Daily Market Outlook, December 6, 2021

Overnight Headlines

  • China Says Market Views Of Monetary Policy Moves Too 'Simplistic'
  • New Zealand Central Bank: Low Net Migration Could Cool Housing Prices
  • US Intelligence-Sharing Convinces Allies Of Russian Threat To Ukraine
  • Chinese Military Flights Near Taiwan Look Like 'Rehearsals'- Pentagon Chief
  • China Seeks First Military Base On Africa’s Atlantic Coast - U.S. Intelligence
  • Bank Of England Poised To Loosen Mortgage Lending Rules - Tele
  • BoE Unlikely To Raise Interest Rates This Month, Say Economists
  • APAC Corporate Debt Maturities To Remain High In 2022 - Fitch
  • Antipodeans Battle To Stem Omicron Slide; Cryptos Lick Weekend Wounds
  • Oil Rebounds More Than $1/Bbl After Saudi January Price Hike
  • Asia In Cautious Mood As Omicron Spreads, U.S. CPI Looms
  • Alibaba Reshuffles CFO, Commerce Heads As Challenges Grow
  • SoftBank Shares Slide 9% As Portfolio Upside Evaporates
  • Engine Capital Urges Kohl's To Consider E-Commerce Separation

The Week Ahead

  • Omicron, U.S. and China inflation data in focus. Investors will monitor developments around the Omicron variant in a relatively light week for economic data and central bank events, with U.S. and Chinese inflation and trade among the key releases. U.S. CPI is expected to stay elevated in November. The calendar also includes weekly jobless claims and preliminary December University of Michigan consumer sentiment.
  • In Europe, the focus will be on surging COVID infections and Germany's leadership succession with Olaf Scholz set to formally take over from Chancellor Angela Merkel. Revised third-quarter euro zone GDP, German industrial orders, output and the ZEW investor survey are the main releases. The UK has October GDP, trade and manufacturing output. Japan's highlights are revised third-quarter GDP data, October current account and household spending. China's November exports and imports are both expected to grow at a slower pace, while CPI is seen rising sharply to 2.5% year-on-year from 1.5% in October. PPI is expected to cool as the energy crunch eases. November credit data may also be released and investors will be looking for clues on the timing of a likely reserve requirement ratio cut.
  • The Reserve Bank of Australia's board meeting is the main event down under; no change in policy is expected and markets will scrutinize any tweaks to the statement. No top-tier data is due in Australia or New Zealand, while Canada has trade figures and a central bank decision.

CFTC Data

The USD long position climbed for a second consecutive week according to data published today by the CFTC. Against all the currencies covered in this report, only the JPY saw an improvement in its position against the dollar as investors likely turned to its safety amid heightened risk aversion with the spread of the omicron COVID-19 variant. While the EUR and CHF (alongside the JPY) were the only other major currencies shown here that gained ground against the USD over the period, they still saw a further deterioration in their aggregate short position. The overall bullish bet on the dollar rose by a net USD2.3bn to USD24.7bn i.e., its highest level since June 2019, exceeding the early-October 2021 high of USD23.2bn.

Bearish JPY positioning declined to under the USD10bn mark as investors flocked to the yen with a USD1.8bn wager in its favour. The JPY’s short position is still around USD3bn larger than the next largest short covered in this report (that of the AUD at USD5.7bn). While virus fears and the recent decline in US yields may temper bearish sentiment on the yen, the overall outlook for the currency remains negative and short positioning is unlikely to unwind fully over the medium-term. The yen’s haven peer, the CHF, saw a USD405mn increase in its net short to USD1.9bn despite gaining upwards of 1.5% throughout the week, in line with the JPY. The CHF recovered from its weakest level since April last Wednesday against the USD while the JPY rebounded from a near five-year low on the same day.

AUD sentiment continues to deteriorate as investors added USD1.1bn to the aggregate Aussie short with the biggest bearish bet over the week in the currencies covered in this report. At USD5.7bn the aggregate AUD short is at its largest in eight weeks and less than USD1bn from its record high of USD6.6bn in early-October. The NZD, long the only bullish position shown here, declined by USD243mn in a week in which the kiwi lost 1.8% against the dollar as the worst performing major followed by the NOK and AUD at -1.5% and -1.4%, respectively.

