Daily Market Outlook, May 3, 2022 Overnight Headlines RBA Lifts Rates By 25bps, Just Weeks Out From Election Australia’s Weekly Consumer Confidence Tumbles Amid Rate Jitters New Zealand Government Raises Debt Ceiling, Sets Surplus Limit USTR Tai: All Tools On Table To Beat Inflation, Tariffs Not Top Of List Italy Approves €14Bln Of Stimulus Measures As Growth Outlook Weakens US Dollar Approaches 20-Year Highs With The Fed Meeting In Focus Treasury 30-Year Yield Climbs Past 3% Ahead Of Fed Rate Decision US Tsy: Q2 Borrowing F’cast Assumes End-Of-June Cash Balance Of $800Bln Oil Holds Above $105 As Demand For Fuels Offsets China Lockdown EPA Sends Biofuel Blending Mandate Rule To White House For Final Review EU Plans To Issue Detailed Guidance On Russia’s Rubles-For-Gas Demand Germany Warns EU To Expect Economic Cost From Russian Oil Embargo Alibaba Recovers After Report On ‘Ma’ Briefly Erased $26 Billion Citi’s London Trading Desk Behind European ‘Flash Crash’The Day Ahead The Reserve Bank of Australia (RBA) delivered a larger-than-expected hike in interest rates at its May policy meeting. The ‘cash rate’ was lifted by 25bp to 0.35%, more than the 15bp expected by financial markets. This is the first time in almost 15 years that Australian policy rates have been lifted during an election campaign, with RBA Governor Lowe signalling that further increases were likely in the months ahead. A number of Asian equity markets remain closed for holidays, however, having opened sharply lower – the Hang Seng has now recovered back into positive territory. Elsewhere, equity market performance is relatively mixed ahead of the US Federal Reserve’s latest policy announcement tomorrow. Yesterday, a key measure of US factory gate sentiment – the ISM manufacturing index – unexpectedly dropped sharply as growth of new orders and output eased back in April. In part, the moderation in activity also reflected a rise in supply issues, related to the war in Ukraine and lockdowns in China, with US factories reporting longer lead times and further increases in prices. This backdrop of potentially moderating growth amid an uncomfortably high rate of inflation is symptomatic of trends across a number of major economies, albeit to varying degrees. Central banks face the challenge of how to manage this divergence. The US Federal Reserve and Bank of England will deliver their latest policy announcements this week with both expected to hike interest rates. However, their guidance on further policy moves may show differences in their perceptions of the relative risk of higher inflation versus lower growth. The Fed begins its two-day meeting later today ahead of its announcement tomorrow. Data wise, the calendar is light with only March readings for factory orders, durable goods orders (final) and JOLTS job openings due. Similarly, there is a dearth of key releases due across Europe. In the UK, the final reading of the April manufacturing PMI is not expected to be materially revised from the ‘flash’ estimate of 55.3, which was broadly unchanged from the March outturn. The US dollar has trimmed some of yesterday’s gains but nevertheless continues to hold close to levels seen during the height of the pandemic in Q2 2020. 10-year US Treasury yields have also broken above the 3% mark for the first time since December 2018 in the run up to tomorrow’s policy announcement. With no major economic data releases due today, expectations for tomorrow’s meeting are likely to be a key driver of market moves today.FX Options Expiring 10am New York Cut USDJPY – 129.60/70 880m. 127.00 860m. NZDUSD – 0.6770/80 465m. USDCAD – 1.2670/80 549m. Technical & Trade ViewsEURUSD Bias: Bearish below 1.0950 Bullish above Gently bid as risk currencies rally against USD EUR/USD opened -0.32% at 1.1508 after USD rose against most currencies After trading at 1.0507 it tracked higher led by rallies in AUD and NZD EUR/USD traded to 1.0526 and is settling around 1.1520 into the afternoon Trading was quiet and market was thin due holidays in most of Asia EUR/USD trending lower with the 5, 10 & 21-day MAs in a bearish alignment A break above the 10-day MA @ 1.0647 is needed to ease the downward pressure Support is at last week’s low at 1.0469 and break targets 2017 low at 1.0340 Eur/USD may consolidate ahead of key FOMC meeting on WednesdayGBPUSD Bias: Bearish below 1.30 Bullish above. GBP/USD could be building for a deeper drop Longs at risk as a bearish continuation forms on the dailies Daily RSI is still bumping along sideways below the 30 line 14-day negative momentum has increased but also looks stretched Recent price extremes provide trigger/squeeze points, 1.2412-1.2613 Weekly bear trend still very much alive too Some mixed signals but advantage bears and our 1.2515 long vulnerableUSDJPY Bias: Bullish above 125 Bearish below Touch softer, but the primary uptrend remain strong -0.1% in a low key 129.86-130.20 range with Tokyo starting a 3 day holiday No significant Japan market related news – USD, UST yields and risk lead Two consecutive inside days, with horizontal Tenkan and Kijun lines Setup suggests short term range, though May 4 FOMC may provide volatility Friday’s 129.32 low, and last week’s 131.25 high are the initial key levels Longer term 5, 10 and 21 day, week and month moving averages head higher Unusual and powerful trending signals – 126.26 Kijun line is key support Long term targets 135.04/20 monthly highs in February and January 2002AUDUSD Bias: Bullish above .7300 Bearish below RBA hikes 25 BPs to 0.35% and sends AUD/USD higher AUD/USD opened little changed at 0.7052 after Wall Street rally underpinned After trading at 0.7047 it zipped higher when commodity currencies rallied E-mini futures rose over 0.50% and encouraged AUD, NZD and CAD buying AUD/USD traded to 0.7100 where offers at that level capped Heading into the RBA decision the AUD/USD was trading around 0.7090 RBA surprised many with a 25 BP hike to 0.35% and AUD/USD popped to 0.7140 RBA indicated in statement that more rate hikes are forthcoming The AUD/USD traded as high as 0.7147 before easing to 0.7120 Resistance is at the 10-day MA at 0.7182
Source: Tickmill
