Daily Market Outlook, June 2, 2022

Overnight Headlines

  • Saudi Arabia Ready To Pump More Oil If Russian Output Sinks Under Ban
  • EU Push For Partial Russian Oil Ban Delayed By Hungary’s Demands
  • Rate Hikes Spur Bets That Asian Central Banks Will Keep Going
  • Companies Struggle With Rising Prices, Fed’s Beige Book Says
  • Fed’s Bullard Sees 3.5% Rates Setting Up Cuts In 2023 Or ‘24
  • Fed's Daly: Let's Get U.S. Interest Rates To 2.5% As Quickly As We Can
  • China Orders $120 Billion Credit Line For Infrastructure Growth
  • Relationship Needs To Mend Before China Drops Aus Trade Bans
  • Australia Trade Surplus Widens In April On LNG Exports
  • BoJ’s Adachi Says It’s Too Early to Tighten Monetary Policy
  • BoE's Cunliffe Seeing Evidence Of Slowdown In Housing Market
  • US Dollar Up For A Third Day After Hawkish Fed Commentary
  • Bitcoin Retreats To Consolidate Below $30,000; Solana Tumbles
  • Australia’s Bond Yields Jump On Bets Of Outsized RBA Rate Hike
  • Asian Shares Fall On Inflation, Recession Concerns; Oil Skids
  • JPMorgan Chief Says ‘Hurricane’ Is Bearing Down On Economy

The Day Ahead

  • US stocks slipped overnight while treasury yields jumped further as a series of solid economic data point to a resilient US economy which means that the Federal Reserve is on track to maintain its policy tightening plan. The main US benchmarks fell by 0.5-0.8%, tracking the decline in European stocks earlier. Asian markets saw another day of mixed performances as stocks rose in Japan but fell in Hong Kong and China.
  • Treasury yields rose by 1-10bps, led by the front end of the curve amid a synchronized increase in global bond yields. The market’s main focus remained on the elevated global inflation and central banks’ monetary policy. The yield on the benchmark 10Y UST climbed 6bps to 2.91%, its strongest level in two weeks.
  • The USD outperformed all G10 and nearly all Asian currencies, supported by higher yields and strong data. The dollar index closed 0.7% higher at 102.50. The Japanese yen posted deeper losses of 1.1% alongside the Norwegian krone as investors zeroed in on policy divergence between the Fed and BOJ. CAD had a choppy trade and closed the day marginally lower, after the Bank of Canada raised its benchmark policy rate by 50bps as expected. Gold futures were steady at $1843.30/oz despite the USD strength.
  • In the oil market, WTI traded slightly firmer (+0.5%) at $115.26/barrel. The global benchmark Brent tanked 5.3% to $116.29/barrel, ending a nine-day winning streak amid profit taking activity. Brent was also weighed by news of a possible suspension of Russian participation in OPEC+ output deal which may lead to higher Saudi and UAE production.

FX Options Expiring 10am New York Cut

  • EUR/USD: 1.0550-55 (920M), 1.0575-85 (432M)
  • 1.0600 (242M), 1.0625 (300M), 1.0650 (886M)
  • 1.0660 (300M), 1.0700 (1.0BLN), 1.0710-15 (552M)
  • 1.0725-30 (2.26BLN), 1.0735-40 (1.78BLN)
  • 1.0745-50 (993M)
  • USD/JPY: 129.50-55 (520M), 129.95-00, 130.05-07 (300M)
  • 130.45-55 (600M), 131.00 (255M)
  • AUD/USD: 0.7025-35 (390M), 0.7050-60 (626M), 0.7100 (330M)
  • 0.7140-50 (609M). NZD/USD: 0.6500 (377M)
  • USD/CAD: 1.2595-00 (740M)
  • USD/ZAR: 15.2500 (250M), 15.5600 (551M), 15.60 (746M)
  • 15.7500 (250M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.07 Bullish above

  • EUR/USD's recent rise has been stymied right by the 1.0787 Fibo
  • 1.0787 Fibo is a 38.2% retrace of the 1.1495 to 1.0349 fall
  • FX traders should be mindful of the thickening daily Ichimoku cloud
  • The 1.0765-1.0933 region, should also weigh
  • Wednesday saw a big relapse, which could well continue in coming sessions
  • EUR/USD VWAP has turned bullish

GBPUSD Bias: Bearish below 1.26 Bullish above.

  • Bearish reversal underway after Wednesday close
  • llean bearish but now await fresh signals
  • The next Fibo off the 1.2156-1.2666 gain comes at 1.2411, 50%
  • Early Thurs action mildly corrective but still below 1.2568
  • 14-day positive momentum fading and RSI neutral
  • Risk to 1.2411 while below 1.2568

USDJPY Bias: Bullish above 127 Bearish below

  • USD/JPY remains better bid, JPY crosses remain buoyant too in Asia
  • Divergence in BoJ and other central bank policies market focus
  • BoJ again reiterated easy policy bias, OK with FX
  • USD/JPY surged from 128.65 to 130.19 yesterday, Asia 129.89-130.24 EBS
  • Still better bid, Japanese importer, investor, other demand on dips
  • Japanese exporter, other offers help cap topside
  • $766 mln 129.95-130.07 option expiries today provide gravitational pull

AUDUSD Bias: Bullish above .7200 Bearish below

  • AUD/USD down 0.45% in Asia as traders target stops below 0.7150
  • Weighed down by risk aversion as inflation and recession concerns hit stocks
  • Higher U.S. yields, Fed's balance sheet reduction underpin USD
  • Australia trade data better than expected but taken in stride
  • Focus shifts to U.S. jobs data Fri and RBA meeting rate meeting Tuesday
  • Stronger than expected GDP Wed has raised expectations of 40 bps rate hike
  • Support 0.7130-35, 0.7090-0.7100, resistance 0.7190-95, 0.7225-30