Daily Market Outlook, February 1, 2022 Overnight Headlines Fed Officials See March Rate Hike, But No Roadmap After That US Treasury Lifts Quarterly Borrowing Estimate To $729 Billion Treasury Economist Sees Inflation Easing If Pandemic Recedes US Official: Iran Talks Entered Final Stretch, Time For Decisions US Weighs More Troops To Eastern Europe Past 8,500 On Alert Senators Near Russia Sanctions Deal To Deter Ukraine Invasion Russia Responds In Writing To US Proposal On Ukrainian Crisis Japan Top Currency Diplomat: Weak Yen Has Merits, Demerits Australia Ends Monthly Bond Buying, In No Rush To Hike Rates UK’s Johnson Under Fire From Conservatives After Gray Report Boeing Wins Blockbuster Qatar Air Order, Deals Blow To Airbus Microsoft Proposed Deal For Activision To Be Reviewed By FTCThe Day Ahead Asian equity markets are mostly up this morning apart from those still closed for the lunar new year. The Australian central bank as expected left interest rates unchanged but ended its asset purchase programme citing higher inflation and improving growth conditions. It pushed back against expectations of an early rate hike by noting conditions needed to stay growth supportive. Nevertheless, markets still expect a rate hike later this year. In the UK, the Nationwide price index showed that house prices continued to rise in January. Today’s data calendar is dominated by manufacturing PMI releases for January. The UK and Eurozone measures are second readings that are not expected to be revised significantly from the initial reports, although first details will be supplied for some individual countries. The ‘flash’ UK reading saw the headline index dip to an 11-month low in January, partly due to a slide in orders. However, more positively output growth accelerated helped by some signs of easing supply chain pressures. In the Eurozone, both the overall and output indices recorded 5-month highs as some supply constraints eased. Also in the UK, money supply and bank lending measures for December may provide indications of the extent to which the rise in Omicron cases impacted on spending. Nevertheless, given the ongoing strong demand for housing expect mortgage approvals to have risen from their lowest level in almost 18 months in November. Meanwhile, consumer credit is expected to have risen again albeit at a slower pace than last month. Overall, there is unlikely to be anything that would discourage Bank of England policymakers from raising interest rates on Thursday. In the US, the ISM manufacturing report will be a first reading for January. US economic activity does appear to have stalled in some sectors around the turn of the year as Covid cases accelerated. Manufacturing should have been less impacted than some service sectors that have direct contact with consumers. However, the already released Markit PMI measure, which fell to a 15-month low in January, suggests that it has come under some pressure. Consequently, it seems likely that the ISM measure will also have fallen in January, although its level is still likely to be consistent with a relatively strong pace of growth. The detail will also be watched for signs of whether supply bottlenecks are also showing some signs of easing in the US. UK government bond yields continued to move higher yesterday as the outcome of this week’s BoE policy update is nervously awaited. Other government bonds markets also remain under pressure reflecting concerns about inflation and monetary policy outlooks.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: 1.1150 (1.74BLN), 1.1170-75 (777M), 1.1215 (1.25BLN) 1.1225-30 (3.0BLN), 1.1270-75 (685M), 1.1300 (1.65BLN) 1.1350-55 (1.2BLN), 1.1380 (584M), 1.1500 (1.1BLN) USD/JPY: 112.75 (708M), 113.20-30 (1.0BLN), 113.40-50 (515M) 114.00 (280M), 114.65 (700M), 114.90-00 (730M) 115.25 (625M), 116.50-55 (1.1BLN), 116.65 (340M), 117.00 (940M) AUD/USD: 0.6900 (236M), 0.7060 (240M), 0.7085-00 (465M) 0.7150-60 (300M) USD/CAD: 1.2280 (628M), 1.2400 (550M), 1.2500 (330M) 1.2700-05 (570M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.15 Bullish above Idles in Asia after impressive rebound EUR/USD opened +0.80% at 1.1236 after USD broadly weakened in US session Narrowing US-DE yield spread also helped to underpin EUR/USD It idled in a 1.1220/33 range and was above 1.1230 into the afternoon EUR/USD still trending lower with 5, 10 &21-day MAs in bearish alignment Resistance is at 10-day MA at 1.1263 and break puts trend in doubt Bids are eyed around 1.1200 with support at yesterday’s 1.1139 low EUR/USD sill likely range trade while risk markets remain calmGBPUSD Bias: Bearish below 1.36 Bullish above. Soft February start, charts still point lower -0.05% in 1.3433-1.3449 range, with most of Asia closed for lunar new year Kyiv-bound, UK’s Johnson tells Putin to choose diplomacy over bloodshed Diplomacy continues between NATO and Russia, as tensions build Charts; 5, 10 & 21 day moving averages fall – 21 day Bollinger bands expand Momentum studies conflict – setup remains negative with the USD pivotal 1.3300, 76.4% December-January rise is initial significant support Break above 1.3488 10 day moving average would end downside bias NY 1.3405-1.3460 range is initial support and resistanceUSDJPY Bias: Bullish above 114.50 Bearish below USD/JPY 114.92 EBS late NY low to 115.19 post-Tokyo fix, off since Market in general very thin with most of Asia on holiday USD/JPY support from ascending 100-HMA at 115.00, bids trail down below Japanese importers, some investors still taking buy-dip strategies Some speculators too though this bloc also looking to sell into rallies So-so chunky 115.00 option expiries today supportive, 115.25s to help cap US yields steady too, Treasury 10s @1.778%, Tokyo range 1.777%-1.795% Nikkei +0.7% @27,194 after another Wall St rally o/n, ASX & NZ50 upAUDUSD Bias: Bearish below 0.7250 Bullish above AUD/USD opened 1.0% higher at 0.7067 after USD broadly weakened It idled around 0.7070 before the RBA decision was announced As expected, RBA kept rates on hold and ended their bond buying programme The statement revised up the inflation forecast, but RBA said they will remain patient Market was expecting a more hawkish shift in language from the RBA AUD/USD fell 0.50% to a low so far at 0.7033 in response to RBA Support is at Jan 28 0.6967 trend low and break would be bearish Market will be very interested in speech tomorrow by RBA Governor Lowe
Source: Tickmill
