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Daily Market Outlook, February 2, 2022
Overnight Headlines
- Fed Won’t Be Rushed In Its Hiking Path By Wall Street Frenzy
- Fed's Bullard Sees Three Successive Hikes To Start Tightening
- Goldman Sees QT Fuelling Treasury Volatility, Hurts Liquidity
- Key Democrat Foresee CTC Scale-Back To Win Over Manchin
- House GOP Opposition Put US-China Competition Bill At Risk
- US Dangle Russia Offer On Missile Check At Key NATO Bases
- President Putin Accuses US Of Trying To Lure Nation To War
- RBA’s Lowe: To Do What Is Needed To Keep Inflation Stable
- UK’s PM Tries To Reset Leadership By ‘Levelling Up’ Policies
- UK Retailers Raise Shop Prices In Most Since 2012, BRC Find
- OPEC+ Seen Sticking To Existing Policy Despite Oil Price Rally
- Google Shakes Off Covid With Shopping Ads, Cloud Revenue
The Day Ahead
- Asian stock markets are mostly up this morning as the global rally in equities continued. Markets were buoyed by strong profits reports and comments from Fed Reserve policymakers suggesting that US monetary policy tightening will take place at a ‘measured’ pace. In the UK, press reports suggest that the government has agreed a ‘rebate and clawback’ scheme to offer temporary support for rising household energy bills.
- Michael Gove the UK government’s Levelling Up Minister will make a speech today to launch his delayed White Paper. Reporters who have seen preliminary copies have focused on proposals to devolve more power to regions and key policy measures including a regeneration programme that will see areas prioritised for a £1.5bn Brownfield Fund. However, some commentators have raised concerns that most of the initiatives are a rehash of previously announced measures.
- Annual Eurozone CPI inflation for January is likely to be down from December but by less than was expected by analysts last week. CPI data releases for France, Germany and Spain posted smaller than forecast falls pointing to upside risks for the Euro area. As a result, we expect overall Eurozone inflation to slip to 4.8% (from 5.0% in December) considerably higher than the initial consensus forecast of 4.3%. The core rate is also expected to fall by less to 2.3% (from 2.6% in December).
- Given the relatively low reading for core inflation the ECB can still point to inflationary pressures being lower than in the US or UK. Nevertheless, it will be interesting to see whether ECB President Lagarde continues to forcefully row back against rising market expectations of rate hikes starting in 2022 at Thursday’s monetary policy update.
- Today’s ADP US private sector employment report will as usual be closely watched as a predictor of Friday’s Non-Farm payrolls data, even though it often proves unreliable. Indications of a slowdown in economic activity due to Omicron has prompted speculation that the January jobs report may be weak. Expect today’s report to show only a 205k monthly rise in jobs, which would be the weakest for 11 months. However, that seems very unlikely to stand in the way of the Federal Reserve’s intention to raise interest rates in March as for now they regard the slowdown as mostly a short-lived impact.
G10 FX Options Expiries for 10AM New York Cut
(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )
- USDJPY - 116.00 1.54bn (C). 115.50 761m. 114.90/115.00 1.32bn (823m C). 114.50 720m. 114.30 476m. 113.60 990m. 113.20 600m. 112.90 600m.
- EURUSD - 1.1350 417m. 1.1240/50 1.42bn (1.03bn P). 1.1210/20 420m. 1.1190/1.1200 793m.
- GBPUSD - 1.3640/50 504m.
- AUDUSD - 0.7390/0.7400 1.72bn (911m C). 0.7350/60 933m. 0.7250 563m. 0.7050 506m.
- AUDNZD - 1.0520 1.06bn (660m P).
- USDCAD - 1.2660/70 470m. 1.2500 711m. 1.2450/70 600m.
- USDCHF - 0.9250 435m.
- AUDJPY - 83.70 1.01bn (606m C).
- EURNOK - 10.03 629m. 9.97 400m. 9.96 550m.
- EURAUD - 1.5600 363m. 1.5500 1.59bn (859m C).
Technical & Trade Views
EURUSD Bias: Bearish below 1.15 Bullish above
- Maintains bid tone in quiet Asian session
- EUR/USD opened +034% at 1.1274 after USD fell for the second straight day
- In a quiet Asian session, the EUR/USD eked out a 1.1268/78 range
- Much of Asia was closed but open equity markets moved higher and E-minis rose 0.47%
- EUR/USD resistance is at 55-day MA at 1.1305 and 21-day MA at 1.1317
- 10-day MA at 1.1260 held in Asia with more support at yesterday's 1.1220 low
GBPUSD Bias: Bearish below 1.36 Bullish above.
- Sustains Tuesday's gains, as 'levelling' resurfaces
- Steady in a super tight lunar-holiday 1.3522-1.3527 range with modest flow
- UK retailers raise shop prices by the most since 2012
- Adds to the pressure on the BoE to counter inflationary pressures Thursday
- Johnson tries deflect 'partygate' with 'levelling up' policies
- Charts; three day bounce ends the downside bias, as signals turn neutral
- Momentum studies 5, 10 & 21 DMAs conflict, 21 day Bollinger bands flat line
- Setup suggests consolidation - close above 1.3559 21 DMA would be bullish
- 1.3496 NY afternoon low and 1.3559 21 DMA are initial support and resistance
USDJPY Bias: Bullish above 114.50 Bearish below
- USD/JPY sideways in thin, holiday – affected Asia trade
- USD/JPY has done absolutely nothing in Asia, 114.65-78 EBS so far
- Lunar New Year has market very thin, little incentive for many to trade
- Japanese importer, other bids still eyed on dips towards 114.50, below
- Upside capped from @115.00 on weak USD, ebbing of hawkish Fed expectations
- Tech support at 114.38 slowly ascending 55-DMA, Ichi kijun 114.91 above
- Option expiries today to help contain action
- 114.30-35 $476 mln, 114.50 $720 mln, 114.95-115.00 $1.3 bln
- US yields steady, Tsy 10s @1.790%, risk-on, Nikkei +1.6% @27,497
AUDUSD Bias: Bearish below 0.7250 Bullish above
- AUD/USD little changed after RBA Governor Lowe's speech was released
- Lowe repeated view that RBA was prepared to be patient
- He also added that inflation and unemployment goals were in sight
- RBA Governor siad they do not need to stay in lock step with other central banks.
- RBA will continue to monitor price pressures, consumption and wages
- There was little in the speech that varied from the RBA statement yesterday
- AUD/USD traded as high as 0.7145 before speech as risk on mood persists in Asia
- Resistance is at 0.7165/75 where the 21 and 55-day MAs converge
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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!