Daily Market Outlook, January 11, 2022

Overnight Headlines

  • Four Fed Hikes May Be Just Start As Traders Boost Rate Bets
  • Fed Powell Vow To Prevent Inflation Becoming ‘Entrenched’
  • Fed Clarida Resigns Two Weeks Early In Trading Controversy
  • US, Russia Talks Yields Modest Progress Amid Ukraine Crisis
  • Nord Stream 2 Sanctions Get Senate Vote As US, Russia Talk
  • US Reports 1.1Mln Cases In A Day, Shattering Global Record
  • China Locks Down Henan Second City Amid Omicron Threat
  • Japan Maintains Border Restrictions Until The End February
  • Australia Swamped By Covid Surge, Hospital Pressure Grows
  • Analysts See UK Impact Of Omicron Economy To Be Modest
  • Omicron Boosts UK Supermarket Spending, Hits Hospitality
  • Pfizer Begins Making Shot Targeting Omicron, Original Virus

The Day Ahead

  • European shares look set for some kind of a rebound this morning as rising futures for the main benchmarks show investors are ready to buy at least some of yesterday's dip.On that note, Marko Kolanovic, chief global markets strategist at JPMorgan wrote yesterday that Wall Street's recent sell-off presents a buying opportunity.
  • Euro STOXX 50, DAX, FTSE and IBEX futures are up between 0.1% and 0.4% but on Wall Street, futures are still slightly in the red. Rising yields are indeed keeping the pressure on equity markets and investors still very much focused on Wednesday's U.S. inflation data with the headline CPI seen climbing to 7% year-on-year.
  • The rest of today’s data calendar is light with no further releases in the UK. In the US, the NFIB small business index for December is timelier. The November reading was up but only modestly so from October and was still the second lowest reading since Q1 2021. That report particularly noted that firms were struggling with labour shortages and as already released results from December's survey shows a record number raised wages that clearly remains an ongoing issue.
  • The sharp rise in bond yields, particularly in the US, in early 2022 appears to reflect concerns about how aggressively monetary policy will be tightened in response to the ongoing rise in inflation. Given that this week’s Federal Reserve speakers may command close attention particularly as from this weekend Fed policymakers will go into their silent period ahead of their next policy update on 26th January.
  • Today’s speakers are three Regional Fed Presidents, Bullard, George and Mester, who will all vote on monetary policy this year and are all generally regarded as ‘hawks’. Markets will be looking for any hints from them on the potential timing of a first interest rate hike and when the Fed is likely to start running down its balance sheet.
  • Meanwhile, Fed policymakers Powell and Brainard will face a confirmation hearing before the Senate Banking Committee regarding Powell’s reappointment as Fed Chair and Brainard’s appointment as Vice-Chair. Both are likely to have the necessary support, but they may face some difficult questions including regarding the surge in inflation.
  • Early Wednesday, China’s CPI and PPI data for December are expected to show some easing in inflationary pressures. The consensus expectation is for annual inflation to have moderated on both measures. That may give the monetary authorities room to offer more support to the economy given concerns that growth may be slowing by more than expected.

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 )

EUR/USD: 1.1275 (1.23BLN), 1.1295-05 (465M), 1.1325-30 (860M)

1.1340-45 (472M), 1.1500 (730M)

USD/JPY: 113.60 (650M), 114.90-05 (462M), 115.50-55 (910M)

GBP/USD: 1.3450 (379M), 1.3500 (354M), 1.3550 (494M)

AUD/USD: 0.7145-50 (983M), 0.7200 (786M)

USD/CAD: 1.2575 (200M), 1.2670-80 (577M), 1.2705 (200M)

USD/ZAR: 14.80 (300M).

USD/CHF: 0.9085 (210M), 0.9300 (210M)

EUR/CHF: 1.0500 (1.436BLN).

EUR/SEK: 10.20 (225M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • Moves higher as US yields dip ahead of Powell
  • EUR/USD opened -0.28% at 1.1330 after broadly gained in a choppy start to the week
  • After trading at 1.1323 the EUR/USD tracked higher as US yields moved lower
  • The 10-year US yield eased to 1.76% from the NY closing level at 1.78%
  • EUR/USD traded as high as 1.1343 before settling just below 1.1340
  • EUR/USD resilience frustrating EUR/USD bears ahead of Powell testimony
  • Key resistance is at the 55-day MA at 1.1365 and break would be bullish
  • Support at trend-line at 1.1265 and break would reignite trend lower
  • SNB intervention has lifted EUR/CHF from 1.0327 Dec 31 to 1.0512 today
  • Strong resistance at 100-DMA 1.0612 and daily cloud top 1.0620
  • Rally already stretched above 1.0486 peak 20-day Bollinger bands
  • In this period EUR/USD has been trapped in a tight 1.1386-1.1272 range
  • SNB buys GBP for FX reserve EUR/GBP down 0.8413-0.8333
  • SNB buys JPY Dec 20-Jan 5 EUR/JPY 127.53-131.60, 130.16 low Jan 10
  • SNB buys CAD EUR/CAD 1.4439 Dec 31 dropped to 1.4282 Jan 10
  • When SNB slows or halts operations EUR and JPY should come under pressure

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • GBP/USD close to 1.36 again ahead of Powell hearing
  • 1.3601 is high water-mark for cable since its drop to 1.3533 on Monday
  • 1.3601 is 1.5 pips shy of Monday's two-month peak
  • Ascent to 1.3601 aided by late-session comeback for U.S. stocks Monday
  • GBP is a risk-sensitive currency; USD is a safer-haven
  • USD may react to testimony from Fed Chair Powell from 1500 GMT
  • UK PM Johnson under renewed pressure over lockdown parties

USDJPY Bias: Bullish above 114.50 Bearish below

  • USD/JPY pares early Tokyo gains but still holding on 115
  • USD/JPY bid early Asia, off in Asia PM, range 115.18-38 EBS
  • Japanese importer bidding early, more bid eyed below to-below 115.00
  • Talk however of some stops sub-115.00 from weak longs
  • Option expiries bracket - 114.90-115.05 total $462 mln, 115.50 $941 mln
  • US yields off highs yesterday but still above Oct-Nov highs, 10s @1.761%
  • Tokyo risk off after long weekend, Nikkei closed -0.9% at 28,222.48
  • Haven flows into JPY over by Asia trading, focus on yields abroad

AUDUSD Bias: Bearish below 0.7250 Bullish above

  • Grinds higher as USD gives back some ground ahead of Powell
  • AUD/USD opened -0.10% at 0.7174 after a choppy US session
  • After trading at 0.7171 it started to move higher when Tokyo arrived
  • Much stronger than expected Aus retail sales helped to underpin as well
  • AUD/USD is hitting the session high at 0.7189 heading into the afternoon
  • Resistance is at the 10-day MA at 0.7212 and break would suggest bottom forming
  • Support is at Friday's 0.7140 low with buyers tipped ahead of 0.7150
  • Reaction to Powell testimony later today key to short-term direction