Daily Market Outlook, December 7, 2021

Overnight Headlines

  • China Nov Export Growth Slows But Imports Accelerate On Restocking
  • Chinese Developers' Distress Mounts Despite Beijing Assurances
  • Japan's Oct Household Spending Extends Declines On Covid Drag
  • Western Leaders Plan Joint Reprisals If Russia's Putin Invades Ukraine
  • UK Int Trade Sec: Ready To Pick Up Trade Talks When US Is Ready
  • Omicron Adds To Doubts Over ECB’s Commitment To Further Stimulus
  • Aussie Dollar Extends Gain As RBA Gives Itself Room On Rates
  • Oil Extends Gains On Easing Omicron Fears, Natural Gas Collapses
  • Australian Yields Extend Gains With Dollar On RBA’s Omicron Calm
  • Bitcoin Back Over $50,000, As Market Calms After Weekend Turmoil
  • Asia Stocks Tick Up From One-Year Low, China Gains On RRR Cut
  • Samsung Elec To Merge Mobile And Consumer Electronics Divisions
  • Intel To List Shares In Mobileye Unit With $50Bln Valuation Rumoured

The Day Ahead

  • Following gains in Europe and the US yesterday, most Asian equity markets are up this morning boosted by hopes that the omicron Covid variant will be less severe than initially expected. China’s trade surplus was smaller than forecast in November as imports surged. German industrial production rose by 2.8% in October. The British Retail Consortium’s sales measure was 1.7% higher than a year ago on a like-for-like basis. The Australian central bank as expected left monetary policy unchanged after its latest review.
  • The German ZEW survey will provide one of the first updates of economic activity in the current month. As a survey of financial market analysts, it may be less reliable than business surveys but sometimes gets attention because of its timeliness. November saw the current conditions indicator fall to its lowest since June but expectations picked up for the first time in seven months. The recent rise in Covid cases within the region points to a likelihood that both components will be down in December although it is probably too early for the new variant to have had a significant impact.
  • Today’s Eurozone Q3 GDP data updates and headline growth is not expected to be revised. The detailed breakdown of which areas of spending are driving growth will be of interest but overall markets are likely to see it as old news.
  • In the US, already released data for international trade in goods showed a substantial shrinkage in the trade deficit in October, reflecting a surge in goods exports and only minimal growth in imports. Q3 labour productivity and unit labour cost data are second readings; the first estimate showed a sharp fall in productivity during the quarter reflecting the slowdown in output growth.
  • Bank of England and US Federal Reserve policymakers are now their purdah period ahead of next week’s monetary policy updates. Yesterday’s comments from BoE Deputy Governor Broadbent pointed to a lot of uncertainties and in particular concerns about labour market trends but offered little guidance on whether UK interest rates are likely to be raised next week. Indeed, apart from the previously hawkish Saunders who said that the Omicron variant argued for a delay in raising rates, Monetary Policy Committee members have seemed reluctant to offer guidance on the BoE’s likely policy actions. In contrast, Fed policymakers appear to have signalled that they will accelerate the ‘tapering’ of their asset purchase programme next week.

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 - 114.90/115.00 1.13bn (945m C). 113.90/114.00 1.05bn (930m C). 112.70/80 435m. 112.50 479m.

EURUSD - 1.1550 519m. 1.1350/70 1.57bn (787m C). 1.1320/30 519m. 1.1050 548m.

GBPUSD - 1.3250 452m.

AUDUSD - 0.7300/0 790m. 0.7200 758m. 0.7100 1.20bn (1.00bn P).

USDCAD - 1.2850 460m. 1.2760/70 770m. 1.2740/50 1.24bn (700m P). 1.2440/50 460m.

EURJPY - 126.20 405m.

USDZAR - 15.24 530m.

USDMXN - 21.27 418m. 21.00 566m.

USDCNH - 6.46 406m.

