Daily Market Outlook, May 17, 2022

Overnight Headlines

  • US Plan To Boost Penalty On Russia, China Export Violations
  • Senate Advances $40Bln Ukraine Aid Bill With Wide Support
  • US Set To Continue Covid Public Health Emergency Past July
  • Shanghai Hit Goal Of Three Days Without Community Cases
  • Japan FinMin Calls Recent Yen Weakness Rapid, Undesirable
  • Poll: ECB To Hike In July, Ditch Negative Rates By September
  • EU’s Borrell: No Oil Embargo Agreements Yet Against Russia
  • BoE’s Bailey: Food Shortages Pose Apocalyptic Inflation Risk
  • UK PM Sees Legislative Solution To Revise Brexit NI Protocol
  • Turkey’s Erdogan Puts Brake On NATO Expansion In Nordics
  • Buffett Buys $3Bln Citi Stake In Value-Hunting Stocks Splurge
  • Chip Giant TSMC Plans Further Price Rises In Inflation Worry

The Day Ahead

  • Asian equity markets are mostly up this morning with tech stocks seemingly leading the way. Oil prices are close to a two-month high as EU officials continue to discuss a ban on Russian oil. US Federal Reserve policymaker Williams confirmed his support at present for 0.50% rate increases at both of the next two monetary policy meetings. Bank of England Governor Bailey suggested that UK rates may also need to rise further. UK Foreign Secretary Truss will today outline plans to amend the Northern Protocol within the Brexit deal. The Labour party plans to force a House of Commons vote on a withholding tax on oil companies.
  • Just released UK labour market data showed that employment rose by 83k in Q1, while the unemployment rate fell to 3.7% from 3.8%. Meanwhile, headline earnings growth blipped higher to 7.0% y/y from 5.6% previously, although excluding bonuses the increase was more modest. Overall, the data continue to point to the risk of further domestic inflation pressures from a tight labour market.
  • Outside the UK, the second estimate of Eurozone Q1 GDP growth is expected to be unchanged from the first reading at 0.2%, which was down modestly from 0.3% in Q42021. In the US, downside growth risks are still given short shrift despite an unexpected fall in Q1 GDP. That seems to be partly because the data showed solid rises in both consumer spending and investment suggesting that the fundamentals for US growth remain strong despite the risk of households being squeezed by high inflation. Today’s April retail sales and industrial production data are expected to provide further evidence that the growth picture still looks decent.
  • There are a number of central speakers today. In the UK, Bank of England policymaker Cunliffe’s comments will be watched for indications whether he would support a fifth successive interest rate hike at the Monetary Policy Committee’s next update on 16th June. Cunliffe did support the May rate hike but had opposed the previous one in March. Several Federal Reserve policymakers are also scheduled to speak including Fed Chair Powell.

FX Options Expiring 10am New York Cut

  • NZD/USD: 0.6300 (1.3BLN)
  • EUR/USD: 1.0400 (310M), 1.0415-25 (790M)
  • GBP/USD: 1.2100 (272M), 1.2200 (540M), 1.2250 (395M) 1.2400 (298M), 1.2500 (341M)
  • EUR/GBP: 0.8420-25 (350M),
  • AUD/USD: 0.6650 (346M), 0.6900 (226M), 0.7050 (572M) 0.7150 (252M).
  • AUD/JPY: 90.00 (290M) 0.9340 (294M)
  • USD/CAD: 1.268

Technical & Trade Views

EURUSD Bias: Bearish below 1.07 Bullish above

  • EUR/USD opened +0.22% at 1.0435 as USD eased against most currencies
  • USD weakened against risk currencies while the EUR/USD was steady
  • It traded in a 1.0429/55 range and is 1.1440/45 into the afternoon
  • EUR/USD VWAP trending lower
  • Resistance 1.0620 and break would warn momentum is slowing
  • Support seen at yesterday's 1.0384 low and break would increase downward pressure

GBPUSD Bias: Bearish below 1.26 Bullish above.

  • +0.1% in a 1.2321-1.2343 range with occasional flurries of interest on D3
  • UK moving towards trade conflict with EU on N. Ireland protocol
  • PM Johnson's concept of 'sovereignty' potentially very expensive for the UK
  • GBPUSD VWAP remains bearish
  • Long term support at 1.2018, 78.6% 2020-2021 rise

USDJPY Bias: Bullish above 127 Bearish below

  • USD/JPY, JPY crosses and especially AUD/JPY see good bounces early
  • USD/JPY from 128.85 EBS early Asia to 129.35, some more to 129.44 in PM
  • Combination of importer demand into Tokyo fix, offshore hedge fund buys
  • Surges in some JPY crosses helped AUD/JPY especially but CAD, MXN too
  • Japan off'l-speak helped, BoJ policy on hold, FX intervention not eyed
  • USD/JPY hedge fund bids still @128.70-80, offers 129.30-50
  • Many eyeing range-trade for now, 128.50-129.50 or 129.00-130.00

AUDUSD Bias: Bullish above .7200 Bearish below

  • AUD/USD up 0.5% in Asia as RBA minutes hint at June rate hike
  • RBA at last shifts to hawkish policy as Q1 inflation surged to 20-year peaks
  • Traders encouraged by fact that central.bank had considered a sharper hike in May
  • Q1 wages data eyed Wed, expected to show annual growth at decade high 2.5%
  • AUD also boosted by news Shanghai targeting June lockdown exit
  • Strong resistance at 0.7048-53, break opens 0.7100; support 0.6960-65,0.6925