Daily Market Outlook, May 18, 2022 Overnight Headlines Fed’s Powell: Will Keep Pushing Until Inflation Comes Down Fed’s Evans: Wants Smaller Rate Hikes By July Or September US To Block Russian Debt Payments, Raising Odds Of Default China Covid-19 Flareup Raise Risk Of More Disruptive Curbs Chinese New Home Prices Fall In First Time Since December Japan’s Sputtering Recovery Offers Support For BoJ Stimulus Australia Election Poll Show Race Tightening In Final Stretch ECB’s Lagarde Offers National Chiefs Louder Voice On Policy EU Set To Map Out Escape Path From Russian Fossil Fuels EU Offers Protocol Olive Branch While Threatens Trade War Poll: UK Living Cost Crisis Peaks This Year, BoE To Press On Twitter Board Say Plans To Enforce Musk Merger AgreementThe Day Ahead Asian equity markets are mostly higher with the notable exception of Chinese stocks. Investors digested hawkish comments from US Federal Reserve Chair Powell last night who said that interest rates will continue to rise until inflation is falling in a ‘clear and convincing way’ and that the Fed will not hesitate to move rates above their ‘neutral’ level to slow demand. He reiterated expectations for further 50bp hikes at the next two meetings in June and July, and left the door open for further half-point increases if needed. Data released earlier this morning showed UK annual CPI inflation rising from 7.0% to 9.0% in April, slightly below expectations for 9.1% (the first undershoot in seven months) but nevertheless the highest since the CPI series began. The old RPI measure increased to a forty-year high of 11.1%. The rises were driven primarily by the sharp increase in the Ofgem energy price cap. Food and restaurant prices were also among items providing a big positive contribution. The annual rate for core CPI inflation (excluding food and energy) rose to 6.2% from 5.7%. A further significant increase in the energy price cap could push overall inflation to a new high later this year. Inflation figures for April will also be released for the Eurozone and Canada later today. In the case of the Eurozone, they are final readings and are expected to confirm preliminary estimates showing a rise to 7.5% for headline CPI and 3.5% for core CPI excluding food and energy. Despite uncertainties about the economic outlook following Russia’s invasion of Ukraine, there have been calls from a growing number of ECB policymakers for interest rate ‘lift-off’ in July. In Canada, annual headline CPI inflation is expected to stay at 6.7%, maintaining pressure on the Bank of Canada to raise interest rates further. After hiking by 50bp in April to 1%, another half-point increase is widely anticipated in June, with further hikes seen in the second half of the year. The impact of higher interest rates on the US housing sector will be closely watched. Expect this afternoon’s housing starts and building permits data for April to show falls. The Fed’s Harker is scheduled to discuss the economic outlook, with interest rates expected to be raised by 50bp at the next two monetary policy meetings in June and July to bring the upper end of the target range for the fed funds rate to 2%. The big uncertainty is whether rates to have to be increased above ‘neutral’ (estimated to be 2-3%) to slow demand and tame inflation.FX Options Expiring 10am New York Cut EUR/USD: 1.0400 (216M), 1.0675 (198M), 1.0700 (542M) USD/JPY: 129.25 (325M). EUR/JPY: 136.90 (300M) GBP/USD: 1.2525 (399M) AUD/USD: 0.7300 (270M). USD/CAD: 1.2690-00 (490M) NZD/USD: 0.6700 (329M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.07 Bullish above EUR/USD opened +1.1% at 1.0550 after USD & JPY fell and equities soared The mood remained buoyant early Asia and EUR/USD traded up to 1.0564 The USD rebounded as Asian equity rally faded EUR/USD VWAP trending lower Resistance 1.0620 and break would warn momentum is slowing Support seen at 1.0470/50 break would encourage a retest of cycle lowsGBPUSD Bias: Bearish below 1.26 Bullish above. Cable falls to 1.2464 after UK April CPI comes in slightly below forecast 9.0% YY vs 9.1% forecast, 40-year high, 1.2501 was Asia high 1.2501 highest since May 5 (when GBP slumped on BoE’s UK recession warning) 1.2498 was Tuesday’s high, after GBP jumped on strong UK jobs/earnings data Offers at 1.25 daily VWAP remains bearishUSDJPY Bias: Bullish above 127 Bearish below USD/JPY bid early, off later in non-exciting trade, 129.09-53 EBS range Moving in tandem with moves in US yields, Treasury 10s 2.964-2.992% range Japanese importers, some specs on bid towards 129.00, below Offers noted from 129.50, trail up, some from Japanese exporters Only nearby option expiries of note $325 mln at 129.25 today Support at 129, daily VWAP turning bearish AUDUSD Bias: Bullish above .7200 Bearish below AUD/USD opened +0.83% at 0.7029 after USD & JPY fell on risk rally The mood was buoyant early Asia and AUD/USD traded up to 0.7046 It was around 0.7035 when Aus WPI came in just below expectations AUD/USD fell to 0.7010/15 as data cooled expectation of aggressive RBA hikes Support eyed at .6950 Resistance is at the the daily VWAP .7050
Source: Tickmill