The bearish EUR position also saw a sizable increase of close to USD1bn to rise to USD3.3bn, in line with the size of the GBP short of USD3.2bn which rose by USD342mn. Over three weeks, speculators have turned a relatively small EUR long position of USD547mn to the largest bearish position in the EUR since March 2020 (at the peak of the COVID-19 panic in markets). GBP sentiment sits at its most negative since October 2019 when no-deal Brexit concerns dominated sterling price action. Investors also placed a large bet against the CAD over the week with USD854mn added to its aggregate short as market anxiety and plummeting crude oil prices dent confidence in the currency. The USD1.1bn CAD net short marks the largest position against the CAD since midOctober. Its crude oil peer, the MXN, saw a relatively modest USD227mn increase in its bearish position to USD1.4bn.

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 - 115.00/10 1.48bn (1.25bn C). 113.90/114.00 683m. 113.70/80 707m. 113.50/60 471m.

EURUSD - 1.1550/60 2.13bn (1.07bn C). 1.1420 462m. 1.1270/80 419m. 1.1250 609m. 1.1220 551m. 1.1200 720m.

GBPUSD - 1.3490/1.3500 549m.

AUDUSD - 0.7240/50 832m.

USDCAD - 1.2760/70 510m.

EURCHF - 1.0500 423m.

AUDJPY - 80.50/60 519m.

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • EUR on back – foot in Asia, ceiling moving down?
  • EUR/USD making some tracks away from 1.1387 retracement high Nov 30
  • Asia 1.1327 early to 1.1289 EBS, to head again towards 1.1186 low Nov 24?
  • Smattering of nearby option expiries today but nothing really massive
  • EZ yields off too on global stock market weakness, risk-off mood
  • Omicron news still front and centre too, ECB likely dovish well into 2022
  • EUR/JPY 127.82 to 127.55 EBS in Asia, heavy, recent low Friday 127.39
  • Extension down to 127.00, 126.75 low mid-February seen possible
  • EUR/CHF heavy too, indicated 1.0389-94, grinding lower
  • EUR/GBP up to 0.8552 before falling back to 0.8530, 0.8561 200-DMA above

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • GBP/USD – Resilient with risk – outlook remains negative
  • +0.05% in a 1.3228-1.3257 D3 range - top may be a miss hit, 1.3240 top since
  • Risk appetite returned, E-mini S&P +0.45%, Brent +2.3%, 1.382% 10yr UST +4bp
  • CBI cuts UK economic growth forecasts on supply chain issues
  • UK suffers post Brexit U.S. metal tariffs - trade deal distant...
  • Charts; 5, 10 & 21 DMAs, 21 day Bollinger bands all track lower
  • Bearish setup targets a test of 1.3166, 38.2% of the 2020-2021 rise
  • Close above 1.3380 falling 21 day moving average needed to end downtrend
  • 1.3209 NY low supports, 1.3301 10 DMA which has capped, first resistance

USDJPY Bias: Bullish above 112.50 Bearish below

  • USD/JPY buoyant, JPY crosses mixed in light action
  • USD/JPY bid some but upside limited, Asia 112.75-113.08, Fri low 112.56 EBS
  • Fall in US yields Friday taken in stride, some bounce today, Tsy 10s @1.383%
  • Some nearby option expiries today but mostly to upside, 113.55+
  • Specs continuing with buy dip-sell rally strategies, Japan importers at lows
  • 55/100-HMAs 113.07/10 above, ascending 55-DMA at 113.15 pivot of sorts
  • JPY crosses mixed, EUR/JPY heavy, 127.82 early to 127.56, maybe headed lower
  • Low Friday 127.39, lowest since mid-February, some support eyed pre-112.00
  • GBP/JPY 149.09-67 and AUD/JPY 78.86-79.43, steadier but risk still down?

AUDUSD Bias: Bearish below 0.75 Bullish above

  • AUD/USD withdraws as dollar recovers with UST yields
  • AUD/USD retreats to 0.7017, may fall under 0.7000 again
  • US Treasury yields recover, propping up USD; 10y 1.387%
  • USD broadly up in Asia despite mild stock market gains
  • Bearish-AUD bias likely to remain; strong chart top forms
  • Ceiling of Bollinger downtrend channel meets Aug low 0.7107
  • Sellers may look to add to positions near that level