Daily Market Outlook, December 17, 2021

Overnight Headlines

  • Biden Warns Unvaccinated Face Winter Of Severe Illness
  • Democrats Fail Produce Year-End Build Back Better Deal
  • Biden Step Up China Pressure Over Uyghurs Surveillance
  • NYC Offices Empty, Shows Cancelled As Covid Sweeps In
  • China Stats Revise 2020 GDP Growth Lower To 2.2% Y/Y
  • Covid Forces China Manufacturing To Tighten Restrictions
  • BoJ Scale Back Emergency Funding As Covid Strains Ease
  • US Pushes EU To Ready Russian Energy, Banks Sanctions
  • EU Leaders Disagree On Energy Amid Carbon Prices Row
  • Voters Punish Scandal-Hit PM’s Party In UK Election Loss
  • UK To Drop Court Demands On Northern Ireland Trading
  • Variant, Inflation Chip Away At UK Consumer Confidence

The Day Ahead

  • Risk sentiment turned negative during the Asian trading session, with equity markets mixed over the week. Japan’s Nikkei-225 still ended the week higher, but under-pressure tech stocks pulled Chinese indices lower. The Bank of Japan left interest rates unchanged as expected and is maintaining stimulus measures for longer in the face of Omicron. In the UK, the big news was the Liberal Democrats victory in the North Shropshire by-election, overturning a Conservative majority of nearly 23,000 in 2019.
  • Just released figures showed UK retail sales rising by 1.4%m/m in November, beating forecasts, while the prior month was also revised up to 1.1%m/m. The print may have been boosted by Black Friday discounts and early purchases following reports of supply difficulties. Timelier UK GfK consumer confidence, released overnight, showed a slight fall in December to -15 from -14 amid concerns about inflation and the new variant, although the decline was less than expected.
  • The Lloyds Business Barometer report for December will be released next week (Tuesday). The German IFO survey today is expected to show a fall in business confidence for a seventh consecutive month. Sentiment has been declining on the back of rising Covid case numbers and supply chain disruptions in manufacturing. For December, expect the impact of the Omicron wave on health and the economy will add further downward pressure on the headline index to 95.5 from 96.5 in November, with services activity expected to be particularly affected by new restrictions and uncertainty.
  • Eurozone November CPI inflation figures are expected to confirm the preliminary flash estimate showing a sharp rise to 4.9%, the highest since the inception of the euro. Yesterday, the ECB said that inflation is likely to remain above its 2% target for most of 2022, but still predicted it will fall below target thereafter. That justified its decision to continue with QE throughout next year, albeit with purchases at a gradually reduced pace.

G10 FX Options Expiries for 10AM New York Cut

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

EUR/USD: 1.1200 (3.5B), 1.1250 (680M), 1.1290 (780M), 1.1300 (2.6B)

1.1350 (1.5B), 1.1375-80 (1.7B), 1.1390-1.1400 (3.9B)

USD/JPY: 113.00 (1.8B), 113.50-60 (1.4B), 113.75 (3.0B), 113.90 (760M)

114.00-05 (1.7B), 114.50 (1.5B). GBP/USD: 1.3000 (1.8B)

GBP/USD: 1.3150 (840M), 1.3200/10 (1.1B), 1.3250 (1.2B), 1.3350 (1.3B)

EUR/GBP: 0.8350 (595M), 0.8400 (2.1B), 0.8450 (700M), 0.8500 (580M)

0.8450 (355M), 0.8550 (1.1B), 0.8565 (350M), 0.8600 (330M)

AUD/USD: 0.7000 (2.1B), 0.7100 (705M). USD/CAD: 1.2740-50 (630M)

USD/CAD: 1.2800 (620M), 1.2850 (830M).

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • Bid as yield spreads close and the USD slips
  • Steady after closing +0.3%, led by GBP and ECB flexible stance
  • EZ-US yield spreads closed as dust settled on ECB/FED activity
  • EU agrees with Moderna to rush COVID-19 vaccines to Germany.
  • Battle with COVID-19 remains front and centre for European economies
  • 21 day Bollinger bands contract, 5, 10 & 21 day moving averages coil
  • Momentum studies rise - mixed signals suggest 1.1300 may remain a magnet
  • 1.1210-1.1368 21 day Bollinger bands likely define the broad range
  • 1.1300 2.659 BLN and 1.1350 1.482 BLN strikes likely contain in Asia

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • Potential headache for PM Johnson
  • +0.05% at the top of a very tight1.3322-1.3330 range with moderate interest
  • UK's Liberal Democrats predict major upset in by-election vote
  • If confirmed in safe Conservative seat - will pile pressure on PM Johnson
  • Omicron and inflation chip away at UK consumer confidence - GfK
  • Techs; 5, 10 & 21 day moving averages conflict, 21 day Bolli bands contract
  • Neutral setup, but the close above 1.3293 21 DMA targets 1.3417 upper Bolli
  • Well tested 1.3166, 38.2% of the 2020-2021 rise remains pivotal support
  • London 1.3259 low and NY 1.3375 high are initial support and resistance

USDJPY Bias: Bullish above 112.50 Bearish below

  • USD/JPY back on 113 handle, Asia 113.45-87, thin, choppy, on heavy side
  • BoJ policy announcement shrugged off, as eyed, seen on hold indefinitely
  • USD/JPY holding in area of ascending 55-DMA at 113.63
  • Daily Ichi cloud below between 111.90-113.31, also ascending
  • Massive option expiries in area work to contain action
  • 113.00 $1.8 bln, 113.50-60 $1.4 bln, 113.75 $3 bln, 113.90 $760 mln
  • Also another $1.6 bln up between 114.00-05, 114.50 $1.5 bln
  • Soggy US yields help cap, Treasury 2s @0.621%, 5s @1.170%, 10s @1.412%
  • Nikkei -1.6% @28,601 on pre-weekend position adjustments, E-Minis -0.1%

AUDUSD Bias: Bearish below 0.7250 Bullish above

  • COVID – 19 flares – 0.7260 test beckons technically
  • Slipped 0.15%, trading towards the base of a low key 0.7169-0.7182 range
  • Regional stocks mostly lower with Wall Street - other markets little changed
  • UK, Australia sign deal forecast to give GBP10 BLN trade boost
  • COVID-19 cases hit record levels - intensive care numbers key
  • Charts; 5, 10 & 21 DMAs conflict, 21 day Bolli bands contract- neutral setup
  • Lower 21 day Bolli band rejection and close above 0.7147 21 DMA was bullish
  • Targets a test of the falling 0.7261 upper 21 day Bollinger band short term
  • NY 0.7169 low and Asia's 0.7182 high initial support and resistance