Daily Market Outlook, December 3, 2021

Overnight Headlines

  • Congress Thwarts Shutdown After Clash Over Vaccine Mandate
  • Biden Lays Out Multi-Pronged Plan To Deal With Evolving Pandemic
  • New York Officials Confirm Five Cases Of Omicron Covid Variant
  • Fed Trio Echoes Powell On Faster Taper Amid Quickening Inflation
  • Olaf Scholz Eyes Joachim Nagel To Run Germany's Bundesbank
  • Fitch Revises Turkey's Outlook To Negative; Affirms At 'BB-'
  • Growth In China's Services Sector Softens, Caixin PMI Shows
  • Beijing, Shanghai Hit As China's Covid Outbreak Picks Up Steam
  • Japan Vows To Spend Without Hesitation In Response To Crisis
  • Dollar Edges Higher Before US Jobs Report As Omicron Fears Ease
  • Oil Rises As OPEC+ Pledges To Meet If Omicron Dents Demand
  • China Tech Rout Deepens To $1.5T As Didi Emboldens Bears

The Day Ahead

  • Asian equity markets were mostly higher, pointing to some improvement in risk appetite ahead of today’s US labour market data. Investors continue to assess the implications of the omicron variant, including its transmissibility, virulence and degree of vaccine escape, as well as prospects for monetary policy. Cleveland Fed President Mester said that the new variant, if it turns out to be serious, could exacerbate upward price pressures from supply chains and labour shortages.
  • The US November labour market report is today’s main event. Even though the data precede the recently discovered omicron variant, they are still relevant for the monetary policy outlook, with Fed Chair Powell indicating this week that the pace of tapering will probably be quickened. Next week’s US CPI inflation data will be closely watched as well and is expected to rise close to 7% on the headline measure.
  • The severity of the new Covid variant and its economic impact remains to be seen, but recent evidence suggests that US economic growth will likely pick up in Q4 despite ongoing supply constraints. That was reflected in a stronger-than-expected employment rise for October, while the recent sharp fall in unemployment claims points to another good report for November. Look for another increase in employment of over 500k, and a fall in the unemployment rate to a new pandemic low of 4.5%. Also of interest will be the November ISM survey for services, which is expected to reaffirm a solid pace of expansion and elevated price pressures.
  • In the UK and the Eurozone, the final readings of the November services PMIs will be released, which are expected to confirm preliminary ‘flash’ estimates. Those estimates, based on survey responses before omicron, showed a pickup in the pace of expansion in Eurozone services activity to a three-month high of 56.6, while the UK services PMI edged down to 58.6 but maintained the upturn in growth momentum in October. Firms in both jurisdictions continued to report strong price pressures.
  • The Bank of England MPC’s Saunders will give a speech on “The outlook for inflation and monetary policy” at 11am. He was one of two members that voted for an increase in Bank Rate last month (the MPC voted 7-2 to keep rates unchanged). It will be interesting to see if the discovery of the new variant has resulted in any changes to his view. Markets are currently pricing in broadly evens probability for a 15bp increase next month to 0.25%.
  • US 10-year Treasury yields were steady overnight, remaining below 1.45%. In contrast, 2-year yields have risen back to pre-omicron levels above 0.60% on speculation that the Fed could begin to raise interest rates next year

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 - 115.50 600M. 113.60/70 713M. 113.40/50 574M. 113.00/10 1.54BN (1.04BN P).

- EURUSD - 1.1490/1.1500 690M. 1.1440/50 1.28BN (888M P). 1.1290/1.1300 1.11BN (652M C). 1.1270/80 464M. 1.1250/60 746M.

- AUDUSD - 0.7300 409M. 0.6980 420M.

- USDCAD - 1.2600/10 745M. 1.2530 400M.

- EURSEK - 10.20 421M.

- USDCNH - 6.36 1.01BN (P).

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • Steady around 1.1300 ahead of US payrolls
  • EUR/USD opened -0.12% at 1.1305 after topping out ahead of 1.1350
  • The pair traded in a 1.1290/1.1307 range in Asia as risk currencies fell
  • EUR continues to benefit from Omicron concerns and they increased in Asia
  • Support is at the 10-day MA at 1.1275 and break increases downward pressure
  • Resistance is at the 21-day MA at 1.1359 with sellers ahead of 1.1350
  • EUR/USD likely to consolidate ahead of US non-farm payrolls today

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • GBP mostly in stasis in Asia, bias remains down
  • GBP mostly in stasis in Asia but bias remains down
  • Cable 1.3285-1.3300, holding between 1.3268-1.3332 range yesterday
  • Bracketed between 1.3283 base of hourly Ichi cloud, 1.3302 55-DMA above
  • Most eyes on US NFP report tonight, +550k eyed
  • GBP/JPY 150.11-62, within 149.52-150.78 range yesterday
  • Support eyed in 148.50-149.00 zone, lows dating back to July
  • Jury still out on BoE hike this month, Sotrovimab news shrugged off in Asia

USDJPY Bias: Bullish above 112.50 Bearish below

  • USD/JPY mostly in stasis into key US jobs report, NFP +550k eyed
  • USD/JPY Asia range 112.96-113.22, inside day, yesterday 112.63-113.33
  • Holding in area of 55-DMA at 113.09, 113.21 top of daily Ichi cloud
  • Some option expiries nearby - 113.00 $1.3 bln, exerting gravitational pull?
  • Some more above, total $1.6 bln between 113.45-75 strikes
  • US yields steady above recent lows, Tsy 5s @1.181%, 10s @1.420%
  • Nikkei heavy, -0.2% @27,692, not affected by Sotrovimab news
  • JPY showing more weakness than not, EUR/JPY 127.69-93, GBP/JPY 150.11-62
  • AUD/JPY to fresh recent low of 79.82, high earlier 80.37
  • Japan Nov services PMI - final 53.0, flash 52.1, prev 50.7

AUDUSD Bias: Bearish below 0.75 Bullish above

  • Remains under pressure as mood sours in Asia
  • AUD/USD opened 0.20% lower at 0.7094 and tracked lower through the morning
  • Reports of more Omicron cases in the US soured the mood in Asia
  • Eminis fell 0.40% while the AXJ index fell 0.60% despite Wall Street lead
  • AUD/USD trading at session lows around 0.7065 - near last week's 0.7063 low
  • Key support is at the 38.2 of the 0.5510/0.8007 move at 0.7053
  • A break below 0.7050 targets the Nov 2020 low at 0.6990
  • Price action setting up for some volatility around release of US jobs data
  • AUD/USD trend lower intact while 10-day MA at 0.7148 caps rallies