Daily Market Outlook, January 10, 2022

Overnight Headlines

  • Goldman Expect Four Fed Hikes, Sees Faster Runoff In 2022
  • Pelosi Open Virus Aid Door In Spending Plan As Covid Rages
  • US Mull Russian Tech Restrictions To Stymie President Putin
  • Omicron Absenteeism Poses US Economic Muscle Next Test
  • China Mass Testing After Reporting First Community Spread
  • Australia Vows Push Through Omicron Wave As Cases Ramp
  • ECB’s Schnabel: Energy Transition Is Upside Risk To Forecast
  • Europe Powers Fear Financial Hit Russia Sanctioned Heavily
  • UK ForSec Truss: Will Use Article 16 If EU Won’t Bend On NI
  • Tory MP Warn Of Revolt If Johnson Doesn’t Axe Covid Curbs
  • UK Economy Risks GBP35Bln Hit From Omicron Absenteeism
  • Oil Prices Edge Higher On Kazakhstan, Libyan Supply Worries

The Week Ahead

  • This week, focus remains squarely on inflation and how central banks may be forced to deal with it sooner, as FX traders fret over interest rate differentials. The persistent increase in inflation is fuelling the rise in global yields, which is starting to heavily impact all asset classes, even cryptocurrencies. U.S. Federal Reserve Chair Jerome Powell will speak Tuesday when he fronts a Senate panel for his nomination hearing, while on Thursday Vice Chair nominee Lael Brainard will do the same. Fed expectations have turned decidedly hawkish since the start of the year – so their comments may move markets, even if U.S. nonfarm payrolls massively disappointed on Friday. Meanwhile, earnings season gets underway this week with a focus on banks, as JP Morgan Chase, Citigroup and Wells Fargo report on Friday.
  • All eyes on US inflation data and China trade Already heightened inflation expectations, which have driven the 10-year Treasury yield to its highest in 2 years, might get another boost this week with U.S. CPI and PPI, while China's December trade data may offer clues as to how much yuan strength authorities will tolerate. U.S. December Core CPI is expected to have risen 5.4% annually after climbing 4.9% in November. Other U.S. economic data this week include retail sales, jobless claims and University of Michigan consumer sentiment. A relatively quiet week ahead for Europe with Eurozone industrial production and trade data the only notable releases. The United Kingdom will also publish trade and industrial production numbers. China trade data on Friday will be scrutinized for the breakdown of imports and exports, amid worries that the yuan's 6-year high versus peers might impact international trade. China will also release CPI and PPI data along with house prices this week. It will be a bit busier in Australia with building approvals, consumer sentiment, retail sales and trade data on tap. Japan data includes trade balance, current account, and wholesale inflation data.

CFTC Data: USD spec long pared; GBP, EUR buys outpace yen, AUD sales

  • USD net spec long slipped in Dec 29-Jan 4 reporting period
  • EUR$ bought slight EUR dip, specs +5,080 contracts now short 1,554
  • $JPY +1.15% in period, dollar bought into strength; specs -9,160 contracts
  • GBP$ +0.71% in period specs bought into rise, +11,548 contract now -39,171
  • AUD -7,625 contracts, CAD -691 and NZD -424 Specs add to existing short
  • BTC specs sold 62 contracts now short 604, BTC fell 2.89% in period

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 )

EUR/USD: 1.1275-80 (1.2BLN), 1.1300 (394M), 1.1350 (552M), 1.1390 (340M)

USD/JPY: 114.00 (1.2BLN), 116.00 (600M) 116.50 (1.2BLN)

USD/CHF: 0.9150 (260M), 0.9240 (700M)

GBP/USD: 1.3610 (305M). AUD/USD: 0.7045-50 (842M)

AUD/JPY: 80.98-81.00 (1.25BLN). USD/CAD 1.2750-55 (395M)

USD/ZAR: 16.30 (400M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • Drifts lower as USD firms against EUR and JPY
  • EUR/USD opened around 1.1355 after rising 0.55% Friday on US jobs data miss
  • It traded at 1.1360 early before stating a slow drift lower
  • Heading into the afternoon it is at the session low at 1.1338
  • USD firmed against EUR & JPY while risk currencies such as AUD outperformed
  • EUR/USD support is at the 10-day MA at 1.1324 and 21-day MA at 1.1310
  • A break below 1.1310 targets a double-bottom at 1.1270/75
  • Resistance is @ the 55-day MA @ 1.1370, as that reading held since Sep 16
  • Friday's gain may be a selling opportunity as long as 1.1370 caps

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • Upbeat sentiment and constructive charts support
  • Touch lower in a 1.3585-1.3595 range, consistent flow once Asia fully opened
  • UK manufacturers positive on 2022 despite Brexit and inflation
  • Major UK companies plan 2022 investment surge - Deloitte
  • Interesting to see UK industry so upbeat amid the current Omicron chaos
  • Charts; 5, 10 & 21 day moving averages, plus 21 day Bollinger bands climb
  • Momentum studies edge higher - positive trending setup remains in place
  • Close above 1.3580 opens the door to a test of 1.3834 Oct/Nov range high
  • Sustained 1.3523 10 DMA break, a base last week will undermine topside bias

USDJPY Bias: Bullish above 112.50 Bearish below

  • Key support holds, with a positive technical setup
  • +0.15% with the USD a touch firmer and Asian stocks remained resilient
  • Trades at the top of a 115.55-115.79 range - low key on a Tokyo holiday
  • Charts; Kijun line, 5, 10 & 21 day moving averages all track higher
  • Momentum studies crest - overall the setup supports further gains this week
  • Last week's 116.35 top first resistance - 118.60 2016 top longer term target
  • Sustained break of resilient support at 115.52 2021 high would be negative
  • NY 115.52-115.93 range is initial support and resistance

AUDUSD Bias: Bearish below 0.7250 Bullish above

  • Moves higher as cross buying underpins
  • AUD/USD opened 0.7177 after rising 0.27% on Friday when USD sold off on US jobs miss
  • After trading at 0.7173, AUD/USD tracked higher through the morning session
  • It traded as high as 0.7197, as AUD/JPY buying helped to underpin
  • Heading into the afternoon the AUD/USD is settling around 0.7190
  • Resistance @ the 10-day MA @ 0.7218 & break would suggest bottom is forming
  • Support is at Friday's 0.7130 low and break targets Dec 20 low at 0.7082