Daily Market Outlook, January 14, 2022

Overnight Headlines

  • Fed Officials Nod To March Hike As Inflation Battle Grows
  • Biden Will Nominate Raskin As Top Fed Banking Regulator
  • Senate Block Sanctions To Stopping Nord Stream Pipeline
  • US Push Europe Over Sanctions With Wary Eyes On Putin
  • China Exports Hit Fresh Record On Strong Global Demand
  • BoJ Debate Messaging On Eventual Hike As Inflation Rises
  • Japan’s Weighing Wholesale Prices Rise For Tenth Month
  • N Korea Vows Stronger Action To US Sanctions Over Tests
  • Thirty Tory MPs Submit No Confidence Letters In Johnson
  • Number 10 Lockdown Parties Not Criminal, Inquiry To Say
  • UK ForMin Truss Target NI Protocol Deal By End Of March
  • Tesla Delay Initial Production Of Cybertruck To Early 2023

The Day Ahead

  • The pound is proving to be one of the best performing major currencies in the early days of 2022. It's trading near its highest levels in over two months above $1.37 , thanks to signs the Omicron COVID surge is abating and on expectations that UK interest rates could rise again as soon as February.Data on Friday shows Britain's economy grew a faster-than-expected 0.9% in November. Yet, as week draws to an end, there's a question mark over how long the rally will last given rising political uncertainty. Prime Minister Boris Johnson's leadership is in the balance as he faces calls to resign from some in his party over Wednesday's admission that he attended staff drinks during the May 2020 lockdown. Fresh revelations about parties in Downing Street were being reported on Friday.
  • At the Fed, Governor Lael Brainard became the latest and most senior U.S. central banker on Thursday to signal that rates will rise in March to combat inflation.
  • Asian shares took a beating from rate-hike unease; Japan's Nikkei fell 1.3% . European shares are tipped to open lower although U.S. stock futures are moving up . U.S. 10-year Treasury yields are slightly higher at 1.73% and the dollar index is near two-month lows – a sign that tighter policy is already well priced into the greenback now. December U.S. retail sales numbers out later in the day is the next focus.
  • Lastly, China Evergrande shares edged up after the world's most indebted developer secured a crucial approval from onshore bondholders to delay payments on one of its bonds as more developers race to avert defaults.
  • Key developments that should provide more direction to markets on Friday: China posted a record trade surplus in December and in 202. Germany 2021 GDP – Riksbank Governor Stefan Ingves, ECB: President Christine Lagarde, Fed: Philadelphia President Patrick Harker; New York President John Williams. US retail sales Dec/industrial production/inventories/University of Michigan survey. US earnings: BlackRock, JPM, Wells Fargo, Citi

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: 1.1270-80 (2.06BLN), 1.1285-90 (1.3BLN), 1.1300-10 (1.3BLN), 1.1320-25 (590M)

1.1345-50 (550M), 1.1360-75 (1.8BLN), 1.1395-05 (1.4BLN) 1.1410-15 (563M), 1.1420-25 (2.37BLN), 1.1460-70 (1.38BLN) 1.1485 (2.1BLN), 1.1620-30 (1.3BLN), 1.1650-55 (710M)

USD/JPY: 113.20-25 (410M), 113.30-35 (780M), 113.45-50 (900M) 113.65 (390M), 113.70-75 (700M), 113.95-05 (825M) 114.10-12 (400M), 114.45-55 (885M), 114.85-90 (400M) 115.00-10 (1.7BLN), 115.50-55 (760M), 115.85-90 (690M) 115.95-05 (1.9BLN)

GBPUSD: 1.3610 (200M), 1.3690 (295M). EUR/GBP: 0.8350 (683M)

USD/CHF: 0.9185-90 (540M), 0.9205-10 (400M)

AUD/USD: 0.7100 (586M), 0.7110-15 (400M), 0.7125-30 (965M) 0.7140 (390M), 0.7200 (595M), 0.7250 (420M)

NZD/USD: 0.6800 (566M), 0.6845-50 (506M)

USD/CAD: 1.2485-90 (1.4BLN), 1.2495-00 (1.52BLN) 1.2510 (664M), 1.2520-30 (1.76BLN), 1.2540-50 (822M) 1.2600-05 (395M), 1.2650 (685M), 1.2675-85 (1.05BLN) 1.2740-50 (900M). USD/ZAR: 15.38 (495M), 15.70 (600M) 15.85-90 (650M), 16.40-50 (568M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • EUR/USD ranges after surges, on options, EUR/JPY heavy
  • EUR/USD consolidates in Asia after surges Wednesday, yesterday
  • Asia 1.1452-76 EBS, better bid, descending 100-DMA above at 1.1507
  • Support at daily Ichi cloud between 1.1352-1.1439
  • Resistance eyed from 1.1485, massive E2 bln option expiries at strike
  • Also today total E1.4 bln in expiries at 1.1460-70, gravitational pull
  • Below sees E1.4 bln between 1.1415-25, E1.7 bln along at 1.1425
  • EUR/JPY 130.80 to 130.42 EBS, heavy, EUR/CHF 1.0437-45, near o/n lows
  • Both reported to be off on safe haven flows, Asia risk off with Wall St
  • EUR/GBP better bid, indicated @0.8360, near large E683 mln option expiries

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • Bid with a softer U.S. dollar into a raft of UK data
  • +0.1 at the top of a 1.3705-1.3720 range with consistent interest
  • GDP and Industrial production lead a tranche of UK data- see chart for polls
  • No police probe yet into parties at PM's house during COVID-19 lockdown
  • Should the police find evidence, it could be the end of Johnson
  • Charts; 5, 10 & 21 day moving averages, plus 21 day Bollinger bands climb
  • Neutral momentum studies, which is strong positive trending setup
  • Next resistance comes in at the 1.3829/34 range top in October - likely caps
  • Sustained 1.3604 10 DMA break, a recent base would undermine topside bias

USDJPY Bias: Bullish above 114.50 Bearish below

  • More longs bail ahead of weekend, crosses fall too
  • JPY remains in demand in Asia, safe haven flows, JPY buy-backs cited
  • USD/JPY from 114.22 to 113.64 EBS, to daily Ichi cloud between 113.17-63
  • Stops tripped sub-114.00 and Japan importer/investor bids no help
  • In fact, talk some investors recently long Treasuries hedging holdings
  • $1.1 bln in option expiries at 113.95-114.10 un-supportive, to cap now?
  • $1.9 bln in expiries also today between 113.45-75 supportive for now
  • Tokyo risk-off, Nikkei -1.9% @27,942, Asia off too after Wall St plunge
  • US yields not a factor today, steady, Tsy 10s @1.725%, longer-term bias up

AUDUSD Bias: Bearish below 0.7250 Bullish above

  • Holds steady despite risk aversion in positive sign
  • AUD/USD unchanged in Asia, recovers after falling 0.2% to 0.7266 low
  • Weighed down by risk aversion as Fed speakers put rate hikes in focus
  • Ability to hold ground despite risk aversion bodes well for further gains
  • Aussie up 1.2% for the week having hit a two-month top of $0.7314 overnight
  • Rising commodities, metals boost ; copper set for best weekly jump since Oct
  • Resistance 0.7310-15, 0.7340-45, support 0.7245-50, 0.7225-30