Daily Market Outlook, February 8, 2022

Overnight Headlines

  • House Committee Chair Introduces Short Term Government Funding Bill
  • Bipartisan Senators Ask Trade Chief To Broaden Chinese Tariff Exclusions
  • Biden: Nord Stream 2 Pipeline Won't Go Forward If Russia Invades Ukraine
  • Putin: Some Of Macron's Ideas Could Form The Basis To Move Forward
  • Covid Vaccine Protests Close Ambassador Bridge, Top US-Canada Link
  • ECB Pres Lagarde Pledges 'Gradual' Adjustment As ECB Debate Heats Up
  • Bank Of Japan Poised To Face Off With Bond Traders As Yields Near Limit
  • Japan Household Spending Caps Solid Quarter Before Omicron Variant
  • US, Japan Reach Deal To Cut Tariffs On Japan Steel, Fight Excess Output
  • Australian Business Confidence Suffer From Omicron Blues In January
  • Softbank's $66.0B Sale Of UK Chip Group Arm To Nvidia Has Collapsed
  • Australian Bonds Extend Global Rout On Relentless Rate-Hike Bets
  • Oil Slips From 7-Year Highs Ahead Of More US-Iran Talks; Gold Steady

The Day Ahead

  • Asian equity markets are mixed after US stock markets pared gains towards the Wall Street close. Japan’s Nikkei-225 is up slightly, but markets in China and Hong Kong are in the red. The main news overnight was that US President Biden said Nord Stream 2 would be stopped if Russia invades Ukraine. He spoke in a news conference alongside German Chancellor Scholz. Other reports suggest that Russian President Putin is moving towards de-escalation following talks with French President Macron. Data released earlier this morning showed a strong rise in UK retail sales in January, according to the British Retail Consortium. The BRC reported like-for-like sales growth of 8.1%y/y, up from 0.6%y/y in December, although part of the rise reflected higher prices (the figures are not adjusted for inflation). The BRC warned that retailers and consumers face challenges in the coming months.
  • It's a relatively quiet day in terms of scheduled economic data releases and events. Spanish industrial output and Italian retail sales are unlikely to excite the markets which will continue to assess last week’s more hawkish European Central Bank (ECB) policy update. At a European Parliament hearing yesterday ECB President Lagarde failed to rule out an interest rate hike later this year but she did say that any policy adjustment will be ‘gradual’. The next ECB policy on 10 March looks likely to be a critical one as rate setters will have new economic forecasts.
  • In the US, the NFIB small business survey and monthly trade data will attract some attention. Small business optimism is expected to have fallen to 97.5 in January from 98.9, which would be the first decline in three months. The December trade deficit is predicted to have widened to about $83bn from $80.2bn, resulting from an increase in demand for imported goods during the recent rise in Covid case numbers (which have subsequently fallen back). Still, all eyes will remain fixed on Thursday’s January US CPI numbers which we see rising to a forty-year high of 7.6% for the headline index

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 (1.24BLN), 1.1250-60 (977M), 1.1300-10 (1.4BLN) 1.1320-25 (950M), 1.1350 (597M), 1.1380 (551M), 1.1400 (1.3BLN) 1.1570-75 (380M), 1.1600 (396M), 1.1750 (254M)
  • USD/JPY: 114.00 (274M), 115.50-57 (420M), 115.65-75 (480M) 115.90-00 (250M). USD/CHF 0.9300 (300M)
  • EUR/CHF: 1.0475 (442M), 1.0595-00 (1.24BLN)
  • GBP/USD: 1.3495-10 (1.05BLN), 1.3560 (1.53BLN)
  • AUD/USD: 0.7100 (876M), 0.7125-35 (645M), 0.7150-55 (524M) 0.7165-75 (890M), 0.7260 (345M)
  • USD/CAD: 1.2550 (250M), 1.2635-40 (290M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.15 Bullish above

  • EUR/USD sideways in Asia with ECB Pres Lagarde dovish again o/n
  • Lagarde backs off from hawkish rhetoric post-ECB last week
  • EUR/USD players await fresh catalysts as ECB dust settles
  • On hold for now around top of 1.1316-1.1439 Ichi cloud, 1.1423 100-DMA
  • Also towards top of 1.1374-1.1448 hourly Ichi cloud, below 1.1446 55-HMA
  • Option expiries today supportive, 1.1400 E1.4 bln, more below
  • EZ yields still firm, Bund 10s @0.232%, OAT 10s @0.674%, BTP 10s @1.842%
  • EUR/GBP sideways too, Asia 0.8449-56, high yesterday 0.8474
  • EUR/JPY bid, 131.69-132.00, bulls still in command

GBPUSD Bias: Bearish below 1.36 Bullish above.

  • Firmer U.S. dollar caps, as UK spending eases
  • -0.05% in Asia, with the USD with firmer UST yields, 10yr +2bp 1.934%
  • Trades in the middle of a 1.3525-1.3539 range, flow once Asia fully opened
  • Rising prices and Omicron wave dampened UK spending in January
  • PM Johnson's focus is on foreign policy..., as 'partygate' simmers
  • Charts; momentum studies 5, 10 & 21 day moving averages conflict
  • 21 day Bollinger bands edge lower - setup suggests choppy consolidation
  • 1.3377 lower 21 day Bollinger band and 1.3657, 76.4% 2022 fall key levels
  • London 1.3492-1.3550 range are initial support and resistance

USDJPY Bias: Bullish above 114.50 Bearish below

  • USD/JPY bid into Europe, 115.50+ offers await
  • USD/JPY continues to rise into Europe's open, today 115.06 to 115.53
  • Tracking away from key supports below including 114.44-82 Ichi cloud
  • Firm US yields supportive, Treasury 10s @1.943%, highest since Jan '20
  • Offering interest from @115.50, trail up, decent amounts 115.60, 115.70
  • Option expiries to help cap too, total $1.2 between 115.50-116.00 strikes
  • Good tech support at 115.68, high Jan 28, then 116.35, high of year Jan 4

AUDUSD Bias: Bearish below 0.7250 Bullish above

  • Resilient as the USD firms and techs slip and slide
  • +0.15%, despite the firmer U.S. dollar, supported by bid AUD/JPY +0.4%
  • UST yields moved higher in Asia, 10yr +2bp to 1.930% on TradeWeb
  • Traded in a 0.7121-0.7138 Asian range with consistent interest
  • Omicron surge hit Australian business conditions in January
  • Consumers cautious amid elevated inflation, fuelled by supply chain issues
  • Charts; 5, 10 & 21 day moving averages slip, 21 day Bollinger bands slide
  • Negative setup suggests key 0.7181, 61.8% 2022 fall, should cap the topside
  • Technically favours a return to test the 0.6967 2022 low longer term