Daily Market Outlook, September 16, 2022

Overnight Headlines

  • Gold Steadies After Sinking To Two-Year Low As Rate Hike Looms
  • Asian Markets Weaken As IMF, World Bank Flag Recession Risks
  • Apple Overtakes Tesla As Traders Most-Shorted Stock In US Market
  • FedEx Shares Plunge 15% After Profit Warning Linked To Economy
  • China’s Retail Sales, Industrial Production Beat Expectations In Aug
  • China’s Home Prices Fall For One Year Straight As Crisis Deepens
  • Lowe Reiterates RBA Rate Hikes Will Need To Slow At Some Stage
  • Japan Signals Readiness To Act In FX Market If Yen Volatility Persists
  • N.Z. Manufacturing Activity Expands Further To 13-Month High
  • ANZ Now Sees RBNZ Raising Cash Rate To 4.75% Next Year
  • South Korea’s Record Low Unemployment Gives BOK Rate Latitude
  • World Bank’s Gill Worried About ‘Generalized Stagflation’ In Economy
  • Gensler: US To Start Review Of Chinese Audit Documents Next Week
  • Bank Of France’s Gloomy Outlook Casts Doubt On Macron’s Plans
  • Dollar Holds Ground Friday Ahead Of Fed, Yuan Under Pressure
  • China’s Swap Markets Signal Near-Term Easing Bets Are Fading
  • Oil Extends Third Weekly Drop As Global Demand Concerns Escalate

The Day Ahead

  • Asian equity markets are mostly down this morning. That was despite better-than-expected China economic data as August industrial production and retail sales both rose by more than forecast. In the US, the risk of a rail strike, which may have threatened supply chains, seems to have been averted after an agreement was reached between unions and management. Japan’s Finance Minister repeated comments made earlier in the week warning that action may be taken if the yen continues its rapid slide.
  • Just released UK retail sales data for August showed a monthly fall of 1.6%. Sales volumes rose in July for only the second time in the last six months. However, given ongoing headwinds to spending, and in particular the impact of high inflation, there were always question marks over whether this rebound was sustainable. The government’s announcement of a two-year cap on energy prices came too late to have an impact on consumer behaviour in August. Moreover, it remains unclear just how much of an impact this will have given that real incomes for most workers are still falling.
  • The rest of today’s economics calendar is light with nothing of note in the UK. The Eurozone CPI data for August is a second reading and the data is not often revised. However, upward revisions to the outcome for some individual countries, notably France and Spain, point to risk that the outturn for the region as a whole may also be revised up modestly from what was already a higher-than expected rise of 9.1%. Overall, the picture continues to be that Eurozone inflation is well above the European Central Bank’s 2% target. That presents the ECB with a major dilemma of how aggressively to follow up on the cumulative 125 basis point rise in interest rates seen at the last two meetings.
  • In the US, the University of Michigan consumer sentiment survey for September will provide a timely update. Having fallen sharply for much of this year the sentiment indicator has bounced over the past two months. From a June low of 50, well below its levels both at the time of the first Covid lockdown and financial crisis, the index bounced to a still comparatively low 58.2 in August. That may be a result of the recent fall in gasoline prices. As these have slipped further in early September it will be interesting to see whether there has been a further improvement. Heading into next week’s monetary policy meeting the US Federal Reserve will also be interested in consumers’ inflation expectations. Last month 12-month expectations declined, while longer-term expectations held steady.

FX Options Expiring 10am New York Cut

  • EUR/USD: 0.9900 (704M), 0.9925 (206M), 0.9945-50 (350M)
  • 0.9995-00 (434M), 1.0045-60 (877M), 1.0100 (942M)
  • 1.0150 (747M)
  • USD/JPY: 142.00 (465M), 144.00 (586M)
  • USD/CHF: 0.9585 (505M). EUR/CHF: 0.9700 (230M)
  • GBP/USD: 1.1375 (404M), 1.1500 (268M), 1.1600 (361M)
  • AUD/USD: 0.6650 (311M), 0.6895-00 (565M)
  • USD/CAD: 1.3345 (297M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.0250

  • Resilient – range viable into the Fed rate decision
  • Steady early after closing up 0.15%, with EUR/GBP +0.8% and EUR/JPY +0.4%
  • Euro strength was not news or data driven, more likely positioning flows
  • Fighting inflation remains the priority for the German gov’t
  • September 0.9864-1.0198 range to hold into Fed on September 21
  • Early Europe 0.9956 low and NY 1.0018 high initial support, resistance
  • 0.9945/50 349 mln, 0.9995/00 434 mln are the close strikes for Friday
  • 20 Day VWAP bearish, 5 Day bearish

GBPUSD Bias: Bearish below 1.19

  • GBP/USD drops to 37 – year low on UK retail sales miss
  • Cable falls to 1.1417 after worse than expected UK August retail sales data
  • Down 1.6% MM vs -0.5% f/c…. 1.1417 is lowest level since Sept 7
  • 1.1407 was 37-year low on Sept 7 (1.1413 was March 2020 low)
  • Retail sales miss increases BoE’s dilemma before Sept 22 rate decision
  • Fed rate hike of at least 75 bps expected Sept 21
  • 1.1449 (pre-UK retail sales data low) is now a GBP/USD resistance level
  • 20 Day VWAP is bearish, 5 Day bearish

USDJPY Bias: Bullish above 139

  • USD/JPY slumps post – Tokyo fix, US names sell, BoJ caution
  • Good demand noted from Japanese importers into Tokyo fix
  • That said, USD/JPY upside limited to 143.52 EBS early
  • US names reported with good offers up top, helped cap market
  • More sales once Japanese importer demand dried up, USD/JPY to 142.83
  • Market has since steadied, still inside day, low 142.80 yesterday
  • Talk caution ahead of long Tokyo weekend, possible BoJ moves
  • Though unlikely, BoJ FX intervention and policy tweak possibilities
  • Most flows for day now seen over, market seen steady into London
  • 20 Day VWAP is bullish, 5 Day bearish

AUDUSD Bias: Bearish below .70

  • AUD demand evaporates above the 0.6682 2022 base, USD to lead
  • No major surprises from RBA Governor Lowe – remains data driven
  • RBAWATCH split on Oct 2nd meeting – 25pt hike 52.15% chance, 50pts 47.85%
  • 20 day VWAP bands and daily momentum studies edge south – bearish setup
  • 0.6682 July and 2022 low held – break targets 0.6463 61.8% 2020/21 rise
  • Asian 0.6685 low and New York 0.6749 high initial support, resistance
  • 20 Day VWAP is bearish, 5 Day bearish

BTCUSD Bias: Bearish below 25.3K

  • BTC sub 20k again
  • Ether’s completed Merge sends it into a bearish lane
  • ETH was slammed more than 10% on Thurs; last $1,476.80
  • Falls below Ichimoku cloud base $1,518.42, turns bearish
  • Also enters VWAP downtrend channel; cap at 1,505.42
  • These bearish chart signals hint at return to July troughs
  • ‘Merge’ completed, buy-rumor-sell-fact hit
  • Adding to that, general risk-off hit crypto broadly
  • 20 Day VWAP is bearish, 5 Day bearish