Daily Market Outlook, December 2, 2021

Overnight Headlines

  • US Health Officials Find First Us Case Of Omicron Variant In California
  • US Shutdown Risk Rises As Congress Stalls On Stopgap Spending Bill
  • Fed's Mester Open To Faster Taper To Win Space For Rate Hike
  • US Delaying End To UK Metals Tariffs Over Northern Ireland Standoff
  • Germany Government To Tighten Coronavirus Restrictions: Politico
  • China, US Set For Meeting Of Military Officials Amid Taiwan Tensions
  • BoJ's Suzuki: To Seek Ways To Mitigate Cost Of Monetary Easing
  • Asian Equity Markets Mixed As Omicron Worries Leave Investors On Edge
  • Oil Rises As Investors Focus On OPEC+ Decision Amid Omicron Fears
  • Turkish Lira Drops Anew After Erdogan Replaces Finance Chief
  • Apple Tells Suppliers iPhone Demand Has Slowed As Holidays Near

The Day Ahead

  • Asian equity markets are mixed this morning as concerns about the potential impact of the Covid omicron variant remains the dominant issue. The WHO has said that vaccines should offer protection against the variant. The first US omicron case has been detected in California. European Commission President Ursula von der Leyen said that EU countries should debate making Covid vaccines compulsory. Media reports suggest that the Liberal Democrats have scaled back campaigning to enhance the chances of Labour causing an upset in today’s UK parliamentary by-election for a seat currently held by the Conservatives.
  • From a high of 8.6% in the autumn of 2020, the Eurozone unemployment rate had fallen to 7.4% by September and the consensus forecast is for a further decline to 7.3% in October. That is a signal that the labour market has been improving but it is unclear whether the downtrend will continue given signs that growth is now slowing. Meanwhile, following the report of higher-than-expected consumer price inflation in November, the producer price report is expected to point to further rises in the pipeline.
  • In the US ahead of tomorrow’s labour market report for November, weekly unemployment claims data will provide a timely update on conditions. New claims have been dropping sharply in recent weeks and last week’s outturn was the lowest for several decades. That probably was due in part to seasonal adjustment issues and so this week will probably see a partial rebound. Nevertheless, the data seem to be further confirmation that, after having slowed last quarter, the US economy’s rebound has picked up again in Q4. Of course, a big question is whether the new Covid variant will disrupt this.
  • Federal Reserve Chair Powell’s testimony to Congress yesterday seemed to confirm Tuesday’s message that the tapering of the asset purchase programme would be accelerated at its 15th December meeting. In contrast, Bank of England Governor Bailey provided no indication whether the BoE will raise interest rates the following day (16th December) in remarks yesterday.
  • There are no scheduled BoE speakers today. The next one up is Michael Saunders tomorrow. He was one of the policymakers who voted for a rate rise in November. However, there are several scheduled speeches from Federal Reserve policymakers. Attention is likely to be principally focused on whether they seem to be supportive of accelerating the pace of tapering and any caveats they may mention such as linking the move to Covid trends and/or any upcoming data releases.
  • Government bond yields have continued to trade erratically as markets remain uncertain about the implications of omicron. US Treasury yields have rebounded overnight after edging down yesterday despite Powell’s comments.

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 - 115.00 1.69bn (1.33bn C). 114.50 705m. 114.20/30 510m. 114.00 1.18bn (827m C). 113.60/70 1.57bn (914m P). 112.50 755m. 112.20 574m. 111.80 574m. 110.70/80 798m. 110.00 440m.

EURUSD - 1.1470/80 618m. 1.1440/50 1.21bn (610m P). 1.1420/30 1.14bn (621m P). 1.1370 465m. 1.1340/50 403m. 1.1270/80 822m. 1.1240/50 416m. 1.1210 449m.

GBPUSD - 1.3300 851m.

AUDUSD - 0.7280/0.7300 857m.

EURNOK - 9.86 811m.

USDZAR - 15.80 500m.

USDMXN - 21.50 1.51bn (1.34bn C).

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • EUR/USD opened -0.15% at 1.1320 after easing during US session
  • It traded to 1.1315 early Asia before steading moving higher
  • EUR/JPY buying helped to underpin and it traded to 1.1339
  • Heading into the afternoon it is steady around 1.1335
  • Resistance is at 21-day MA at 1.1372 and break would suggest bottom in place
  • Support is at the 10-day MA at 1.1278 with bids ahead of 1.1300
  • EUR/USD resilient, but ECB/Fed divergence likely to weigh at some stage

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • GBP better bid in Asia, GBP/JPY leads, JPY safe haven plays abating?
  • GBP/JPY from 149.58 very early Asia to 150.45, steadies near high
  • On hold for now below 150.50 base of hourly Ichi cloud, 150.51 hourly kijun
  • Descending 55-HMA in hourly Ichi cloud at 150.62
  • GBP/USD from 1.3263 very early Asia to 1.3305
  • Resistance from 1.3307 hourly Ichi kijun, 55/100-HMAs 1.3308/15 above
  • Descending 200-HMA 1.3346, extent of any more upside?
  • Cable holding for now near GBP851 mln option expiries today at 1.3300
  • Jury still out on BoE rate hike this month, Omicron concerns still

USDJPY Bias: Bullish above 112.50 Bearish below

  • USD/JPY and the JPY crosses bid in Asia again, Japanese importers help
  • USD/JPY from 112.63 early Asia to 113.10 top of daily Ichi cloud
  • 113.13 Ichi hourly kijun, 113.19 descending 55-HMA, hourly Ichi cloud 113.24
  • Some offering interest noted 113.00, likely specs selling the rally
  • Concerns still over Omicron, unease ahead of US NFP Friday, FOMC this month
  • US yields soggy but off lows yesterday, Treasury 10s @1.431%, low o/n 1.402%
  • Nearby option expiries - 112.25 $573 mln, 112.50 $755 mln, 113.60 $580 mln
  • Tokyo still risk off, Nikkei -0.7% @27,750, E-Minis +0.6% @4537, AXJ mixed
  • JPY crosses bid, EUR/JPY 127.71 to 128.20 EBS, AUD/JPY 80.04 to 80.49

AUDUSD Bias: Bearish below 0.75 Bullish above

  • AUD/USD plots a straight path to 0.7000 as US yields weigh
  • AUD/USD follows bearish path lower, teasing bigger drop ahead
  • 3-week slide neatly follows confines of Bollinger downtrend channel
  • Ceiling of channel descends to now cap intraday at 0.7152
  • Closing below Aug low 0.7106 paves way toward 0.7000 psych barrier
  • Near-term US Treasury yields rise again; curve flattens
  • Powell's reiteration of hawkish pivot supports USD