Daily Market Outlook, March 24, 2022

Overnight Headlines

Most Asian equity markets are down this morning, but they are off their lows of earlier in the trading day. US President Biden will attend a NATO summit today to discuss Ukraine. Reports suggest that the US and the EU are close to a deal to lower Europe’s dependence on Russian energy. Yesterday’s UK Spring Statement included a number of measures aimed at supporting households in the face of the cost of living increase. However, the OBR said that the measures would only compensate for about half of the effects.

March PMI data will provide one of the first indications of the impact of the Ukrainian crisis on the UK, US and Eurozone economies. A further loosening of Covid related restrictions may have provided a partial offset to the likely headwinds from the war but nevertheless expect activity to have slowed. The readings from the surveys on inflation and supply constraints will also be of key interest (particularly for manufacturing). Given the recent rise in commodity prices and indications of further disruptions to global supply chains we expect both may be up sharply in all of the economies.

In the UK, look for the headline readings to weaken to 57.2 (from 58.0) for manufacturing and 58.5 (from 60.5) for services. Similarly in the Eurozone look for sharp falls in both sectors. However, it should be noted that in all cases their levels remain well above the 50-level signalling expansion. For the US economy, which seems likely to be less directly impacted by the crisis, look for smaller falls.

The outlook for UK consumer spending looks particularly uncertain right now given the hit to households’ real spending power from the rise in inflation. Early tomorrow, official retail sales data for February will be released, ahead of that the CBI’s ‘unofficial’ measure for March comes out today. Expect February sales data to have recorded a monthly fall of 0.5%. As that follows a big rise in January it would not necessarily be a sign of underlying weakness. However, the possible risks to household spending will be seen in the March GfK consumer confidence measure also out early Friday. That has fallen sharply in recent months, with overall confidence now back close to its pandemic low and which is expected to have fallen further this month.

Several central bank officials will speak today. Federal Reserve policymakers can all be expected to point to the likelihood of several more US interest rate hikes this year and markets will be looking for indications of the strength of support for a 50 basis point interest rate rise at the next policy meeting. Bank of England policymaker Mann will also talk about climate change rather than the immediate interest rate outlook. Finally, the BoE will release the minutes of its latest Financial Policy Committee meetings.

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

EUR/USD: 1.0950 (591M), 1.0965-70 (693M), 1.1000 (630M) 1.1020-30 (686M), 1.1070 (468M), 1.1100 (1.19BLN) 1.1120-25 (430M), 1.1200 (395M)
USD/JPY: 118.50 (283M)
GBP/USD: 1.3000 (740M), 1.3150-55 (781M), 1.32 (264M)
USD/CAD: 1.2600 (500M), 1.2650 (1.18BLN), 1.2800 (2.12BLN)
AUD/USD: 0.7325 (406M).
USD/CHF: 0.9365-70 (795M)
EUR/CHF: 1.0350 (502M)

EURUSD Bias: Bearish below 1.12 Bullish above

GBPUSD Bias: Bearish below 1.3350 Bullish above.

USDJPY Bias: Bullish above 116 Bearish below

AUDUSD Bias: Bullish above .7100 Bearish below

Holds gains while sellers above 0.7500 cap for now
AUD/USD opened +0.40% at 0.7500 as firm commodities and AUD/USD demand underpinned
After trading 0.7501 the AUD/USD came under gentle pressure
It traded down to 0.7482 before settling around 0.7490 into the afternoon
AUD/USD and AUD/JPY are overbought but both are entrenched in a trend higher
Hourly support is found at 0.7450/65 and break would ease upward pressure
Trend higher remains in place while 10-day MA at 0.7361 holds on dips
Resistance is found at the Nov 28 trend high at 0.7555