Daily Market Outlook, April 22, 2022
Overnight Headlines
- Nomura Expects Fed To Hike By 75 Basis Points In June And July
- Fed's Powell, Half-Point Hike In View, Completes Hawkish Pivot
- Fed's Daly: Hiking Fed Policy Rate Beyond 2.5% Is Open Question
- Bank Of Canada Leaves Door Open To A 75-Basis-Point Rate Hike
- UK Consumer Confidence Plunges To Near Record Low In April
- UK May Give Ministers Power To Tear Up NI Brexit Trade Deal
- Shanghai Deaths Rise As City Vows To Enforce Strict Covid Rules
- Japanese Consumer Prices Rise At Fastest Pace In Over 2 Years
- Westpac Sees RBA Hiking Cash Rate By 40 Basis Points In June
- US Five Year Yields Top 3.0% As Market Goes Hyper Hawkish
- Japanese Nikkei Leads Asian Bourses Lower; US Futures Fall
The Day Ahead
- Asian equity markets are mostly lower this morning. Reports attribute that to concerns about aggressive monetary policy tightening. Yesterday Fed Chair Powell talked about the possibility of two successive 50 basis point hikes in US interest rates and Bank of Canada head Macklem acknowledged the possibility of larger interest rate rises. However, European Central Bank Lagarde’s comments were more balanced than the hawkish remarks made by some of her colleagues this week.
- Just released UK retail sales data for March showed a larger-than-forecast monthly fall of 1.4%. The GfK consumer confidence measure for April also posted a larger-than expected drop to -38 from -31 in March taking it below its pandemic low. The data will have done nothing to ease concerns about the near-term outlook for consumer spending given the squeeze in household spending power arising from the current high level of inflation.
- The rest of today’s data calendar is dominated by April manufacturing and services PMI updates. Last month saw a big jump in the UK services measure as the post-Omicron rebound in consumer-facing services continued but the manufacturing index fell to its lowest since last February. This month’s data will be watched for evidence on how much the Ukrainian crisis is impacting the UK. Notably, whether there are signs of further inflationary pressures and supply side constraints arising from the conflict. As well as any indication that consumer demand is being affected by the recent sharp rise in inflation. Expect both measures to be down in April but to remain at relatively upbeat levels, April manufacturing and services PMIs will also be out for the Eurozone and the US. These will likewise be watched for hints on inflationary pressure, supply bottlenecks and indications whether demand is holding up. The Eurozone manufacturing PMI measure fell in March, but the services index rose very modestly. Given the Eurozone’s closer economic links to Russia and Ukraine (relative to the UK or the US) it seems likely to be more impacted by the crisis. Consequently, expect falls in both indices this month, consistent with signs of moderating economic growth.
- European Central Bank President Lagarde’s speech will be watched for further clues on monetary policy. Earlier this week some other ECB policymakers said that a July interest rate hike is a possibility. She did not rule that out in remarks yesterday but did emphasise the need for the ECB to proceed cautiously. BoE Governor Bailey is also set to speak. Yesterday he said the central bank was walking a tight line between tackling inflation and the risk of recession.
FX Options Expiring 10am New York Cut
- EUR/USD: 1.0700 (814M), 1.0825 (398M), 1.0850 (760M) 1.0900 (1.46BLN), 1.0925-30 (550M), 1.0950 (491M)
- USD/JPY: 128.75 (270M).
- USD/CHF: 0.9345-50 (490M) 0.9420 (208M), 0.9445 (208M)
- AUD/USD: 0.7500 (213M), 0.7550 (318M)
- USD/CAD: 1.2500 (694M), 1.2540-50 (1.0BLN), 1.2580-85 (530M)
Technical & Trade Views
EURUSD Bias: Bearish below 1.12 Bullish above
- Under pressure from rising US yields in Asia
- EUR/USD opened -0.21% @ 1.0831 after hawkish Fed speak sent US yields higher
- EUR/USD firmed in Asia and traded to 1.0846 despite US yields moving higher
- Talk of EUR/AUD short-covering helped to underpin EUR/USD
- Heading into the afternoon it is trading around 1.0840
- EUR/USD getting some support on expectations Macron will win French election
- EUR/USD holding around 10-day MA at 1.0833 with bids tipped at 1.0785/1.0800
- Support is at the April 14 trend low at 1.0758
- Resistance is @ the 21-day MA @ 1.0913 and break would ease downward pressure
GBPUSD Bias: Bearish below 1.3350 Bullish above.
- Soured risk and higher UST yields weigh
- -0.05%, with U.S. dollar little changed, despite higher UST yields in Asia
- Traded a 1.3009-1.3033 range with only occasional bursts of interest on D3
- British consumer morale plunged near all-time low in April: GfK
- Charts, positive momentum studies, 5, 10 & 21 day moving averages edge lower
- 21 day Bolli bands contract - negative bias after a week of consolidation
- Close above 1.3073 21 day moving average would be a bullish signal
- Wednesday's 1.2995 low and last week's 1.2973 2022 base first supports
- 1.3167-1.3174 is major resistance, April high and 61.8% March-April fall
USDJPY Bias: Bullish above 120 Bearish below
- USD/JPY consolidates near recent highs, US yields consolidate too
- Asia 128.28-69 EBS, interest abating with weekend nigh
- US yields also hold at highs, Tsy 10s 2.926%-2.975% in Asia, now @2.956%
- Japanese importers, others still in dip-buy mode, exporters up top
- Volume of Japanese official jaw-boning higher, helps cap upside for now
- All bet off however if US yields up further, maybe not till FOMC
- Asia risk off after Wall St falls, Nikkei 1.9% @27,033, E-Minis -0.4% @4393
- JPY crosses in holding pattern, EUR/JPY 139.05-48 EBS after push to 140.00
- GBP/JPY 166.91-167.90, AUD/JPY heavy, 94.73 to 94.18, CAD/JPY 101.82-102.14
AUDUSD Bias: Bullish above .7300 Bearish below
- Falls in Asia as risk assets sold and US yields firm
- AUD/USD opened -1.07% at 0.7371 after reversing lower on hawkish Fed
- After trading at 0.7377 the AUD/USD came under heavy pressure
- US yields continued to march higher in Asia while AXJ equity index fell 1.2%
- AUD/USD broke below support at 0.7335/45 before settling above 0.7340
- The 55-day MA & a trendline are @ 0.7335/45 and close below would be bearish
- Key support is at the 200-day MA at 0.7295 with bids eyed around 0.7300
- Key commodities showing signs of topping and adding pressure on AUD
- Resistance is at the 21-day MA at 0.7458 and break would ease pressure
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!