Daily Market Outlook, January 28, 2022 Overnight Headlines Tokyo Inflation Slows, Bolstering BoJ Case For Standing Pat IMF Urges Japan To Scale Back Pandemic Support, Raise Taxes IMF Urges BoJ To Consider Targeting Shorter-Term Yields Argentina, IMF Reach Understanding On Fiscal Path For Deal Aus, NZ Dlrs Nurse Painful Losses As Markets Go Mad For Rate Hikes Fed Should Sell Bonds, Not Just Let Them Roll Off, Pozsar Says Oil Rally Gathers Pace As WTI Heads For A Sixth Weekly Advance Asian Stocks, U.S. Futures Regain Footing After Fed Rate Shock Apple Sales & Profit Top Estimates As iPhone Dodges Supply Chain HitsThe Day Ahead Asian equities are up this morning with the exception of most Chinese indices. Positive news on profits has been cited as a support. Chinese markets will be closed next week for the lunar new year. Meanwhile, reports suggest that Chinese holiday travel has so far been slow, possibly due to the ongoing spread of Omicron. US President Biden voiced his concerns about a potential mid-February attack by Russia on Ukraine yesterday. There are no UK data releases today but the calendars for both the Eurozone and the US are busy. Already released Q4 GDP data for France saw a quarterly rise of 0.7%, better than expected but down from Q3‘s gain. This morning’s GDP releases for Spain and Germany are expected to paint a mixed picture. Spanish output is forecast to post a sizeable quarterly rise but German GDP is thought to have probably fallen reflecting the impact of the latest Covid restrictions. GDP data for Eurozone as a whole are due on Monday. Eurozone January confidence measures will provide further insight on the impact of the latest restrictions on economic activity. Other data such as the PMI measures appear to show a greater impact on services than on manufacturing. A similar result is expected from the latest confidence measures. In the US, the focus continues to be on the extent to which inflationary pressures are building. Today’s December reading for the Fed’s preferred inflation measure, the consumer expenditure deflator, is forecast to show a rise in both annual headline and core inflation in line with the already released CPI measure. Headline inflation is predicted to be up 5.8% (from 5.7% in November), which would be its highest in almost 40 years and almost treble the Fed’s inflation target. Inflation seems likely to have risen again in January not least because energy prices are up sharply in early 2022. The US Q4 employment cost index (ECI) may add to concerns that labour market tightness could further fuel inflation. The ECI is a more comprehensive but less timely gauge of labour costs compared to the measure in the monthly labour market report. It posted a record jump in Q3 and the Q4 reading is expected to have slowed only modestly. Fed Chair Powell has noted that the ECI is one of the things the Fed watches closely. Meanwhile, yesterday’s Q4 GDP data pointed to a fall in today’s reading for December consumer spending growth. Government bond markets remain under pressure in the wake of Wednesday’s US Federal Reserve monetary policy update. US shorter-dated yields rose most sharply as the market remained uncertain over how many interest rate hikes to expect this year. On Wednesday, Fed Chair Powell refused to rule out the possibility that they could rise after every subsequent policy meeting in 2022.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: 1.1075 (442M), 1.1100 (734M), 1.1130-35 (515M) 1.1150 (1.3BLN), 1.1200-10 (1.64BLN), 1.1270-75 (1.0BLN) 1.1300-10 (1.0BLN), 1.1320-25 (675M), 1.1350 (290M)1.1400 (475M), 1.1500-10 (535M)USD/JPY: 113.15 (655M), 114.00 (748M), 114.50 (645M)115.00 (1.38BLN), 115.50-55 (1.98BLN), 115.90-00 (1.7BLN) 116.50 (352M).USD/CHF: 0.8900 (500M), 0.9550 (500M)USD/CAD: 1.2555 (410M), 1.2630 (390M), 1.2695-00 (750M) 1.2800-10 (665M).AUD/USD: 0.6950 (210M), 0.7050 (458M) 0.7145-50 (700M).NZD/USD: 0.6735 (520M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.15 Bullish above EUR holds near recent lows vs USD, JPY, GBP EUR in a holding pattern in Asia for the most part near recent lows EUR/USD quiet between 1.1138-55 EBS, low yesterday 1.1131 Some chunky option expiries in area today, help contain action, cap 1.1100 E734 mln, 1.1125-40 total E615 mln, 1.1150 E1.3 bln EUR/JPY tad bid on pre-weekend/Lunar New Year position adjustments Asia 128.45-76 EBS, chunky option expiries also in area Today 126.25 E1.2 bln, 129.30 E472 mln, 130.00 E1.2 blnGBPUSD Bias: Bearish below 1.36 Bullish above. Bid as resilient stocks cap the U.S. dollar +0.1% – USD slipped with Asian stocks up and E-mini S&P futures +0.5% Strong Apple results behind equity rebound – traded +5% after hours Trades towards the top of a 1.3381-1.3395 range with moderate interest UK’s empty shop numbers dip for the first time since 2018 Charts; 5, 10 & 21 day moving averages crest-fall, 21 day Bolli’s expand Momentum studies slip, negative setup suggests further losses, but USD leads 1.3300, 76.4% December-January rise is initial significant support Break above 1.3560 21 day moving average needed to end downside biasUSDJPY Bias: Bullish above 114.50 Bearish below USD/JPY sandwiched between large option expiries at 115.00, 115.50-55 $1.4 bln 115.00, total $1.8 bln 115.50-55, 115.90-116.00 $1.7 bln too Tokyo mood risk on, Nikkei +2.1% @26,720, chunk of losses yesterday recouped Pre-weekend/Lunar New Year position adjustments tipped after recent falls US yields off recent highs but buoyant, Tsy 10s @1.815%, Thurs high 1.880% Decent Japanese importer demand at Tokyo fix, more bids on dips Japanese investors also likely buyers on dips, GPIF noted earlier in week Japanese exporters, option-related players, spec longs up top with offers EUR/JPY 128.45-76 EBS, GBP/JPY 154.19-70, AUD/JPY 81.02-33 Crosses up from recent lows but essentially heavy with risk mood volatile EUR/JPY option expiries – 126.25 E1.2 bln, 129.30 E472 mln, 130.00 E1.2 blnAUDUSD Bias: Bearish below 0.7250 Bullish above Trades towards top of a 0.7028-0.7044 range – busy early then moderate flow PPI beat expectations, +1.3%q/q vs 1.1% f’cast, 3.7%y/y vs 2.9% – no impact RBA rate decision a statement major event risk next week 5, 10 & 21 daily and weekly moving averages slide, 21 day Bolli’s expand 0.7057 lower 21 day Bollinger band suggests AUD is oversold short term Targets a test of 0.6990-94, Nov 2020 and 2021 low’s – major support Falling 0.7149 10 DMA and 0.7186 21 DMA initial significant resistance
Source: Tickmill