Daily Market Outlook, May 23, 2022

Overnight Headlines

  • Pounded By Russia In The East, Ukraine Rules Out Concessions
  • White House Adviser: US Economy Is In A ‘Period Of Transition’
  • Lagarde Signals That July Is Likely Liftoff Date For ECB Rates
  • UK Housing Market Frenzy Shows Signs Of Slowing: Rightmove
  • Beijing Sees Record Covid Cases, Reviving Lockdown Concerns
  • Anthony Albanese Leads Labor To Australian Election Victory
  • RBA’S Kent: Currently Has No Plans to Sell Bonds in Portfolio
  • Dollar Wobbles Lower As Chinese Growth Hopes Lift Aussie
  • Oil Prices Climb In Tight Market As US Driving Season Looms
  • Asian Equity Markets On A Mixed Footing; US Futures Rise
  • Broadcom Reportedly In Talks To Acquire Cloud Firm VMware

The Day Ahead

  • Equity indices are mostly trading higher across the Asia Pacific, albeit stocks in China and Hong Kong continued to fall as record numbers of new Covid cases in Beijing raised concerns of a broad lockdown across the capital, in adherence with China’s stringent Covid policy. US equity futures are also trading higher, although this follows seven weeks of decline and overall equity sentiment remains soft.
  • There are still a few weeks to go before the next set of announcements from the European Central Bank (9th June), US Federal Reserve (14th June) and BoE (15th June). In the meantime, comments from policymakers will continue to be examined closely for clues on their intentions. The US Fed’s message is clearest with its policymakers united in indicating that for now they are more concerned about inflation and that, as result, 50 basis point increases in interest rates are likely in both June and July.
  • However, with the recent fall in equities generating some of the required tightening in financial conditions that the central bank is trying to achieve by raising interest rates, there are questions of whether some Fed members may start to point to the need for a lower peak in interest rates. Later today, Fed members Bostic and George are scheduled to speak and any indication of a wavering in hiking intentions will be closely watched for.
  • Recent ECB comments indicate that an increasing number of policymakers and, possibly a majority, now favour or are open to an interest rate hike at the 21st July policy update despite ongoing economic uncertainties. Minutes of their April meeting released last week noted that several policymakers were ready to move rates at that point. But that obviously was not true of the majority and the consensus now seems to be building around using the June update to signal a July move. A number of ECB officials are due to speak over the course of the day, including De Cos, Nagel, Holzmann and Villeroy. The last two will be speaking about “The Return of Inflation” at an event in Vienna, alongside BoE Governor Bailey.
  • Data wise, today’s German IFO survey for May will provide an update on economic trends. Since the war in Ukraine started, the index has fallen below its long-term average, and as expected a further modest fall this month.
  • Early tomorrow morning, monthly UK public finance data for April will be released. While the figures are the first for the new fiscal year (2022/23), they will be watched for indications of the leeway for the government to offer extra support to households. As concerns about the ‘cost of living squeeze’ have intensified, there have been growing calls for action and recent media reports have suggested a package may be introduced before the parliamentary recess in July. Potential measures that have been talked about include further specific support for fuel bills and a temporary cut to VAT.

CFTC Data

(Reuters Data)

  • USD IMM net spec Fell in May 11-17 period as the $IDX dipped 0.61%
  • EUR$ +0.24% in period, specs bottom-fish add 3,810 contracts to long
  • Yen net short -8,145 to -102,309 contracts; $JPY -0.85% in period
  • GBP specs +357 contracts now -79,241; GBP$ rose 1.47% in period
  • AUD, CAD, kiwi specs sold in period; AUD short now 2,928, CAD -14,496
  • Bitcoin specs buying recent dip, +103 contracts now long 806; BTC -3% in period

FX Options Expiring 10am New York Cut

  • USDJPY - 131.00 500m. 130.00/20 1.17bn (744m C). 129.80 750m. 128.90/129.00 1.53bn (1.06bn P). 128.00/20 2.80bn (1.77bn C). 127.00 465m.
  • EURUSD - 1.0600 963m. 1.0450 1.25bn (787m C). 1.0400 2.61bn (P). 1.0350 471m. 1.0250 584m.
  • AUDNZD - 1.0960 1.87bn (1.72bn C).
  • EURJPY - 139.50 2.27bn (1.48bn P).
  • USDCNH - 6.61 638m. 6.48 590m.

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.

  • Cable rises to 1.2572 after Biden says considering reducing tariffs on China
  • 1.2572 is highest level since May 5 (BoE MPA day)
  • Biden steer has lifted equity futures, GBP is risk-sensitive
  • GBP/USD strength follows biggest weekly rise since Dec 2020
  • 1.2578 was London morning high on May 5, before BoE's UK recession warning
  • Bailey takes part in panel discussion on monetary policy/inflation 1415 GMT
  • Offers at 1.25 daily VWAP remains bearish

USDJPY Bias: Bullish above 127 Bearish below

  • USD/JPY earlier swoon from 128.05 to 127.16 EBS
  • Exporter, option-related, offshore fund and day-trader sales
  • Stops sub-127.50 too, all in rather thin market
  • Bounce into Europe, London underway, pair back up to 127.91
  • Uptick in US yields helped, Treasury 10s from 2.797% to 2.842%
  • Market still seen heavy 128.00+, massive option expiries above
  • Today to see $2.8 bln between 128.00-25 strikes, more above

AUDUSD Bias: Bullish above .7200 Bearish below

  • AUD/USD opened around 0.7055 and after dip to 0.7046 it tracked higher
  • E-minis popped up close to 1.0% and helped to lift risk currencies
  • AUD/USD received added support from a near 4% rise in Dalian iron ore
  • Heading into the afternoon it is 0.5% higher at 0.7085/90
  • AUD support coming from optimism China will continue to support the economy
  • Sellers at 0.7100 with resistance at 38.2 of 0.7661/0.6829 move at 0.7146
  • Support is at .7000