Daily Market Outlook, June 6, 2022

Overnight Headlines

  • China May Services Activity Contracts For Third Straight Month
  • Beijing To Allow Indoor Dining, Further Easing Covid Curbs
  • BoJ Gov Kuroda: Priority Is To Support Economy With Monetary Easing
  • US Commerce Sec. Considers Lifting Some China Tariffs To Fight Inflation
  • Pres Biden To Use Executive Action To Spur Solar Projects Hit By Probe
  • EU's Gentiloni Aims To Present Stability Pact Reform After Summer
  • UK PM Braced For Tory Rebels To Force Confidence Vote In Days
  • Yen Weak Versus Dollar, Euro Ahead Of Busy Central Bank Week
  • Oil Jumps After Saudi Oil Price Hike, Venezuelan EU Oil Deal
  • US Will Allow Two Companies To Ship Venezuelan Oil To Europe
  • Saudis Raise Oil Prices More Than Expected Amid Asia Rebound
  • Vitol: US May Allow More Iran Oil To Flow Even Without Deal
  • Stocks In Asia, US Futures Rose Monday As Beijing Reopened Further

The Day Ahead

  • Asian equity markets are mixed this morning, although some key indices are trading higher including those in China and Japan. The easing of lockdown measures in China has supported risk sentiment, even though its May Services PMI remained well below 50 for a third month. There has been a mixed market reaction to last Friday’s US jobs data which beat consensus forecasts and reaffirmed the likelihood of significantly further Fed policy tightening in the months ahead. Brent crude has risen above $120 a barrel.
  • Today’s economic calendar is relatively sparse but marks the return of UK trading after an extended holiday for the Platinum Jubilee. An update on UK new car registrations is due this morning. Last month’s figures for April showed a 16% year-on-year decline, reflecting supply problems in the production and delivery of new vehicles. Data due overnight will reveal how UK retail sales fared in May, according to the British Retail Consortium. In April, the BRC’s figures, which are not adjusted for inflation, showed a 1.7%y/y fall in same-store sales.
  • Sterling market attention will also center on speculation about PM Johnson’s future, with media reports suggesting that the required number of Conservative MPs (54) needed to trigger a leadership may be reached this week. That would come ahead of two by-elections later this month in parliamentary seats which polls indicate the Conservatives may struggle to hold on to. Chancellor Sunak will be questioned on his recently announced cost of living support package at 1.45pm.
  • The Reserve Bank of Australia is scheduled to provide a policy update early Tuesday morning. At its last meeting on 3 May, the RBA raised interest rates more than expected by 25bp to 0.35%. The central bank has signalled more hikes in the period ahead, with the consensus forecast for rates to end this year at 1.75%. For tomorrow’s meeting, the consensus forecast is for a 40bp hike to 0.75%, reflecting the broadening of inflationary pressures

FX Options Expiring 10am New York Cut

  • EUR/USD: 1.0600 (450M), 1.0645-50 (1.6BLN), 1.0675 (743M)
  • 1.7000 (1.42BLN), 1.0800 (1.47BLN)
  • USD/JPY: 127.00 (1.19BLN), 129.00-05 (540M), 130.00 (545M)
  • GBP/USD: 1.2540-50 (475M)
  • AUD/USD: 0.7070 (311M). USD/CAD: 1.2495-00 (680M)
  • 1.2650 (600M), 1.2700 (310M), 1.2725-30 (540M)
  • 1.2730-40 (1.65BLN)

Technical & Trade Views

EURUSD Bias: Bearish below 1.07 Bullish above

  • EUR/USD's recent rise was stymied by the 1.0787 Fibonacci level
  • 1.0787 Fibo, a 38.2% of the 1.1495 to 1.0349 (EBS) fall
  • Expectation is for a bearish resumption to eventually retest 1.0620 Fibo
  • 1.0620 Fibo is a 38.2% retrace of the 1.0349-1.0787 May recovery
  • EUR/USD VWAP has turned bullish

GBPUSD Bias: Bearish below 1.26 Bullish above.

  • Vote of confidence in UK PM Johnson to take place 1700-1900 GMT
  • Johnson will be ousted if 180+ of 359 Tory MPs vote against him
  • If Johnson wins the vote, he cannot be challenged again for 12 months
  • GBP may fall if Johnson loses vote, re: uncertainty about his successor
  • Hunt, Truss, Tugendhat and Sunak among names-in-the-frame if vacancy arises
  • Two UK by-elections on June 23; Tory losses expected in both seats
  • The next Fibo off the 1.2156-1.2666 gain comes at 1.2411, 50%

USDJPY Bias: Bullish above 127 Bearish below

  • USD/JPY's big recovery closed above the 130.17 Fibo = bullish
  • 130.17 Fibo is, a 76.4% retrace of the May 131.35 to 126.37 (EBS) drop
  • Increasingly scope for much bigger gains above the 2022 131.35 peak
  • 14-day momentum had been negative since May 18, it turned positive last week
  • EUR/JPY sees a 139.85-140.35 Monday range so far, according to EBS data

AUDUSD Bias: Bullish above .7200 Bearish below

  • AUD/USD opened 0.7212 after falling 0.77% Friday after US jobs data
  • After trading to 0.7216 it eased late morning to trade at 0.7187
  • Move lower was despite steady equity markets as E-minis rose 0.50%
  • Market may be positioning for RBA decision tomorrow
  • Market sees RBA rate hike - but is split on the size of the hike