Daily Market Outlook, February 11, 2022 Overnight Headlines Fed Doesn’t Yet Favor A Half-Point Rate Hike Or An Emergency Move Fed’s Bullard Backs Supersized Hike, Seeks Full Point Increase By July 1 Fed’s Barkin: Have To Be Convinced Of Need For Half-Point Rate Hike Goldman Ups Fed Forecast To 7 Hikes This Year; Citi See 50BP In March Biden Gets Inflation A Wake-Up Call As Odds Rise For GOP Takeover Lagarde Warns ECB Acting Too Fast Could Choke Economy’s Recovery UK Set To Make New Offer On Northern Ireland In Talks With The EU UK PM Johnson To Face A Confidence Vote If Fined Over ‘Partygate’ Russia And Ukraine Say Berlin Talks Failed To Yield A Breakthrough RBA Governor: Could Hike Later This Year, See Risk In Going Too Early Oil Prices Turn Lower On Hot US Inflation Concerns; Gold Prices Steady US Treasury And Equity Futures Fall Amid Talk Of Faster Fed Hikes The Day Ahead Asian stock markets are mostly down this morning following yesterday’s decline on Wall Street. Central bankers in several countries yesterday acknowledged the need for tighter monetary policy to guard against inflationary pressures but cautioned against too aggressive action. ECB President Lagarde said that if the European Central Bank acts too fast the recovery could weaken. Similarly, the Australian central bank head noted a risk for employment from raising interest rates too early. Meanwhile, reports suggest that the UK will make some new proposals to the EU to break the deadlock over post-Brexit trading arrangements in Northern Ireland. Just released UK GDP data for December showed a smaller than expected monthly decline of 0.2%. Services output fell by -0.5% primarily due to declines in consumer facing services such as retailers and restaurants. However, both industrial production, and construction output rose, the latter up 2.0%. It seems that the negative impact from the rise in Omicron and the consequent reimposition of restrictions was much smaller than previous episodes. For Q4 as a whole GDP rose by 1.0% with the robust print for December offset by downward revisions to previous months. As most restrictions have now been lifted and the rest seem set to go in the near future the downturn is likely to prove short lived. It is not yet clear whether GDP will have fallen again in January. However, given indications of an acceleration in activity in the second half of the month any decline should to be modest and February should see a sizeable rebound. Beyond that however the outlook becomes cloudier. The rest of today’s economics calendar is very light with no further releases scheduled for either the UK or the Eurozone. In the US, the February University of Michigan consumer sentiment indicator will provide the latest update on households’ views about economic conditions. The headline measure has fallen from its peak in the spring of last year reflecting concerns about both current and future conditions. This month’s reading may be little changed from January given ongoing uncertainty about inflation and a potential rise in interest rates. The survey also has readings about both short- and longer-term inflation expectations. There will be much interest in both from markets and the US central bank as to whether the latter, in particular, remain well anchored. US government bond yields and the dollar both moved sharply higher yesterday after stronger than expected US inflation data boosted the case for the US Federal Reserve to raise interest rates aggressively this year. Following the news, a number of US banks raised their forecasts for 2022 rate hikes with one now saying that the Fed could raise rates seven times in 2022. Bond yields in the UK also rose in the wake of the US inflation news.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: 1.1300 (1.82BLN), 1.1340-50 (610M), 1.1400 (506M)1.1475 (590M), 1.1495-05 (2.93BLN), 1.1550 (1.0BLN) 1.1600 (609M) USD/JPY: 113.40-50 (650M), 113.65 (200M), 114.50 (347M) 115.75 (750M). GBP/USD: 1.3425-30 (288M) EUR/GBP: 0.8410-15 (400M), 0.8425 (310M), 0.8500-10 (713M) USD/CHF: 0.9190 (280M). AUD/USD: 0.7180 (344M) USD/CAD: 1.2570-75 (545M), 1.2600-10 (480M), 1.2635 (256M) 1.2650-60 (4.7BLN), 1.2665-75 (1.0BLN), 1.2680-90 (1.7BLN) 1.2695-00 (655M), 1.2710 (292M), 1.2725-30 (510M) 1.2795-00 (740M), 1.2810-15 (500M) USD/ZAR: 14.6850 (380M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.15 Bullish above Lower on dovish Lagarde, Fed rate speculation EUR/USD down 0.4% in Asia as stops triggered in thin market (Japan holiday) Vague talk of off-cycle Fed rate hike driving gains in nervous trading ECB’s Lagarde’s push back on rate hike expectations weigh Lagarde says hike would not address high oil prices, supply snags Diverging Fed-ECB rate path boosts USD; 50bps Mar Fed hike odds up sharply Support 1.1350-55,1.1310-20, resistance 1.1435-40, 1.1465-70GBPUSD Bias: Bearish below 1.36 Bullish above. Touch softer in a busy headline led session -0.1% in a headline driven 1.3534-1.3565 range, with plenty of interest Fed’s Bullard turned very hawkish, but Bullard was less so ECB’s Lagarde says hasty rate hike wouldn’t solve inflation ECB remains far more dovish than the Federal Reserve and Bank of England Charts; momentum studies 5, 10 & 21 day moving averages coil 21 day Bollinger bands contract – neutral setup favours range trading 1.3467 61.8% Jan-Feb bounce and 1.3657, 76.4% 2022 fall pivotal levels Trades just above 1.3554 mid point of 2022 range awaiting a triggerUSDJPY Bias: Bullish above 114.50 Bearish below USD/JPY bid into London, through lighter offers to 115.71 Japanese offers being off-ed into long weekend, easier for USD/JPY to rise Fresh trend highs being etched as Tokyo trade winds down, shorts cover USD/JPY from post-Tokyo fix low of 115.48 to 115.71 EBS today Move up premature pre-US CPI tonight? +0.5% m/m, +7.3% y/y eyed US yields range between 1.923%-1.944% in Asia, currently @1.929% Nikkei closed session +0.4% at 27,696.08, E-Minis -0.1% @4573AUDUSD Bias: Bearish below 0.7250 Bullish above AUD/USD succumbs as bearish chart signs may get darker yet AUD/USD tumbles as low as 0.7112, last 0.7120 Doji candlestick reversal pattern may be confirmed Further drop may trigger Bollinger downtrend channel 0.7080 Fear of sudden Fed hike sparked by ‘expedited’ board meet Mon USD catches second wind while US stock futures slide
Source: Tickmill
