Daily Market Outlook, May 13, 2022

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Daily Market Outlook, May 13, 2022 Overnight Headlines Shanghai Aims To Achieve No Community Spread By Mid-May Rate Hike Bets Build In Japan, Despite BoJ Easy Money Insistence BoJ’s Kuroda: Expected Rise In Inflation Will Lack Sustainability Kuroda Rules Out Near-Term Chance Of Tweaking BoJ’s Dovish Guidance Australian DefMin: Chinese Spy Ship In Waters ‘An Act Of Aggression’ Fed’s Powell Can’t Guarantee ‘Soft Landing’ As Fed Looks To Control Inflation Fed’s Daly: No Reason To Alter Course For 50 Bps At Next 2 Meetings Fed Chair Jerome Powell Has Been Confirmed For Second Term Ukraine Aid Delayed After GOP Senator Rand Paul Objects To Vote BoC’s Gravelle: Bank Of Canada’s 1% Policy Rate ‘Too Stimulative’ US Team Flies To UK Amid Fears Over Northern Ireland Deal Market Nerves Prop Up Safe-Haven Dollar And Japanese Yen Oil Climbs Even As Weaker Demand Concerns Cap Gains EU Starts Considering Delay In Oil Sanctions As Hungary Digs In Asia Shares Rise As Fed Chief Again Pushes Back On Bigger Rate Hikes Musk Seeks To Scrap Tesla Margin Loan With New Twitter FundingThe Day Ahead There are limited economic data releases out of the UK and the Eurozone today. Expect Eurozone industrial production for March to fall by 1.8%m/m, partly reflecting the sharp 5.0%m/m drop in German output which highlights the impact of the war in Ukraine on the country’s industrial activity. Nevertheless, given that Eurozone CPI inflation has risen to 7.5%, there is still a focus on the increasing likelihood that the ECB is preparing for a July interest rate lift-off. Several ECB speakers have indicated that they favour or are open to a July hike. Notably, Bundesbank President Nagel favours a July rise, while President Lagarde has indicated that it is on the table. The ECB’s Centeno, Nagel and Schnabel are all scheduled to speak today. US data in the afternoon session include import price inflation data and the University of Michigan consumer sentiment survey. Consumer sentiment rose in April for the first time in four months to 65.2 as a strong labour market appeared to outweigh concerns about rising inflation. It is nevertheless sharply down from a year ago, expect it to dip to 63.5 for today’s preliminary May reading. US Fed speakers include Kashkari and Mester. The Fed last week increased rates by 50bp, the biggest rise since 2000, and confirmed that the reduction in its balance sheet (reversing QE) will commence in June. As noted above, Chair Powell indicated that 50bp rises at the next two meetings in June and July are likely which would bring the top end of the target range for the fed funds rate to 2%. That would be close to the neutral rate estimated to be somewhere between 2-3%. It is not clear at this juncture whether rates will have to rise above the neutral level to tame inflation which would likely to materially slow the economy.FX Options Expiring 10am New York Cut USDJPY – 129.90/130.00 550m. EURUSD – 1.0440/50 500m. 1.2350/70 600m. 1.2200 724m. 1.2100 647m. AUDUSD – 0.6720 1.25bn (P). USDCAD – 1.3040/60 1.71bn (1.15bn C). 1.2990/1.3000 1.07bn (898m C). 1.2740/50 1.25bn (722m P). EURCHF – 1.0400 817m. EURJPY – 137.50 629m. 134.50 643m. USDZAR – 16.75 1.10bn (C). 15.50 560m. Technical & Trade ViewsEURUSD Bias: Bearish below 1.07 Bullish above Trades +0.1% with the USD and UST yields firmer in a 1.0373-1.0398 range Optimism resurfaced in Asia, E-mini S&P +1%, Nikkei +2.5%, AsiaxJP +1.6% Positive sentiment may flow through to Europe, providing euro support Charts; daily momentum studies, 5, 10 and 21 day moving averages slide 21 day Bolli bands fall, bearish setup suggests a break of 1.0340 2017 low Close above 1.07 21 to end the downside bias – no close option strikes 1.0373 Asian low and 1.0464, 38.2% May fall initial support, resistanceGBPUSD Bias: Bearish below 1.26 Bullish above. +0.2%, as optimism resurfaced in Asia – E-mini S&P +1%, Nikkei +2.7% Trades towards the top of a 1.2193-1.2225 range with moderate interest Powell said he will fix inflation…, UST yields firmed Charts; momentum studies, 5, 10 & 21 day and week moving averages slide 21 day Bollinger bands fall, as the strong bearish setup gains momentum 1.2415 remains the first major resistance Close above the 1.26 needed to end the downside bias Targets a test of long term support at 1.2082, 76.4% of the 2020-2021 riseUSDJPY Bias: Bullish above 127 Bearish below USD/JPY rallies 0.4% as stocks recover in Asia after a bruising week Rises from a 128.30 open to 129.35 but fails to sustain gains Traders remain risk averse on global inflation and economic fears Markets dogged by fear rising global interest rates will spark recession USD downside limited as Powell reiterates rate pain warning Support 128.30-35, 128.00-05, 127.50-55, resistance 129.35-40, 129.65-70AUDUSD Bias: Bullish above .7200 Bearish below AUD/USD rallies 0.4% as stocks recover in Asia after sharp falls this week Trades in relatively narrow 0.68565-0.68915 range as bearish mood persists Inability to bounce much after 3.45% drop this week a sign of weakness Concerns on China’s economy, COVID lockdowns, weak CNY weigh Metals slide; copper consolidates after fall below $ 9k to 7-month low Thurs Focus shifts to AU wages, jobs data next week for clues on RBA rate path Resistance 0.6910-15, 0.6945-50; support0.6830-35, 0.6800-05, 0.6759

Source: Tickmill

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