Daily Market Outlook, January 7, 2022

Overnight Headlines

  • Japan Real Wages Fall For 3rd Month As Inflation Hits Stagnant Nom Pay
  • Japan Gov Panel Requests 3 Prefectures Enact Measures To Curb Covid
  • Shenzhen Authorities Tighten Covid Controls After New Cases Reported
  • China Central Bank Makes Biggest Weekly Cash Withdrawal Since Nov
  • China May Ease Monetary Policy In Q1 Despite Hawkish Fed - CSJ
  • Australia's Most Populous State To Reinstate Some COVID-19 Curbs
  • Goldman Sachs: China's Nominal Growth Could Fall To 1.5% This Year
  • Goldman Sachs Cuts Australia GDP Forecast On Omicron Disruption
  • Fed’s Bullard: Fed's First Rate Hike Could Come As Soon As March
  • Fed's Daly: Rate Hikes Ahead, But Says 'Measured' Approach Needed
  • Dollar Riding High On Hike Bets Ahead Of Nonfarm Payrolls Report
  • Ethereum Extends Below 200 DMA; Technical Breakdown In Session
  • Oil Set For Third Weekly Advance As Market Tightens On Global Outages
  • Gold Heads For Biggest Weekly Loss In Six On Hawkish Fed Minutes
  • U.S. Yields Climb As Markets Grapple With Rate Hike, Fed Balance Sheet
  • APAC Stocks Trade Mixed Over Potential Fed Quantitative Tightening
  • Samsung Profit Misses On Weak Memory Prices, Special Bonuses
  • $GME Entering NFT And Cryptocurrency Markets As Part Of Turnaround

The Day Ahead

  • That the U.S. Federal Reserve will hike rates this year is a no brainer, surely? So the key question then is how fast will it tighten policy given uncomfortably high inflation. Cue Friday's non-farm payrolls report, which could help provide an answer.The latest U.S. jobs report takes on added significance after minutes from the Fed's December meeting on Wednesday, showed some policymakers want to move even quicker to tighten policy, including by shrinking the Fed's $8 trillion-plus balance sheet. Economists polled by Reuters forecast the U.S. economy created 400,000 new jobs last month versus 210,000 in November. Should payrolls meet expectations, a whopping 6.5 million jobs would have been created in 2021.
  • The data could trigger fresh volatility across world markets – consider that rate-sensitive two-year U.S. bond yields are up almost 15 bps this week and set for their biggest weekly jump since late 2019 . A bond market volatility gauge is creeping up to its highest levels since March 2020. A Reuters poll meanwhile shows currency analysts expect the dollar to extend its dominance well into 2022 given the focus on the Fed policy outlook. Nearly two-thirds of 49 foreign exchange strategists polled by Reuters between Jan. 4-6 said interest rate differentials would dictate sentiment in major FX markets in the near term, with only two concerned about new coronavirus variants. ...
  • Ahead of the payrolls data, the flash estimate of euro zone inflation in December also has the potential to stir things up. Data from Germany on Thursday shows inflation in Europe's biggest economy remains high but may be peaking.Asian shares meanwhile were on firmer ground, breaking two days of losses. European and U.S. stock futures are also higher, while oil prices were heading for their best week since mid-December on supply worries amid escalating unrest in Kazakhstan and outages in Libya.

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: 1.1250 (980M), 1.1290-1.1300 (1.5B), 1.1355-60 (955M)

EUR/USD: 1.1450 (715M). GBP/USD: 1.3500-05 (350M)

USD/JPY: 115.00-20 (615M) 116.00 (2.7B), 115.45-50 (1.1B)

EUR/JPY: 134.00 (815M). AUD/USD: 0.7160 (2.6B), 0.7200 (2.2B)

USD/CAD: 1.2650 (730M), 1.2675-80 (760M), 1.2685-90 (600M)

USD/CAD: 1.2695-1.2700(805M). USD/ZAR: 15.2500 (1.5B), 16.5000 (1.8B)

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • Consolidates around 1.1300 in calm before US jobs
  • EUR/USD opened -0.10% at 1.1300 after resisting higher US yields
  • The range in Asia so far has been 1.1290/1.1301 as market waits for US jobs
  • Resistance is @ 21-day MA at 1.1306 with key resistance @ 55-day MA @ 1.1374
  • Support is at a double-bottom at 1.1270/75 with bids tipped at 1.1280
  • EUR/USD will likely consolidate ahead of US non-farm payrolls later today
  • Key will be reaction in US Treasury yields to the US jobs data
  • A strong jobs number will likely result in resumption of EUR/USD trend lower
  • Swiss intervention likely trapping EUR/USD, unlikely to last
  • EUR/USD 1.1387-1.1186 EBS since Nov 16
  • EUR/USD 1.1225-1.1387 since Nov 30
  • After lengthy absence SNB has been actively supporting EUR/CHF
  • Intervention underpins EUR/USD, then reserve rebalancing weighs
  • Top and tailing affect for EUR/USD which suppresses volatility
  • EUR/USD vol has slumped 7.3 to 5.3 since SNB returned
  • SNB may be forced to abandon its FX policy.

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • Positive signals below major resistance, close key
  • +0.1% at the top of a 1.3527-1.3550 range - modest flow pre U.S. jobs
  • MARKIT/CIPS construction PMI leads data in London - RTRS poll 54.00
  • Charts; 5, 10 & 21 day moving averages and 21 day Bollinger bands climb
  • Momentum studies conflict - net a positive trending setup remains in place
  • Sustained 1.3580 break would target 1.3834 Oct/Nov range high
  • Close below 1.3503 10 DMA a base this week, would undermine topside bias
  • Charts suggest this week's close could be significant for next week

USDJPY Bias: Bullish above 112.50 Bearish below

  • Uptrend hangs in – close pivotal for next week
  • +0.05% towards the base of a 115.83-116.05 range - cautious pre U.S jobs
  • Gov't panel requests 3 prefectures enact measures to curb COVID
  • Japan struggling like the rest of the world to deal with rampant Omicron
  • Japan's household spending falls again, undermining recovery
  • Charts; Tenkan line, 5, 10 & 21 day moving averages all track higher
  • Momentum studies conflict - overall the setup supports further gains
  • Targets a test of the 118.60/66 Jan 2017 and Dec 2016 highs longer term
  • Close below 115.52 November and 2021 high needed to undermine topside bias

AUDUSD Bias: Bearish below 0.7250 Bullish above

  • Firms in Asia as risk assets steady and move higher
  • AUD/USD opened -0.82% at 0.7163 and underperformed as risk assets drooped
  • Tone in Asia was a bit brighter with MSCI AXJ index rising 0.43%
  • Range in Asia has been 0.7157/77 and is trading 0.7170 into the afternoon
  • AUD/JPY edged 0.20% higher after falling around 1.0% on Thursday
  • AUD/USD support is @ 50% of 0.6994/0.7277 @ 0.7135 and 61.8 of move @ 0.7102
  • Resistance is at the 21-day MA at 0.7193 and 10-day MA at 0.7222
  • AUD/USD will likely consolidate ahead of US payroll data later today
  • A strong US jobs number, greeted by a fall in risk will heavily weigh on AUD