Daily Market Outlook, January 20, 2022

Overnight Headlines

  • US President Biden: We Can Still Pass Big Chunks Of Spending Plan
  • Biden: Not There Yet On Possible Easing Of Tariffs On Chinese Goods
  • Manchin, Sinema Join GOP To Sink Filibuster Change For Voting Bill
  • Desperate Dems Signal Support For Cutting Biden Bill Down In Size
  • France Records More Than 430,000 New Covid Cases For Second Day
  • Five More UK Conservative MPs Considering Defecting To Labour
  • Chinese Banks Cut Borrowing Costs Again On PBOC Easing Signals
  • Japanese Exports, Imports Hit Record High As Bottlenecks Ease
  • Australia's Unemployment Rate Tumbles To 13-Year Low Of 4.2%
  • Kim Jong Un Rips US, Signals Resumption Of Major Weapons Tests
  • Oil Prices Hover Around 2014 Highs, Supported By Supply Concerns
  • Gold Holds Around Two-Month Peaks As Firmer US Yields Weigh
  • Asian Equity Markets Rise, Led By Chinese Property Developers

The Day Ahead

  • Most Asian equity markets are up overnight with some rising sharply. Lower Chinese interest rates and signs that the US bond market is stabilising were both cited as reasons for the move. US President Biden warned yesterday that he thinks Russia will “move in” on Ukraine. Talks continue to try to avert a crisis. Mr Biden also signalled his support for the Federal Reserve if it tightened monetary policy to combat higher inflation. In Australia, the unemployment rate dropped to a 13-year low of 4.2% in December.
  • Today’s data calendars for the UK and the Eurozone are both light. There is nothing of note in the UK, while the Eurozone December CPI is an update that is not expected to be revised from its initial reading. That showed annual inflation rise to 5% a new high for the euro area. However, more positively ‘core’ inflation is still much lower at 2.6%.
  • Early Friday morning, December retail sales and the January GfK consumer confidence measure will both provide updates on the UK consumer sector. Short-term movements in retail sales are always difficult to forecast and Omicron makes the picture even murkier than usual. A big rise in November suggests that many consumers may have shopped early for Christmas and reports on December footfall in retail outlets have been disappointing. Spending on goods (covered by the retail sales report) may have been less impacted by Omicron than spending on services (which are not included). Nevertheless, it is likely that retail sales may have slipped by 0.6% m/m. Consumer confidence seems likely to be down in the wake of recent developments, but still expect it to still be well above the lows of last spring.
  • In the US, weekly jobless claims will be watched for evidence on whether unemployment has fallen further amidst rising concerns that a tight labour market may add to inflationary pressures. Meanwhile, the January Philadelphia Fed’s manufacturing index may provide further indications whether economic activity has slowed sharply around the turn of the year after its New York equivalent dropped by much more than expected.
  • The minutes of the European Central Bank’s December policy meeting will confirm the details of the policy changes announced then. However, markets are most likely to be interested in any signs that the consensus for very easy monetary policy is showing any sign of cracking given the rise in inflation.

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: 1.1285-90 (862M), (1.1300-10 (3.4BLN) 1.1315-25 (1.04BLN), 1.1330-35 (656M)

1.1345-50 (1.73BLN), 1.1360 (579M), 1.1375-80 (398M) 1.1395-00 (598M), 1.1450-55 (1.35BLN), 1.1480-90 (657M) 1.1500-05 (810M)

USDJPY: 113.00 (472M), 113.45-50 (546M), 114.00-10 (904M) 114.15-20 (854M), 114.65-75 (674M)

GBP/USD 1.3550 (270M), 1.3750-55 (402M), 1.3770 (250M)

USD/CAD: 1.2570-80 (490M), 1.2590-00 (370M)

1.2690-00 (490M), AUD/USD: 0.7080 (401M), 0.7160 (221M) 0.7240-50 (578M), 0.7260-70 (526M), 0.7290-00 (664M)

USD/CHF 0.9150 (200M). USD/ZAR: 15.38-45 (333M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • Firms in Asia as USD rally pauses for now
  • EUR/USD opened +0.14% at 1.1343 as steady US yields led to USD selling
  • It traded with a bid tone in Asia and moved up to 1.1366 at one stage
  • Heading into the afternoon it was trading around 1.1355
  • A daily close above the 21-day MA (1.1348) would ease downward pressure
  • Key resistance is at the 100-day MA at 1.1487 with sellers tipped 1.1370/80
  • Option related bids eyed between 1.1310/20 with trend-line support at 1.1281
  • Key will be moves in US yields ahead of the January 26th FOMC meeting

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • GBP/USD holds above 1.36 after Wednesday's inflation
  • Cable has traded a quarter-cent range thus far Thursday, 1.3610-1.3635
  • 1.3610 is low water-mark since Wednesday's 1.3649 high
  • 1.3649 was notched after hawkish shift in BoE expectations on 5.4% UK CPI
  • 25 bps BoE rate hike to 0.5% expected Feb 3
  • FOMC meets next week, with 25 bps rate hike expected in March

USDJPY Bias: Bullish above 114.50 Bearish below

  • JPY markets mostly range-bound in Asia today, market on thin side
  • USD/JPY brief post-Tokyo fix outlier down but range limited, 114.02-41 EBS
  • Action mostly around 55-DMA at 114.26, Ichi cloud below between 113.36-77
  • Japanese importer, investors in dip-buy mode still.
  • Joined by some option players, total $1.8 bln expiries 114.00-20 today
  • Other option expiries today - 114.30-50 total $672 mln, 115.00-10 $689 mln
  • US yields relatively firm after push-back yesterday, Tsy 10s @1.851% TWeb
  • Risk mood better today, Nikkei +0.5% @27,594, E-Minis +0.1% @4529

AUDUSD Bias: Bearish below 0.7250 Bullish above

  • Holds gains as traders bet on early RBA rate rises
  • AUD/USD gains 0.35% in Asia; strong AU jobs data stokes early rate hike bets
  • Australia jobless number dives to lowest since 2008...
  • CPI data next week key, some economists see core inflation jumping to 2.5%
  • If borne out, will increase case for early rate hike
  • Westpac brings forward rate hike call to Aug 2022 from Feb 2023 previously
  • Buoyant commodities, metals lift AUD; oil near 7-year high, copper eyes $10k
  • Resistance 0.7255-60, 0.7280, support 0.7205-10, 0.7185-90