Daily Market Outlook, February 3, 2022

Overnight Headlines

  • Fed’s Daly: ‘Gradual’ Rate Hikes Won’t Derail The Economy
  • Biden’s Three Fed Board Nominees Vow To Tackle Inflation
  • Yellen Sets Inflation Blame Abroad, Defends Biden Stimulus
  • US House China Competition Bill Set For Passage This Week
  • US Sends 3,000 Troops To Aid Allies In Russia-Ukraine Crisis
  • Putin Hails Russia’s Stabilising Role Before Meeting With Xi
  • BoC’s Macklem: It’s Unclear How Quickly Inflation Will Drop
  • ECB Expected To Hold But May Acknowledge Inflation Risks
  • Bank Of England Set For Historic Rate Hike To Curb Inflation
  • Five More MP Letters Ratchet Up Pressure On UK’s Johnson
  • Global Bonds Rally As Growth Concern Fan Havens Demand
  • Meta Plunges As Facebook Users Halts, Forecast Falls Short

The Day Ahead

  • U.S. stock futures are down sharply in early London trade – Nasdaq futures are sliding 2% with tech stocks globally in the doldrums. Facebook owner Meta Platforms Inc's shares plunged more than 20% late on Wednesday after posting weaker-than-expected forecasts. In Japan, Sony and Panasonic shares fell over 6%, while stock futures point to a weak open in Europe.
  • BoE looks set to hike its key rate 25 basis points to 0.5% – the threshold at which it has said it will start unwinding its 895 billion pound ($1.2 trillion) quantitative easing programme. For some, markets are underestimating the risks of so called quantitative tightening, QT for short. Others note the BoE's ability to surprise, noting November when markets were positioned for a rate hike and the BoE left rates unchanged and then December, when markets expected no move and the BoE hiked.
  • The ECB meanwhile is not expected to change policy on Thursday. But ECB President Christine Lagarde may have to acknowledge that inflation could stay high for longer than it had projected, a signal that may be taken by some as a hint at a faster exit from stimulus on Wednesday showed a 5.1% January inflation print, the highest ever for the euro zone. Markets price 30 bps of tightening by year-end; the ECB insists a move in 2022 is unlikely. If Lagarde admits price pressures have been underestimated, rate-hike bets could be bought forward, triggering an unwanted tightening of financing conditions.

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 - 116.00/10 438m. 115.70/80 774m. 115.10/20 1.55bn (878m P). 114.90/115.00 1.93bn (1.18bn C). 114.40/50 689m. 114.00/20 753m. 113.70/80 623m. 113.00/20 957m. 112.50 800m.
  • EURUSD - 1.1360/70 632m. 1.1330/40 908m. 1.1310/20 1.35bn (747m C). 1.1290/1.1300 2.54bn (1.65bn P). 1.1270 458m. 1.1250 484m. 1.1220 813m. 1.1190/1.1200 862m. 1.1170/80 764m. 1.1160 633m. 1.1140/50 1.56bn (1.23bn P).
  • GBPUSD - 1.3700 463m. 1.3500 687m. 1.3400 782m.
  • AUDUSD - 0.7200/20 1.27bn (717m P). 0.7140/50 1.32bn (759m P). 0.7120/30 550m. 0.7100/10 1.31bn (882m P). 0.7020/40 533m.
  • NZDUSD - 0.6750/60 531m.
  • USDCAD - 1.2760/70 449m. 1.2650 500m. 1.2540/50 550m.
  • EURGBP - 0.8350 472m. 0.8300 712m.
  • USDCNH - 6.37 500m.

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • Settles around 1.1300 ahead of ECB decision
  • EUR/USD opened +0.27% at 1.1304 after USD eased following ADP jobs data
  • EUR was also supported by hawkish turn in ECB expectations after hot EZ CPI
  • In a quiet Asian session it traded in a 1.1293/1.1305 range
  • Market is looking ahead to the ECB decision later today
  • No change expected, but some are looking for a hawkish tweak to guidance
  • EUR/USD may be vulnerable if ECB President Lagarde remains dovish
  • EUR/USD resistance is at the 61.8 of 1.1483/1.1182 move at 1.1345
  • Support is at the 10-day MA at 1.1262 and break would ease upward pressure

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • Soft as risk appetite sours into the BoE
  • -0.1% - safe haven USD firms as Meta shares -20% drag Asian stocks lower
  • Trades towards the base of a 1.3555-1.3575 range with plenty of interest
  • BoE lead London event risk - 0.5% Bank rate priced and QE end expected
  • Inflation forecasts key - market prices 1.5% Bank Rate in 2022
  • Charts; momentum studies 5, 10 & 21 DMAs conflict, 21 day Bolli's flat line
  • Little bias - Price around the mid point of the 2022 range - neutral levels
  • Choppy consolidation favoured unless the BoE really surprises the market
  • Jan lower 21 day Bolli rejection and close above 1.3559 21 DMA was bullish

USDJPY Bias: Bullish above 114.50 Bearish below

  • USD/JPY off another leg yesterday to 114.16 EBS, mostly sideways since
  • Asia so far 114.33-50 in quiet trading, still thin on regional holidays
  • In area of 55-DMA at 114.38, above 114.03-13 daily Ichi cloud
  • Japanese bids still eyed on dips towards 114.00, offers 114.50+
  • Option expiries today at 114.00-10, 114.25, 114.50, 114.90 - not massive
  • US yields heavy, Treasury 2s @1.134%, 5s @1.591%, 10s @1.764%
  • Nikkei -1.1% @27,227, Australia-NZ bourses also down, E-Minis -0.9% @4534
  • JPY crosses steady, some better bid but ECB, BoE announcements on deck
  • EUR/JPY 129.22-31 EBS, GBP/JPY 154.98-155.39, AUD/JPY 81.35-67
  • Jan PMI services only data release today, off to 47.6, Dec 52.1

AUDUSD Bias: Bearish below 0.7250 Bullish above

  • Dips in Asia as equity market weakness weighs
  • AUD/USD opened +0.10% at 0.7135 after USD eased following weak ADP jobs
  • Meta (Facebook) shares slid 20% in the after hours and sent E-minis down 1.0%
  • The gloomy tone in Asia weighed on AUD/USD and it fell to 0.7116
  • Heading into the afternoon it was trading just above 0.7120
  • Support is at the 10-day MA at 0.7106 and break would add more pressure
  • Resistance is @ 21-day MA @ 0.7162, 55-day MA @ 0.7169 & 61.8 fibo @ 0.7181
  • A break above 0.7185 would likely see a move above 0.7250