Daily Market Outlook, March 9, 2022

Overnight Headlines

  • Biden Enlists Consumers To Tighten Clamp On Russia Economy
  • US Energy Sec: Not Pressuring Allies To Ban Russian Oil Import
  • US State Department Envoy: Could Release More Oil Reserves
  • US Pins Easing Of Venezuela Sanctions On Direct US Oil Supply
  • Negotiators To Finish Omnibus Spending Bill With Ukraine Aid
  • Commerce Sec: China Firms Aiding Russia Could See US Action
  • West Tell Russia Do Not Wreck Iran Deal With New Conditions
  • Saudi, UAE Leader Decline Call With Biden Amid Ukraine Crisis
  • China Factory Prices Ease, Focus Now On Global Commodities
  • RBA's Lowe: Hike Later This Year ‘Plausible’, Patient On Policy
  • Russia Rating Cut By Fitch, Expecting ‘Imminent’ Bond Default
  • Poland Says Could Transfer Warplanes To US Base In Germany

The Day Ahead

  • Asian equity performance is mixed this morning with some up but the majority down. China is amongst the biggest fallers. US President Biden has banned imports of Russian oil and gas, and the UK has moved to phase out Russian oil imports. The EU has not followed suit but has said that it will cut imports of Russian gas by two-thirds within a year. The Brent crude oil price has moved back up to $131bbl.
  • Higher energy prices and in particular gas prices point to very significant upside risks for inflation. That potentially implies an unprecedented reduction in consumers’ buying power, suggesting downside risks for economic growth. In light of this, governments are under pressure to provide relief measures and the UK Spring Budget update on 23rd March seems set to be looked at. However, it is unclear at present whether the UK government will offer any new support. In the meantime, reports say that an emergency EU summit on Thursday will discuss the issuance of joint EU bonds to finance a rise in defence and energy spending.
  • Bank of England policymakers have now joined those of the European Central Bank and the US Federal Reserve in a blackout ahead of their next policy updates. We will hear from the ECB tomorrow and the other two next week. So far at least, they seem to be taking slightly differing views on how they should respond to the escalation in the Ukrainian crisis. The ECB seems set to announce that it will continue with its very stimulative policy position. In contrast, the Fed and the BoE look like they will still raise interest rates next week and point to the possibility of further tightening despite concerns about potential downside risks for economic growth.
  • Today’s data calendar is very light and is unlikely to attract much market attention. There are no UK releases of any note for the rest of the day. However, early Thursday the February RICS housing price survey will provide evidence of whether the market remains buoyant for now.
  • In the Eurozone, Italian industrial production will be the latest indication on trends in the factory sector for January. Reports for France and Germany both showed big rises in output during the month, which may be due to an easing in Covid restrictions but may also be a sign that some supply bottlenecks are easing.
  • In the US, the January JOLTS survey on labour market turnover will provide further detail on hiring and labour mobility trends. The red-hot labour market is one of the reasons why the Fed thinks that interest rates need to rise. Today’s release is likely again show that vacancies are proving hard to fill, inducing upward pressure on wages.

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 - 115.40/60 794m. 115.00 434m.
  • EURUSD - 1.1250 430m. 1.1100 641m. 1.0960 660m.
  • AUDUSD - 0.7250/60 673m. 0.7170/90 487m.
  • NZDUSD - 0.7150 1.09bn (50/50 C/P). 0.7120 1.18bn (50/50 C/P).
  • USDCAD - 1.2680/90 475m. 1.2630 426m. 1.25360 760m.
  • EURGBP - 131.50 832m. 129.50 507m.
  • EURSEK - 10.31 520m. 10.28 455m.
  • USDZAR - 15.46 530m.
  • USDMXN - 21.60 1.36bn (820m C).
  • USDCNH - 6.37 898m. 6.32 570m.

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • EUR/USD ticks higher to 1.0918, tad above Tues close 1.0894
  • But still inside Bollinger downtrend channel; ceiling at 1.1025
  • Sellers may start fading in from Fibo resistance 1.0969
  • Tentative risk-on despite still higher oil prices; S&P +0.4%
  • Mkt may be rewarding US/UK move against Russian oil
  • Dip-buyers return to equities as crypto bulls propel BTC +7.3%
  • The EUR/USD slide has been stretched into oversold territory
  • This week's bounce has helped to alleviate the oversold situation
  • Bounce timed with SNB's intervention statement and EUR/CHF rally
  • IF SNB intervenes it supports EUR and help suppress vol
  • Subsequent rebalancing to sell EUR/USD creates vol and will certainly weigh
  • Traders are long EUR/USD even gambling (adding) on day of invasion
  • 2020 low at 1.0636 and 2017 low at 1.0340 are targets of recent tech breaks

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • Trend pauses for breath, but bearish factors remain
  • Trades up 0.05% in a 1.3091-1.3117 range with only moderate interest
  • News rightly dominated by the Ukraine crisis which continues
  • Oil continues to climb, Brent +2.4% at $131, risk recovers, E-mini S&P +0.3%
  • Charts; momentum studies, 5 10 & 21 daily and weekly moving averages fall
  • 21 day Bollinger bands expand - signals suggest downtrend remains strong
  • Trades at levels unseen since Dec 2020, targets 1.2831, 50% 2020-2021 climb
  • Close above the falling 1.3282 10 day moving average would end downside bias

USDJPY Bias: Bullish above 114.50 Bearish below

  • USD/JPY bid but upside limited, JPY cross upside too
  • USD/JPY buoyant in Asia, 115.62 to 115.92 EBS before easing back
  • Resistance/offers still ahead of 116.00, above, exporters in mix
  • Test of 116.35/34 double top Jan 4/Feb 10 eventually but maybe not now
  • Ukraine developments still in market eye, risk mood better but far from on
  • Reports Japanese importers need to fund more energy purchases supportive
  • US yields firmer too, funding still at premium, Treasury 10s @1.841%
  • Option expiries today include 115.40-60 $788 mln, 116.30-50 $480 mln
  • EUR/JPY rallied on jump in EZ yields yesterday but below o/n 126.73 high
  • Asia 126.13-55, bias still down, GBP/JPY heavy, 151.37-152.03

AUDUSD Bias: Bullish above .7100 Bearish below

  • AUD/USD may get a reprieve with nascent risk rally
  • AUD/USD rises to 0.7286 from Wed low 0.7265; ASX +1.2%
  • Nascent risk rally, despite oil +2.0%, sends S&P futures +0.6%
  • No end in sight for Ukraine war but China may mediate
  • AUD bulls will be encouraged if it closes above 0.7296
  • That would re-engage daily Bollinger uptrend channel
  • More positive outcome would be closing above 200 DMA 0.7318