Daily Market Outlook, June 27, 2022

Overnight Headlines

Equities have started the week on a positive note with almost all stock exchanges across the Asia-Pacific region registering gains. This continues to reflect the positive risk sentiment backdrop that has prevailed of late in response to the scaling back in interest rate expectations globally.

Meanwhile, Russia defaulted on its foreign debt for the first time since 1918, largely a result of Western sanctions that had shut down payment routes for the nation. G7 leaders at their summit in Bavaria are expected to commit to providing support for Ukraine for “as long as it takes” according to a draft statement.

Over the past week, signs of moderating economic activity saw financial markets scale back on their expectations over the extent to which monetary policy will be tightened. Nevertheless, money markets continue to forecast US policy rates to rise above 3.5% by the middle of next year, while UK Bank Rate is expected to rise a further 175bp over the same period, in a bid to bear down on elevated inflationary pressures. How much central bankers should raise interest rates, in the face of slowing economic growth, will be a key focal point at this week’s ECB forum in Sintra (Portugal) entitled ‘Challenges for monetary policy in a rapidly changing world’, which kicks off later today, with ECB President Christine Lagarde set to deliver opening remarks.

Ahead of the Ms Lagarde’s comments this evening, ECB member Villeroy (Governor of the Bank of France) is scheduled to speak this morning. In comments last week, Mr Villeroy reiterated a commitment to do what was needed to bring inflation back to target in 2024, supporting expectations that eurozone policy rates will be lifted out of negative territory.

Data wise, the economic calendar is fairly limited. However, pending home sales in the US are forecast to have fallen for a seventh consecutive month in May, as higher rates continue to dampen activity in the housing sector. Meanwhile, the US durable goods orders report for May will be watched for signs that business investment has softened in the second quarter, also in response to the ongoing increases in US interest rates.

USD net spec long rose in Jun 15-21 period; $IDX -0.22%...

EUR specs -9,587 contracts now short 15,605; EUR$ +1.09% in period

Yen specs -11,301 contracts now -58,454; specs buy into yen weakness

GBP$ +2.35% in period, GBP specs buy 2,349 contracts now -63,247

$CAD -0.25% in period, specs -19,097 contracts now long -4,105

AUD & NZD specs pare shorts AUD specs +2,648, NZD specs +1,415 contracts

BTC -5.13% in period anchored by $20k, specs -15 contracts now long 1,046,

(Source: Reuters)

EURUSD Bias: Bearish below 1.07 Bullish above

GBPUSD Bias: Bearish below 1.26 Bullish above.

GBP catches a bid in early LDN trade testing Friday’s highs
No GBP data cable taking its lead form generally improved risk sentiment
Tomorrow notable options expiries GBP/USD 1.2000 GBP664 mln and on Wednesday sizeable GBP1.5 bln at 1.2750
Despite ongoing negative headlines, weak econ data, strikes & partygate GBP holds up
Resistance remains sited at 1.2410
Support eyed at 1.2180
20 Day VWAP is bearish, 5 Day bullish

USDJPY Bias: Bullish above 132 Bearish below

AUDUSD Bias: Bullish above .7200 Bearish below