Daily Market Outlook, April 25, 2022

Overnight Headlines

Global growth concerns have started to grip investors as the coming week reveals the first read on Q1 GDP from the U.S., Eurozone, and Canada. Other U.S. data include core PCE index, durable goods, University of Michigan consumer sentiment and new home sales. Other key EZ data include German IFO and EZ CPI. There isn’t any key UK data of note this week.

China will be releasing industrial profit data on Wednesday, while the official and Caixin PMIs for April are due Saturday. Japan will this week publish employment data along with retail sales and industrial output.

Australia's CPI on Wednesday will be important for fine-tuning the Reserve Bank of Australia's rate-hike expectations. The focus will be on the trimmed and weighted mean which are expected to come in at 3.4% and 3.3% Y/Y respectively.

The aggregate bullish USD position fell again for the third consecutive time this week in a period when the USD gained ground against all the currencies that we cover in this report, with the exception of the CAD. The overall position fell by USD522mn, after a USD1.4bn decline last week, to total USD12.3bn or about USD4.0bn off its recent high in late-March. The JPY and CHF lagged almost all the major currencies this week with respective losses of 2.7% and 2% against the USD amid the weight of widening yield differentials versus the USD. However, their respective bearish positions were reduced slightly over the period as gross shorts declined and gross longs increased. Speculators reduced by USD755mn the large JPY short to total USD10.4bn, more than reversing the USD648mn move against the yen last week. In the case of the CHF, a USD365mn shift in its favour undid the bets against it in the previous two weeks, taking the net short to USD1.5bn.

The EUR’s break under 1.08 has triggered a weakening in EUR sentiment as investors reduced the currency’s aggregate long by USD1.1bn to total USD4.2bn. This shift roughly unwinds 2/3rds of the previous week’s move of USD1.6bn favouring the EUR, with more reductions likely ahead as the currency looks on track extend recent losses to perhaps test the pandemic low of 1.0636. The GBP’s short position (with the currency unchanged over the period) rose further as accounts added USD457mn to the aggregate short that now totals USD4.8bn—its highest level since late2019. Since the data cutoff, the GBP has dropped to its weakest level since Sep 2020.

After the BoC’s 50bps hike last Wednesday and ahead of inflation data this week (which easily beat expectations), investor sentiment in the CAD improved over the week with a USD721mn rise in its aggregate long that now takes the bullish position to USD1.7bn—or about USD2.5bn below the largest position of the currencies in this report, that of the EUR. The CAD was the top performing major currency in the week to Tuesday by virtue of a small 0.2% gain vs the USD. According to the data, speculators had not held such a positive outlook on the CAD since last July, although price action over the past two sessions with USDCAD on track to close above 1.27 today would suggest a moderation in CAD-bullish sentiment in recent trading.

The AUD and NZD, which saw losses of 1.1% and 1.6% respectively over the week, saw practically no change in their respective positions. The large AUD short fell by USD15mn, far from last week’s USD702mn reduction, to remain around USD2.1bn. The diminutive NZD short turned into an inconsequential NZD long of USD25mn through a week that included a large hike by the RBNZ—but with disappointing guidance suggesting a lower terminal rate than markets are expecting.

Finally, the MXN position improved slightly despite struggles to remain under the 20 pesos per USD mark this week. Accounts shifted USD163mn for the MXN to take its aggregate long position to USD541mn—its highest since early-March.

EURUSD Bias: Bearish below 1.12 Bullish above

GBPUSD Bias: Bearish below 1.3350 Bullish above.

USDJPY Bias: Bullish above 120 Bearish below

AUDUSD Bias: Bullish above .7300 Bearish below

AUD/USD pressured by extended sell-off in metals and industrial metals
Iron ore futures tank by more than 11% early, sending the AUD/USD below twds 0.7200
Spot iron ore in China slumps by 8% last to $143/tonne, demand deem amid covid-19 outbreak, lockdowns
Fall in commodity prices add to pressure in AUD, last at 0.7189-61
China NDRC told steel firms to adhere to green development, further cutting demand
AUD/USD eyes 0.7165, low last on 15th March, stronger support cited at 0.7100, bears tgt 0.70 nearterm
Failure at 0.7165 today amid overshot in 21day BB risks bounce back to 0.7250 intraday
Focus on Q1 GDP due on Wed, mtks expect another strong set of numbers
Most economists expect the RBA to hike rates in June