Daily Market Outlook, December 21, 2021

Overnight Headlines

  • WHO Sounds Warning Over Fast-Spreading Omicron Variant
  • Omicron Becomes Dominant US Strain With 73% Of Covid Cases
  • Biden-Manchin Call Seen Possibly Reviving Talks On Economic Plan
  • Manchin To Dems: Redo The Whole Thing, Maybe I'll Vote For It
  • Democrats Wrestle With Where To Cut Wish List To Satisfy Manchin
  • Progressives Prod Biden To Act On Own After Manchin's Roadblock
  • ECB's De Guindos: Inflation Hike Not As Temporary As Expected
  • German Tax Take Continues To Surge But Supply Bottlenecks Drag
  • UK PM Will Not Impose More Covid Restrictions Before Christmas
  • China Expected To Extend Regulatory Crackdowns Into 2022
  • Japan Weighs Raising FY22 Growth Forecast To 3.0% Or More
  • Australia's Central Bank Upbeat On Outlook Ahead Of QE Decision
  • New Zealand Delays Phased Border Reopening Due To Omicron

The Day Ahead

  • Asia-Pac stocks traded with mild gains following the downbeat lead from Wall Street
  • US equity futures edged higher overnight, with the NQ the outperformer and the RTY posting the shallowest gains
  • In FX, DXY drifted under 96.500, NZD narrowly outperformed and USD/TRY slumped under 14.0000
  • The first US death attributed to the Omicron variant reported in Harris County, Texas
  • Turkish President Erdogan said Turkey is implementing new measures to ease volatility in Forex rate
  • RBA Minutes stated the Board is prepared to be patient and remained committed to maintaining highly supportive monetary conditions
  • Looking ahead, highlights include German GfK Consumer Sentiment, EZ Consumer Confidence (Flash) and supply from the US

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: 1.1250 (790M), 1.1295-1.1300 (1.3B), 1.1310-15 (685M), 1.1350(800M)

USD/JPY: 112.70 (560M)

GBP/USD: 1.3340 (300M), 1.3435-50 (535M). EUR/GBP: 0.8540 (380M)

USD/CAD: 1.2850 (360M), 1.2940-50 (880M). AUD/USD: 0.7275 (380M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • Edges higher as risk assets buoyant in Asia
  • EUR/USD opened +0.34% at 1.1274 after EUR broadly gained on the crosses
  • Pair consolidated in Asia and traded in a 1.1274/87 range
  • Heading in to the afternoon session it is around the session high
  • Resistance is at the 21-day MA at 1.1285 and 10-day MA at 1.1291
  • A close above those readings would suggest a short-term bottom is forming
  • Sellers are tipped above 1.1300 to likely slow any upward progress
  • Bids are lined up ahead of 1.1220 with support at trend low at 1.1186

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • GBP/USD helped to intra – day high by rise in risk appetite
  • Cable rises to 1.3222 as risk-sensitive pound benefits from equity gains
  • Nikkei closed up 2%.... European and U.S. equity futures higher
  • 1.3222 = intra-day high. 1.3196 was Asian session low
  • 1.3243 (Monday's high) is a resistance level. Large 1.3245 expiry Wednesday
  • UK may or may not introduce new restrictions vs Omicron from Dec 28

USDJPY Bias: Bullish above 112.50 Bearish below

  • USD/JPY tad better bid into London, as spec cover shorts
  • Intra-day spec position adjustments seen behind USD/JPY blip up into London
  • USD/JPY to 113.77 EBS in Asia PM trade, low of session 113.56 post-Tokyo fix
  • Moves above mostly flat 100-HMA sold since Friday, today too?
  • Flows few and far between today, mostly quiet between 113.60-70
  • Japanese importers still eyed towards 113.00, exporters from @114.00
  • Eyes remain on US rates, yields hold up today with Asia risk-on
  • Yield on US Treasury 10s @1.432%, well above 1.353% low yesterday

AUDUSD Bias: Bearish below 0.7250 Bullish above

  • AUD/USD ventures higher, coaxed by equities rally
  • AUD/USD rises to 0.7123 from 0.7098 in holiday-thinned trading
  • Rally across Asia stock markets spurs FX reaction; ASX +0.9%
  • S&P futures climb 0.9%, nearly erasing Monday's selloff
  • Potential for AUD/USD to take on mild bullish bias
  • Tues close above 0.7130 will overcome 21 DMA resistance
  • Will clear a path toward Bollinger uptrend channel 0.7175