall short of attracting an absolute majority, following an unexpected surge in support for the far right. While the group of parties alliance called ‘Ensemble’ headed up Macron remains the largest bloc, the outcome means that he is likely to have a hard time in passing legislation.

After the recent slew of ‘hawkish’ central bank policy announcements, markets will be looking for further clues on what to expect from them for the rest of the summer and beyond and there are plenty of central bank speakers in the coming week. In the US, potentially of most significance will be Fed Chair Powell’s semi-annual testimonies to Congress (Wed & Thu). Powell seems set to be questioned closely about how quickly inflation will come down, what level of interest rates will be required and what will be the impact on the economy.

Ahead of that, today ECB President Lagarde will testify to the European parliament. She seems set to confirm that the ECB will start raising interest rates in July but will probably be asked to provide more detail on the new anti-fragmentation tool for coping with yield spread widening. A number of other ECB officials are scheduled to speak, including Muller, Visco, Centeno, Kazaks and the Chief Economist Lane.

In the UK, BoE MPC members Haskel and Mann are scheduled to speak. While both members voted for a larger increase (50bp) increase in Bank Rate than the 25bp hike delivered last week, from a monetary policy perspective, the latter is likely to attract more interest. Mr Haskel will give opening remarks at a TechUK Policy Leadership conference on “Restarting the future, how to fix the intangible economy”, while Ms Mann will discuss “Monetary policy in a global context” at a Market News International event. At last week’s policy meeting, relative to rate increase from the US Fed and Swiss National Bank, the 25bp increase from the Bank of England was seen as modest. Nevertheless, financial markets continue to expect 180bp of rate increase by the end of the year (see chart), with most of the meetings forecast to see increases of 50bp. Ms Mann’s comments will be watched for indications of how likely this course of action will prove to ultimately be.

Elsewhere, it is a quiet day for data with no key releases due today, while markets are closed in the US for the Juneteenth public holiday.

IMM net spec USD long gallops higher in Jun 8-14 period; amid $IDX +3%
EUR$ slid 2.75% near 2022 low, specs -56,561 contracts now short 6,018
$JPY rose 2.14%, hitting 24-yr high; specs +21,891 contracts now -69,755
GBP$ -4.68% pre-Fed, BoE Wed/Thurs; specs buy 5,214 on dip now -65,596
Rise in oil stirred CAD flip to long (+24.2k), AUD (+4.6k) & NZD (13k) buys
BTC bottom fishers +571 contracts specs now long 1,061 contracts
Fed 75bp hike amid timid BoE 25bp, and BoJ ultra-dovish lifted USD in new IMM period

(According To Reuters Data)

EURUSD Bias: Bearish below 1.07 Bullish above

GBPUSD Bias: Bearish below 1.26 Bullish above.

USDJPY Bias: Bullish above 132 Bearish below

Opens the week with a bid tone, volatility in a thin Asain trade has seen a 70pip range
Importer bids early in the session saw an initial spike to 135.44 before fading
UDJPY has retreated in unison with US Yields.
Headline risk FED CHeif Powell speech Wednesday
More Importer bids seen towards 134
Exporter offers cap ahead of 136
Daily VWAP is bullish with strong support back at 132

AUDUSD Bias: Bullish above .7200 Bearish below