Daily Market Outlook, May 20, 2022

Overnight Headlines

  • Fed Set On Half-Point Hikes, Undeterred By Stock Slump
  • Fed's Kashkari: Strong Finances Could Mean More To Do
  • Labour Market In Focus Jobless Claims Hit 4-Month High
  • Sec Yellen Reject Idea Of Fed Raising 2% Inflation Target
  • White House Believe Biden, Xi To Talk In Coming Weeks
  • China Cuts Key Rate By Record To Boost Ailing Economy
  • China’s Stimulus Tops $5Tln As Covid Zero Hits Economy
  • Shanghai See First Covid Outside Quarantine In Six Days
  • Japan Consumer Prices Post Biggest Rise In Seven Years
  • Australia Election Enters Final Days As Tight Result Likely
  • Russia Deny UN Plea To Permit Ukraine Grain Shipments
  • UK Consumer Confidence Drops Lowest Level Since 1974

The Day Ahead

  • Equity markets in the Asia-Pacific are higher this morning, shrugging off the negative close on Wall Street. Sentiment was boosted by a reduction in China’s 5-year loan prime rate to 4.45%, a key reference rate for mortgage rates, in a move that is aimed at supporting the property sector. Meanwhile, Japanese CPI inflation, excluding fresh food, rose to 2.1%, above the Bank of Japan’s target, although it is not likely to alter the central bank’s bias towards maintaining monetary policy stimulus.
  • UK economic data released earlier this morning highlighted pressures on consumers’ spending power from the impact of high inflation amid the cost-of-living crisis. The GfK consumer confidence survey’s headline index fell 2 points to a record low of -40 which is lower than during the Covid19 pandemic and the global financial crisis. Meanwhile, official figures showed the volume of retail sales bouncing back in April by 1.4%m/m, but it follows a sizeable decline in March and therefore provides only limited assurance. Year-on-year sales were still down significantly. More broadly, the figures show that the volume of sales in recent months have not kept pace with outlays in value terms, meaning that consumers are spending more for the same amount of goods.
  • The economics calendar for the rest of the day is threadbare as the week draws to a close. The Bank of England’s Chief Economist and MPC member, Huw Pill, is scheduled to deliver a speech in a visit to Wales this morning at 8.30am. It should be an interesting talk as he is expected to give his views on the outlook and challenges for the UK economy. Markets will be watching to see if he can provide more clarity on the Bank’s mixed messages regarding the potential policy outlook as rate setters navigate a slowdown in economic activity but uncomfortably high inflation.
  • Elsewhere, the ECB’s Centeno (Bank of Portugal Governor) will speak at a conference in Lisbon. The May flash estimate of Eurozone consumer confidence is expected to have stabilised close to the previous level, having fallen sharply after the invasion of Ukraine and the consequential impact on inflation and economic uncertainty. Expect overall consumer confidence to edge up to -21.5 in May from -22.0 in April, still significantly weaker than at the start of the year.

FX Options Expiring 10am New York Cut

  • EUR/USD: 1.0340-50 (506M), 1.0395-05 (510M)
  • 1.0415-20 (1.1BLN), 1.0475 (715M), 1.0500-10 (660M)
  • 1.0540-50 (814M), 1.0575 (670M), 1.0600 (430M)
  • 1.0625 (219M)
  • GBP/USD: 1.2300 (313M), 1.2355 (305M), 1.2405 (360M)
  • 1.2490-00 (270M), 1.2650 (295M)
  • EUR/GBP: 0.8400 (200M), 0.8430 (300M)
  • EUR/JPY: 134.25-30 (370M), 136.35 (367M), 136.55 (354M)
  • AUD/USD: 0.7050 (545M)
  • USD/CAD: 1.2730 (2.63BLN), 1.2775 (450M), 1.2800 (510M)
  • 1.2850-55 (610M), 1.3000 (1.08BLN)

Technical & Trade Views

EURUSD Bias: Bearish below 1.07 Bullish above

  • Resistance is at the 38.2% of the 1.1185/1.0349 move at 1.0668
  • EUR/USD stopped trending lower and will likely consolidate in a range
  • More short-covering possible if US yields continue to move lower
  • EUR/USD VWAP flattening
  • Support seen at 1.0470/50 break would encourage a retest of cycle lows

GBPUSD Bias: Bearish below 1.26 Bullish above.

  • Off 0.2% as the USD firmed with E-mini S&P +0.75% and UST yields firmer
  • China mortgage rate cuts supported sentiment, stocks in Asia
  • Cable trades towards the base of a 1.2437-1.2472 range, light flow on D3
  • UK consumer morale hits lowest since records began in 1974
  • Morale at these levels, with cost of living soaring usually means recession
  • Volatility still clouding near-term direction
  • Offers at 1.25 daily VWAP remains bearish

USDJPY Bias: Bullish above 127 Bearish below

  • USD/JPY tracks away from 127.03 spike low o/n, Asia 127.67-128.21
  • Japanese importer buys again into pre-weekend, Gotobi Tokyo fix
  • Market heavy from 128.00 on specs, other sales, market thin post-fix
  • Despite importer bid, some tip near-term bias maybe down
  • Eyes on key support between 126.95-127.05, break below seen bearish
  • 128+ resistance, massive option expiries Monday 128.15-17, 128.99-129.00
  • Going forward, USD/JPY moves may depend on moves in US yields

AUDUSD Bias: Bullish above .7200 Bearish below

  • AUD/USD opened +1.32% at 0.7047 after USD fell on US growth concerns
  • Risk assets in Asia rallied on the back of China LPR cut
  • The AXJ index moved 1.2% higher while Dalian iron ore rose 3.0%
  • Despite those rallies the AUD/USD fell to a session low at 0.7009
  • Heading into the afternoon the AUD/USD is trading around 0.7015
  • Support eyed at .6950
  • Resistance is at the the daily VWAP .7050