Daily Market Outlook, September 23, 2022

Overnight Headlines

  • A Day After Fed Raises Rates, Reverse Repos Hit A New Record
  • Biden’s Approval Rating Up But Struggling On Key Issues: NBC
  • Yellen Sees Path For Cooler Prices Without Jump In Jobless Rate
  • EU Rushes To Agree On An Oil Price Cap After Putin’s Threats
  • ECB’s Schnabel: Inflation Broadening And Will Continue To Rise
  • UK Consumer Confidence Falls To A Record Low In September
  • Kwarteng To Unveil His Plan To Kick-Start UK Economic Growth
  • Goldman Boosts BoE Call, Sees 75Bps Hikes At Next 2 Meetings
  • Ukraine Regions Prepare To Hold Referendums On Joining Russia
  • Economists Raise RBA Cash Rate Outlook To 3.1% By Year’s End
  • Japan’s Yen Propped Up After Intervention, Dollar Powers Through
  • Asian Equity Markets Broadly Lower; US Index Futures Also Slip
  • Goldman Cuts S&P 500 Target Citing Higher Path For Fed Rates
  • Crypto Outperforms Stocks For A Change As Correlation Breaks
  • Gold Flat As Firm Dollar, US Rate Hike Dent Appeal

The Day Ahead

  • Asian equity markets fell further as global bond yields, including US Treasury yields, rose. Yesterday, the Bank of England raised interest rates by 50bp to 2.25% as expected, although three of the nine MPC members voted for a 75bp rise. Markets are pricing in a further ~140bp of increases by the end of the year. UK GfK consumer confidence overnight fell to a new record low of -49 in September from -44 in August, led by further rises in concerns about personal finances and the economy.
  • Expect today’s September ‘flash’ PMI data to show further weakness in both the UK and the Eurozone. In the UK, we forecast the headline services reading to fall below 50 for the first time since February 2021 reflecting a growing impact from weakening demand. Meanwhile, the headline manufacturing reading is forecast to stay below 50 for a second consecutive month. That points to the composite UK PMI measure also being below 50 for a second month in a row.
  • The Eurozone is expected to see both the manufacturing and services PMI measures fall further below 50, signalling contraction in economic activity the current quarter. Demand is expected to remain weak in manufacturing, while services activity – previously supported by travel and tourism – has also started to contract as consumers reduce non-essential spending.
  • The US flash PMIs will also be released today, although they tend to get less attention than the alternative ISM surveys due at the start of next month. The manufacturing PMI is expected to remain in growth territory, while services activity is forecast to remain below 50. The weakness of the services PMI suggests a sharp deceleration in growth, but it is somewhat at odds with the much stronger ISM services report.
  • Today at 09:30BST is also scheduled to see further news on the UK fiscal front with what is being called a ‘fiscal event’. This is not a full budget and new forecasts from the Office for Budget Responsibility are not expected. Media reports suggest that it will be based around the promises made by the PM during her leadership campaign. These include reversing the rise in national insurance contributions made in April and a jettison of the commitment to raise corporation tax next year. More details may also be provided on last week’s energy support announcements. There is speculation that Chancellor Kwarteng will emphasise a commitment to focusing on economic growth rather than austerity, including media reports that stamp duty on property purchases could be cut.

FX Options Expiring 10am New York Cut

  • EUR/USD: 0.9800 (608M), 0.9850 (440M), 0.9900 (557M), 0.9950 (825M)
  • 0.9960-70 (391M), 0.9975-85 (888M), 1.0000 (2.47BLN)
  • 1.0040-50 (1.1BLN), 1.0095-00 (1.23BLN)
  • USD/JPY: 140.00 (513M), 141.00 (200M), 142.00 (297M)
  • USD/CHF: 0.9620-30 (300M), 0.9700 (440M)
  • EUR/CHF: 0.9600 (230M), 0.9700 (430M), 0.9800 (1.03BLN)
  • GBP/USD: 1.1405 (330M), 1.1480 (251M)
  • AUD/USD; 0.6675 (758M). USD/CAD: 1.3300 (451M)
  • 1.3400 (300M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.0250

  • EUR/USD opened unchanged at 0.9837 after a whippy post-Fed trading day
  • It moved higher early Asia when a fall in USD/JPY led USD broadly lower
  • The gains faded when E-minis went from +0.27% to -0.10%
  • The AXJ equity index fell over 1.0% and the gloomy mood supported USD
  • EUR/USD eased to 0.9825 where it is trading into the afternoon
  • Bids are tipped ahead of 0.9800 with yesterday’s low at 0.9807
  • Resistance is at yesterday’s 0.9909 high with offers 0.9900/20
  • EUR/USD trending lower with the 5, 10 & 21-day MAs in a bearish alignment
  • Only a break above the 10-day MA at 0.9956 would ease downward pressure
  • EZ flash PMIs may provide some action in Europe today
  • 20 Day VWAP bearish, 5 Day bearish

GBPUSD Bias: Bearish below 1.18

  • Heavy into the growth package – weak data builds
  • Off 0.25% with potential profit taking on yen crosses, GBP/JPY -0.55%
  • Sterling trades at the base of a 1.1232-1.1274 range after decent flow
  • UK consumer confidence hit a record -49, despite the energy cap
  • Fin Min Kwarteng will announce policies to increase growth
  • Even if successful, policies will not ease cost of living crisis this winter
  • The break of 1.1351 trend low, targets psychological 1.1000 level
  • 20 Day VWAP is bearish, 5 Day bearish

USDJPY Bias: Bullish above 139

  • Off 0.1% in a 141.77-142.59 range with yen crosses lower EUR/JPY -0.25%
  • Japan PM says to ease COVID border controls next month
  • Should cause a surge in tourism to Japan with the yen at these levels
  • PM Kishida says he is ready to act again to support yen
  • Markets looking for consensus on what intervention tactics the BoJ will use
  • Charts; Thursday’s selloff stopped on the Kijun line- now key 140.80 support
  • Asian 142.59 high, then London post intervention 143.40 top first resistance
  • Asia 141.77 low then 140.80 Tenkan line are initial supports
  • 20 Day VWAP is bullish, 5 Day bearish

AUDUSD Bias: Bearish below .70

  • Under pressure after early rise gives way to risk aversion
  • AUD/USD opened +0.12% at 0.6641 after whippy US session
  • It traded to 0.6655 early Asia when USD/JPY fell sharply
  • Mood soured in Asia with AXJ index falling 1.0% and E-minis turned negative
  • AUD/USD tracked lower and is at session low at 0.6615/20 into the afternoon
  • There is minor hourly support at 0.6610/15 where bids are tipped
  • Support is yesterday’s low @ 0.6574 low and break would encourage selling
  • AUD/USD trending lower with objective 61.8 of pandemic move at 0.6463
  • Only a break above 0.6710 would ease the pressure
  • 20 Day VWAP is bearish, 5 Day bearish

BTCUSD Bias: Bearish below 25.3K

  • BTC back above pivotal 19k
  • BTC + 4.3% to 19,290 best day in nearly 2 weeks
  • BTC is still down ~58.5% so far this year
  • Shares of cryptocurrency and blockchain-related companies bounce
  • Crypto Trading Bot & Investment Platform 3Commas Raises $37M in Series B Funding
  • BTC mining machine maker Ebang International rises 1.8%
  • 20 Day VWAP is bearish, 5 Day bullish