Daily Market Outlook, September 21, 2022

Overnight Headlines

  • Putin Mobilises More Troops, Says West Wants To Destroy Russia
  • Putin Warns Nuclear Response In Threat To Russian Territorial Integrity
  • Fed Set To Hike By 75 Basis Points, With More To Come
  • US Dollar Ascendant As Investors Gear Up For Fed
  • Currency Volatility Surges In Options Market Before Fed, BoJ Decisions
  • Bitcoin Hovers In Sight Of Lowest Level Since 2020 As Fed Looms
  • Biden To Skip UN Meeting As Climate Change Moves To Back Burner
  • White House: Biden Policies Will Boost Investment, Slow Inflation
  • BoC’s Beaudry: Inflation Still Too High, But Moving In Right Direction
  • ECB's Lagarde Raises Prospect Of Rate Hikes Beyond Neutral Level
  • UK PM Truss To Cut Stamp Duty In A Push For Prosperity: The Times
  • Russia Moves To Cement Grip On Occupied Ukraine, Ups The Stakes
  • Iran, West At Odds, US Sees No Breakthrough On Nuclear Deal At UN
  • BoJ Announces Unscheduled Bond Buying As Yields Stay At Ceiling
  • RBA Deputy Governor: RBA Looking For Opportunities To Slow Hikes
  • Europe Energy Crisis May Deepen With Looming Liquidity Crunch
  • US Two-Year Yield At Almost 15-Year High Before Fed Meeting

The Day Ahead

  • Tonight’s monetary policy announcement from the US Federal Reserve may be the key event of the week for global financial markets. So far this year the Fed has raised interest rates by 225 basis points and a further hike is expected today. Market speculation for most of the period since the last update in August centred on whether the Fed would opt for a third successive 75bp hike or a smaller 50bp increase. However, hawkish comments from Fed Chair Powell just before the central bank went into its blackout period and last week’s higher than expected inflation outturn have convinced markets that at least 75bp is a near certainty. Indeed, market pricing suggests there is some risk of 100bps. Equally important will be what the Fed signals about its future intentions. Overall, the message is likely to remain that getting inflation under control is the number one priority and so further rate hikes are likely. This is one of the meetings where policymakers update their forecasts, including the ‘dot plot’ of interest rate projections. The last set in June showed a median expectation of them being close to 3.5% by end 2023 and peaking just below 4% in 2024. As a 75bp hike would take the upper bound of the Fed Funds range to 3.5% on Wednesday it seems likely that these projections will be revised up in line with market expectations of close to 4% by the end of 2022 and a peak near 4.5% by the middle of next year. A particularly hawkish move would be if the Fed raises its estimate of the ‘neutral’ interest rate and so markets will be watching closely for that.
  • The September UK CBI industrial survey will provide a timely update on developments in manufacturing. For the last three months it has shown orders slipping sharply, fuelling concerns that demand is faltering, while cost pressures although still elevate are off their peaks.
  • Early Thursday’s Bank of Japan monetary policy update is not expected to see any changes. Of most interest may be whether anything new is said about the faltering yen. However, while the BoJ is likely to repeat that it is monitoring the situation it is unlikely to point to any new policy response.

FX Options Expiring 10am New York Cut

  • EUR/USD: 0.9800 (1.3BLN), 0.9900 (287M), 0.9920 (402M)
  • 0.9975-80 (265M), 1.0000 (823M), 1.0040-50 (965M)
  • 1.0100 (632M), 1.0125 (668M), 1.0200-10 (500M)
  • USD/JPY: 141.00 (226M), 143.25 (260M)
  • EUR/JPY: 141.00 (489M). USD/CHF: 0.9500 (400M)
  • GBP/USD: 1.1425 (697M), 1.1525 (449M)
  • AUD/USD: 0.6675 (406M), 0.6720 (400M), 0.6725-35 (408M)
  • 0.6750 (313M),
  • USD/CAD: 1.3100 (282M), 1.3130-40 (394M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.0250

  • EUR/USD opened -0.56% at 0.9968 after USD broadly gained on higher US yields
  • EUR/USD was under gentle pressure in early trading as risk assets fell
  • Support at the Sep 16 low at 0.9945 with break targeting trend low 0.9864
  • Resistance is at 0.9990 and at 1.0008
  • Consolidation likely ahead of Fed decision later today
  • Market pricing in a 75 BP hike and hawkish guidance
  • A hawkish surprise would be a 100 BP hike by the Fed
  • 20 Day VWAP bearish, 5 Day bearish

GBPUSD Bias: Bearish below 1.19

  • 75pt BoE and Fed hikes priced – outlooks pivotal
  • -0.1% early after closing down 0.45% amid broad based U.S. dollar strength
  • BOEWATCH prices Sept 23 75pt hike at 74.5%, FEDWATCH 75pt hike 81% tonight
  • Hundreds of Liverpool dock workers begin 2 week strike over pay
  • Rising cost of living spurs widespread industrial unrest in UK
  • Truss government faces turmoil in the economy and potentially markets
  • Break of Friday's 1.1351 trend low, to target psychological 1.1000 level
  • 20 Day VWAP is bearish, 5 Day bearish

USDJPY Bias: Bullish above 139

  • Calm before the potential central bank led storm
  • Off 0.1% early after closing up 0.4%, as UST yields hit fresh 2022 highs
  • FOMC key for the next move - FEDWATCH prices a hawkish 75pt hike at 81%
  • No real change to BoJ policy or outlook expected tomorrow
  • Expecting a session of tight range trading today ahead of central bank risk
  • 145.00 has provided resilient range resistance in September
  • 143.23 provides support
  • Close below 141.50 mid September range base would suggest a deeper move
  • This week's 142.65 low and NY 143.92 high initial support, resistance
  • 20 Day VWAP is bullish, 5 Day bullish

AUDUSD Bias: Bearish below .70

  • Eases towards key support as risk sags ahead of Fed
  • A fall in the Dalian iron ore and CNH also weighed on the AUD
  • AUD/USD is trading 0.6675/80 just above the Sep 16 trend low at 0.6670
  • Markets are nervous ahead of Fed decision later today
  • If the Fed opts for a 100 BP hike AUD/USD will be especially vulnerable
  • If the Fed hikes as expected, AUD/USD may rally as hawkish Fed priced in
  • A break below 0.6650 targets a move towards 0.6500
  • Resistance is at 0.6748 and break would ease pressure
  • 20 Day VWAP is bearish, 5 Day bearish

BTCUSD Bias: Bearish below 25.3K

  • BTC back below 19k
  • Bitcoin tumbles into downtrend; may fall past Dec 2020 low
  • Bitcoin tumbles 3.3% to 18,900 entering bearish path
  • Closing below 19,163 confirms VWAP downtrend channel
  • Puts it on track to test Dec 2020 low of 17,592
  • If that bottom is breached, confidence will fade further
  • A prolonged slide to psych barrier 15k may then ensue
  • Nasdaq launches crypto custodian services
  • 20 Day VWAP is bearish, 5 Day bearish