Daily Market Outlook, September 27, 2022

Overnight Headlines

  • Fed Officials Stare Down Markets, Repeat Inflation Top Focus
  • Pound Under Siege With Mounting Odds It Will Drop Below $1
  • Yuan Plunge Nears 14-Year Low, Inviting Aggressive PBoC Pushback
  • Biden Tells Oil Companies ‘Bring Down Prices You’re Charging’
  • PBoC Makes Biggest Cash Injection Into System Since February
  • China Growth Falls Behind Rest Of Asia, First Time Since 1990
  • China Officials Ask Funds To Stabilise Markets Before Congress
  • Japan 20-Year Yield Rises Above 1% For First Time Since 2015
  • ECB’s De Cos: Remain ‘Extremely Vigilant’ Of Inflation Outlook
  • Kwarteng Heads For Tough Meeting With Top London Bankers
  • Labour Surge In Polls As ‘Clown Show’ Economics Deter Voters
  • Plunging Pound Steadies As Investors Await Officials Response
  • Iraq Oil Minister: OPEC Monitoring Prices, Seek Market Balance
  • Goldman Sachs: Go Underweight Equities Amid Real Yields Rise
  • Oil Rebounds From Lowest Since January On Pause In Dollar Rally
  • Gold Firms On Dollar Pullback, Rate Hike Jitters Cap Increases
  • US Futures Rise After S&P, Dow Close At Lowest Levels Since 2020

The Day Ahead

  • Risk tone in Asian markets appeared to improve and the US dollar softened. Treasury yields fell back, although latest US Fed remarks remained hawkish. In sterling markets, the initial reaction of the pound was renewed weakness following the statement issued by the Bank of England and the Treasury, but it appeared to stabilise overnight. The Bank indicated that it intends to make a full economic assessment at the next scheduled policy meeting in early November, perhaps dampening expectations of an inter-meeting rate hike. The Treasury said the Chancellor will deliver a Medium-Term Fiscal Plan on 23 November accompanied by a full OBR economic forecast update.
  • Amid high levels of volatility in sterling markets, there will be significant focus on a scheduled speech this afternoon by Bank of England MPC member and Chief Economist Huw Pill. The speech is entitled, “Economic and Monetary Policy Challenges Ahead”. Pill voted with the majority at the latest policy update only last Thursday for a 50bp rise in Bank Rate to 2.25%. Other MPC members are scheduled to speak in the rest of the week, including Jon Cunliffe and Swati Dhingra tomorrow.
  • There are several ECB and US Fed speakers in the calendar today as well, as markets anticipate significant further monetary policy tightening. That includes Fed Chair Powell, although the subject matter is digital currencies rather than the economy or monetary policy. Fellow Fed members Evans and Bullard, however, are expected to speak about the economic and policy outlook. ECB Vice President de Guindos is also scheduled to speak.
  • Today’s economic data is focused on the US and includes durable goods orders, house prices, new home sales and consumer confidence. Markets will be looking for confirmation of slowing housing activity as interest rates rise, but the recent fall in global oil prices has a more direct effect on US energy prices and may lend support to consumer confidence. The regional Richmond Fed manufacturing survey will also be released.

FX Options Expiring 10am New York Cut

  • EUR/USD: 0.9700 (813M), 0.9750 (442M), 0.9775 (250M)
  • 0.9875 (213M), 0.9900 (453M), 0.9965-75 (510M)
  • USD/JPY: 144.00 (274M)
  • USD/CHF: 0.9700 (690M). EUR/CHF: 0.9520 (390M)
  • 0.9565 (235M), 0.9700 (200M)
  • AUD/USD: 0.6500 (220M), 0.6625 (359M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.00

  • EUR/GBP selling caps, as sterling jumps
  • Short lived early dip after closing -0.9% on broad based USD strength
  • EUR/GBP -0.65% on GBP demand - likely profit taking after recent sharp rise
  • UK gilts led EZ yields to multi year highs, as winter looms
  • New right wing Italian gov't, an issue for ECB
  • Dail & Weekly moving averages head lower
  • 20 day VWAP bands expand - strong bearish trending signals
  • Asian 0.9584 low and European 0.9701 high initial support, resistance
  • 20 Day VWAP bearish, 5 Day bearish

GBPUSD Bias: Bearish below 1.10

  • Bid from the open, as profits booked on long EUR/GBP
  • +0.7% at the Asian open as EUR/GBP -0.55%, profit taking emerges
  • EUR/GBP jumped 2.9% from Friday's open to Monday's close
  • After Monday's sterling volatility markets remain illiquid and skittish
  • UK fund management assets rise in 2021, but slowdown seen
  • Daily momentum studies conflict, 20 day VWAP bands expand
  • 1.0450 lower 20 day VWAP band a good indicator of an over sold market
  • Close above Monday's NY 1.0934 high would be a positive signal
  • 20 Day VWAP is bearish, 5 Day bearish

USDJPY Bias: Bullish above 140

  • Soft early ahead of psychological 145.00
  • Off 0.3% early - closed +0.95% with higher UST yields, broad USD strength
  • 145.00 in view, but current move based on USD strength not JPY weakness
  • BoJ intervention more likely when yen weakness is leading the volatility
  • Japan services PPI came in at 1.9%, with July revised from 2.10% to 2%
  • Recent selloff stopped at major 140.86 support
  • Psychological 145.00 first resistance, then pre intervention 145.90 high
  • Monday's 143.20 low then 143.10 initial supports
  • 20 Day VWAP is bullish, 5 Day bullish

AUDUSD Bias: Bearish below .6750

  • Tracking higher as USD losing some altitude and risk rallies
  • AUD/USD bouncing in early Asia as USD easing across the board
  • Equity markets buoyant with E-minis up 0.55% and Nikkei +0.66%
  • Resistance is at hourly tops peppered between 0.6520/40
  • USD may correct overbought conditions as altitude sickness sets in
  • Equity weakness may pause as the S&P 500 finds support at June low at 3,636
  • AUD/USD still trending lower while 10-day MA at 0.6633 caps corrections
  • 20 Day VWAP is bearish, 5 Day bearish

BTCUSD Bias: Bearish below 25.3K

  • BTC surges over 5% to trade above 20k again
  • Global revenue from bitcoin mining dropped to $17.2 million a day amid a crypto winter
  • Marathon Digital , Riot Blockchain and Valkyrie Bitcoin Miners ETF down 60+% this year
  • BTC is still down ~58.5% so far this year
  • CFTC - BTC specs +451 contracts, long rises to 577 contracts; BTC -6.23% in period
  • First resistance sited at 21k support now see at 19k
  • 20 Day VWAP is bullish, 5 Day bullish