Daily Market Outlook, January 12, 2022 Overnight Headlines White House Braces For Another Brutal US Inflation Report Pres Biden Urges Congress To Pass Voting Rights Legislation Sen Toomey Warn On Possible Raskin Pick As Fed Regulator China Inflation Fuels Rate-Cut Calls As World Set To Tighten BoJ Kuroda: Inflation Set To Gradually Accelerate On Energy NK’s Kim Calls For More ‘Military Muscle’ After Missile Test UK PM Losing Tory MPs Support As Storm Grows Over Party UK Households Most Gloomy On Finances Since Covid Start German SPD Expects March General Vaccine Mandate Vote French Eco Recovery Remains On Track Despite Covid Surge France Foreign Min: Still Far From Iran Nuclear Deal Revival Biogen Weakens As US Limits Alzheimer’s Coverage TherapyThe Day Ahead Asian equity markets are up strongly this morning. That is despite reports that two Chinese cities are now in lockdown reflecting concerns about a sharp rise in Covid cases. Chinese consumer price and producer price inflation both rose by less than expected in December. That fuelled speculation that China will further loosen monetary policy to boost growth. In contrast several US Federal Reserve policymakers, including Fed Chair Powell, warned yesterday of the risk of a significant tightening in monetary policy. Today’s US CPI report for December is likely to be the most closely watched data release of the week given concerns about rising inflation. Expect the headline measure to rise to 7.0% from 6.8%, the first print with a seven handle for nearly forty years (the last time was June 1982). The ‘core’ measure (excluding food and energy) is forecast to rise to 5.4% from 4.9%, would be above 5% for the first time since the early 1990s. Such an outcome is unlikely to dampen speculation that the Federal Reserve is set to raise interest rates several times this year. Also in the US, the Fed will publish its Beige Book. This is the summary of anecdotal reports from businesses regularly released before the Fed’s monetary policy meetings. Evidence of disruptions to economic activity from Omicron will of course be of interest. However, the primary focus is likely to be on signs of inflationary pressures. In particular the extent to which firms are facing labour recruitment difficulties, whether they are raising wages in response to this and the indications of how much of any cost increase will be passed through into prices. In the Eurozone, the consensus expectation is that industrial production will have risen by 0.2% in November. Already released data for some of the larger member countries has been mixed with France and Germany both recording modest decline. However, an outsize rise of 4.5% for Spain points to some upside risk to the forecast. Whatever the outcome it may be regarded as old news by markets as it covers the period before concerns about the Omicron Covid variant started to emerge. The BoE’s Cunliffe is supposed to talk about crypto finance and so may not touch on near-term economic developments including the outlook for interest rates. Fed policymaker Kashkari is also scheduled to speak. He is typically regarded as one of the most dovish members of the monetary policy setting committee but has recently said that he might support some interest rate rises this year. 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: 1.1285 (366M), 1.1300-10 (3.06BLN)1.1330-35 (778M), 1.1400 (929M), 1.1425 (836M)1.1520-30 (1.3BLN)USD/JPY: 113.45-50 (1.11BLN), 113.64-75 (572M), 114.00 (205M)114.95-00 (592M), 115.50 (638M), 115.79-80 (320M), 115.95-05 (1.365BLN)116.30-35 (543M)GBP/USD: 1.3595-00 (950M), 1.3700 (280M)EUR/GBP 0.8495-00 (1.1BLN). EUR/CHF 1.0450 (428M)AUD/USD: 0.6995-0.7010 (587M), 0.7180-90 (639M)NZD/USD: 0.7020 (627M), 0.7050 (674M)USD/ZAR: 15.30 (200M), 15.60-65 (455M), 15.97-16.00 (440M)EUR/SEK: 10.15 (397M), 10.1800 (393M)USD/CAD: 1.2680-90 (1.15BLN), 1.2705-15 (360M)1.2750-60 (1.3BLN), 1.2790-00 (1.94BLN), 1.2840 (860M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.15 Bullish above EUR/USD opened +0.34% at 1.1369 after getting a boost from Powell testimony Asia left it alone and EUR/USD could only manage a 1.1365/74 range Heading into the afternoon it is unchanged around 1.1370 Bias in for higher after it closed above the 55-day MA at 1.1362 It was the first close above that reading since mid-September Resistance @ triple top @ 1.1385/90 and break would increase upward pressure Support is at rising trendline at 1.1267 with bids tipped 1.1310/20 Key will be reaction to US CPI to be released later todayGBPUSD Bias: Bearish below 1.36 Bullish above. Fresh trend high with decent flow – 1.3675 in sight +0.08% at the top of a 1.3628-1.3645 range – USD a touch softer Fresh trend high in Asia, amid decent interest ahead of U.S. CPI Clouds on sterling’s horizon, but uptrend is strong Charts; 5, 10 & 21 day moving averages, plus 21 day Bollinger bands climb Momentum studies edge higher, which is strong positive trending setup Break above 1.3600 opens the door to a test of 1.3675, 76.4% Oct/Dec fall Sustained 1.3557 10 DMA break, a recent base would undermine topside bias Asian 1.3628 low first support and 1.3675 76.4% Fibo resistanceUSDJPY Bias: Bullish above 114.50 Bearish below USD/JPY in stasis in Asia, 115.23-40 EBS, quiet ahead of US CPI US yields remain in focus, holding below Monday highs, Tsy 10s @1.735% Japan-US rate differential remains relatively wide however Option expiries continue to contain action today, for the remainder of the week? 114.95-115.00 $596 mln, 115.50 $638 mln, more at these strikes tomorrow Good Japanese importer bids from ahead of 115.00, stops mixed in below JPY crosses better bid with risk, Nikkei +1.9% @28,748 EUR/JPY 131.00-20 EBS, GBP/JPY 157.01-39, AUD/JPY 82.99-83.23 Firm yields abroad in view too, carries and some fresh portfolio movesAUDUSD Bias: Bearish below 0.7250 Bullish above Drifts higher as US yields decline, risk rallies AUD/USD gains 0.1% as risk sentiment remains buoyant on measured Powell Powell’s upbeat tone on economy, assurance on curbing inflation lifts mood U.S. yields dip, APAC stocks rise; 10-year yield breaks Tues low of 1.7370% Focus shifts to U.S. CPI Wed, seen as crucial for immediate USD direction Higher than expected CPI will reinforce divergent Fed-RBA monetary policy Resistance 0.7220-25, 0.7240-45, 07275-80; support 0.7195-0.7200, 0.7150-60
Source: Tickmill
