Daily Market Outlook, January 13, 2022

Overnight Headlines

  • Fed See Economic Optimism Showing Cooling Signs In Places
  • Fed Bullard: Four 2022 Interest Rate Hikes Now Found Likely
  • Fed Brainard: Inflation Control Is Fed's 'Most Important Task'
  • Fed Daly Joins Camp That See Rate Lift-Off As Early As March
  • Democrats Fast-Track Voting Rights Bill, Speeding Showdown
  • US House Leader Near Deal On Stalled China Competition Bill
  • Biden Reports Bill Sanctioning Nord Stream 2 Undercuts Talks
  • China See Mounting Economic Damage From Covid-Zero Plan
  • China City Of Dalian Detects First Omicron Cases From Tianjin
  • Defiant UK PM Johnson Refuses To Quit As Polls Drop Further
  • Seeking Northern Ireland Solutions, UK’s Truss Hosts EU Talks
  • Investors Brace For US Earnings As Inflation Worries Run High

The Day Ahead

  • Market risk tone remained cautious in the Asia-Pacific region, with major equity market indices mostly trading lower. There was mixed reaction in bond markets to yesterday’s US CPI inflation increase to 7%, a forty-year high, with markets having already significantly repriced for higher Fed policy rates. The Fed’s Bullard said that he favoured four hikes this year, while there were indications from other rate-setters that they may support interest rate ‘lift-off’ in March.
  • Following yesterday’s US CPI release, speculation continues about the timing of the Fed’s first rate rise which could come as early as March. The Fed has also indicated that it could start to reverse QE “at some point after” the first interest rate increase, which has been interpreted as potentially quite soon. Comments from rate-setters will continue to be closely watched ahead of next week’s blackout period before the 25/26 FOMC policy meeting. They include Barkin and Evans today (although both non-voters this year), who will discuss the economic outlook. US producer price inflation and weekly jobless claims data will be released this afternoon. Monthly PPI is forecast to slow to 0.4%, while initial claims for the week ending 8 January are expected to be steady at just above 200k.
  • In the UK, given the inflation backdrop, financial markets are priced for four hikes to 1.25% this year, with the next 25bp rise fully discounted for the March MPC meeting. The data focus will be tomorrow morning’s November GDP figures at 7am. That covers the period before the impact of measures to tackle Omicron and therefore could be seen as ‘dated’. Look for a rise of 0.4%m/m, supported by a rebound in manufacturing and construction activity as well as ongoing growth in services. Timelier survey indicators suggest that economic activity in December was affected by new restrictions. The BoE expects Q4 GDP growth of 0.6%q/q, which may assume contraction in December. Forward-looking business expectations from the PMI and the Lloyds Business Barometer, however, suggest a degree of resilience and an anticipation (or hope) that the impact of Omicron will be relatively short-lived.

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: 1.1250 (225M), 1.1290-00 (500M), 1.1340 (272M)

USD/JPY: 112.95-00 (434M), 115.00 (652M), 115.50 (1.3BLN)

116.00 (960M). GBP/USD: 1.3690 (261M)

AUD/JPY: 78.00 (955M), 82.25 (446M)

USD/CAD: 1.2435-45 (320M), 1.2495-00 (325M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • Maintains overnight gain while sellers above 1.1450 cap
  • EUR/USD opened +0.63% at 1.1441 after surging following US CPI
  • It consolidated in Asia - trading in a 1.1436/48 range
  • It is just below 1.1440 heading into the afternoon session
  • Resistance is at the 100-day MA at 1.1510 with sellers above 1.1450
  • EUR/USD is a short-term trend higher with 5, 10 & 21-day MAs in bullish alignment
  • Support is at former resistance at the 55-day MA at 1.1358
  • Bias is for high and dips are likely buying opportunities

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • N.Ireland talks restart – sterling trends north
  • +0.1% near the top of an active 1.3698-1.3720 range - fresh trend high
  • Jobs market still tight and unlikely to change near term
  • UK's Truss hosts EU talks on N. Ireland, progress unlikely
  • A breakthrough in N. Ireland talks would be a strong sterling positive
  • Charts; 5, 10 & 21 day moving averages, plus 21 day Bollinger bands climb
  • Momentum studies edge higher, which is strong positive trending setup
  • Next trend resistance comes in at the 1.3829/34 range top in October
  • Sustained 1.3585 10 DMA break, a recent base would undermine topside bias

USDJPY Bias: Bullish above 114.50 Bearish below

  • JPY pairs continue to consolidate, bids on dips
  • USD/JPY and the JPY crosses continue to consolidate in unexciting trade
  • USD/JPY 114.49-70 EBS after plunge from 115+ to 114.38 overnight
  • Japanese importer-investor bids again eyed on dips towards 114.00, below
  • Upside heavy with weak longs, specs looking to sell into rallies
  • Large option expiries today mostly to upside, large on 114 tomorrow
  • Tech support from ascending 55-DMA at 114.22, daily Ichi cloud below
  • Wide Japan-US interest rate differentials supportive

AUDUSD Bias: Bearish below 0.7250 Bullish above

  • AUD/USD bulls attempt to swing a leg over 100 DMA ledge
  • AUD/USD creeps up Thurs as USD selling appears to taper off
  • Momentum could rise again if it closes above 100 DMA 0.7287
  • Bollinger uptrend channel would then point to 61.8% Fibo 0.7340
  • Fed's hawkishness fully priced in; China data Fri may be next cue
  • If exports slow less than expected, risk-on should lift AUD again