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • EUR/USD, EUR/JPY so – so buoyant in Asia, action limited
  • EUR/USD tad buoyant in Asia, 1.1276-93 EBS, awaiting catalysts
  • ECB Holzmann talk yesterday supportive, inflation maybe not transitory
  • EUR/USD holding in vicinity of 1.1291 ascending 200-HMA
  • Descending 55-HMA just above at 1.1294
  • Some option expiries in area - 1.1275 E354 mln, 1.1325-30 E519 mln
  • Above, total E1.6 bln or so between 1.1350-70, E1.1 bln alone at 1.1360
  • EUR/JPY bid with USD/JPY, risk mood better, 127.95 early to 128.18 EBS
  • Cross between 100-HMA at 127.96 and 200-HMA at 128.25
  • EUR/CHF buoyant, quiet, 1.0435-41 EBS, EUR/GBP 0.8503-10, quiet too
  • Net EUR/USD short rising to $3.3bln equivalent thanks to long liquidation
  • Bets on drop still negligible, $20+ often reached before influencing trends
  • 20-day Bollinger bands 1.1175-1.1320 should determine further slow decline

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • +0.15% at the top of a 1.3257-1.3274 range with occasional decent flow
  • UK consumers embrace Black Friday discounts, sales +5% on 2020...
  • Supply chain concerns suggest consumers may be shopping early for Christmas
  • Charts; 5, 10 & 21 DMAs track lower, 21 day Bollinger bands contract
  • Bearish setup targets a test of 1.3166, 38.2% of the 2020-2021 rise
  • Sterling shows resilience above 1.3166, but signals remain negative
  • Close above 1.3367 falling 21 day moving average needed to end downtrend
  • 1.3232 NY low supports, 1.3292 10 DMA which has capped, resistance
  • GBP/USD bullish pointers emerging but down trend intact
  • Price beginning to turn but the down trend still intact while below 1.3371
  • The Nov 30 high is the top of a daily consolidation pattern
  • Closer to market the 10DMA could be a squeeze point today at 1.3294
  • The minimum correction off the 1.3834-1.3195 drop is at 1.3346
  • 14-day momentum diverging bearishly, still reflecting the drop from 1.3514
  • Daily RSI is lifting off the 30.00 oversold level: confirming the rebound

USDJPY Bias: Bullish above 112.50 Bearish below

  • USD/JPY, JPY crosses extend higher with risk more on
  • The whole JPY complex is extending higher, USD/JPY up more to 113.71
  • Low earlier today 113.40, spot clears descending 200-HMA now at 113.53
  • Moves towards 114 likely but some option expiries between 113.75-95
  • Also large-ish $863 mln expiries at 114.00 strike
  • US yields supportive, Treasury 10s to 1.453%, low earlier 1.427%
  • Nikkei now +2.2% @28,543, E-Minis +0.4% @4609, AXJ mostly up too
  • EUR/JPY 127.95 early to 128.36, GBP/JPY 150.33 to 151.08
  • AUD/JPY 79.81 to 80.47 on more upbeat RBA, stance still easy though
  • Improved risk appetite in FX markets Tuesday, but options reflect caution
  • Implied volatility measures actual volatility risk - it's lower
  • However, losses are limited and implieds remain well above recent lows
  • Directional implied volatility risk premiums also reflect caution
  • Risk reversals retain strong bid for USD/JPY, AUD and GBP downside strikes

AUDUSD Bias: Bearish below 0.75 Bullish above

  • AUD/USD climbs further to 0.7079 as S&P futures +0.4%
  • May reach 0.7097 top of daily Bollinger downtrend channel
  • Close above that will break bearish bias, spur short-covering
  • Ignores RBA hold with patient policy stance
  • Positive sentiment in Asia follows China RRR cut, trade data
  • Chinese exports rise 22.05% y/y, above forecast
  • Latest poll showed economists favour first RBA hike in Q1 2023
  • Markets are more hawkish - RBAWATCH fully prices a hike in August 2022
  • RBA meeting likely low key as Omicron sustains cautious outlook
  • Charts; 5, 10 & 21 daily and weekly moving averages trend lower
  • Daily momentum studies, 21 day Bollinger bands fall - strong bearish setup
  • 0.6990 Nov 2020 base major support, break targets 0.6758 50% 2020/21 rise
  • 0.7106 10 DMA has capped the trend - close above needed to undermine bias