Daily Market Outlook, June 8, 2022

Overnight Headlines

  • Chinese Official: PBoC Will Guide Financing Costs Lower
  • China MOFCOM: Foreign Trade Faces Uncertainties, Huge Pressure
  • Japan's Q1 GDP Revised Up To 0.5% Annualised Contraction
  • Japan's Current Account Surplus Shrinks On Record Imports
  • US Tsy Sec. Yellen Urges Congress To Do More To Fight Inflation
  • US Tsy Moves To Block Investors From Buying Russian Debt
  • US Consumer Credit Surges Again As Loans, Card Spending Jump
  • UK PM Seeks To Shift Narrative With Law To Rip Up Brexit Deal
  • World Bank Warns Of Weak Growth And High Inflation
  • Yen Tumble Continues As Weakness Spreads Beyond The Dollar
  • Oil Prices Inch Higher Ahead Of US Inventories Data
  • China Tech Shares Rally As Game Approvals Give Nod To Recovery
  • Musk's Twitter Deal Threats Put New Financing On Ice

The Day Ahead

  • Asian equity markets are mostly higher this morning although Chinese indices are little changed on the day. The World Bank has revised down its global economic growth forecasts citing concerns about the surge in energy and food prices, supply side disruptions and the impact of tighter monetary policy. It warned that a few years of below-average growth and above-average inflation lie ahead, and that the global economy could tip into 1970s like stagflation. Reports suggest that the UK government plans to push ahead with legislation to override the Northern Irish protocol in the Brexit deal. Some sources say this will be introduced to parliament today or tomorrow, but others claim it will be delayed until next week.
  • Today’s data calendar is very light. In the UK, the PMI construction index for May will provide an update on a part of the economy that is both highly cyclical and interest rate sensitive. As of April, the survey still showed activity in the sector at a high level but there were signs that growth was slowing. Having held steady at 59.1 in February and March, the headline index slipped to 58.2, although this is still the third highest reading since July of last year. In further signs of slowing growth, the detail of the April report showed that both new orders and expectations regarding future output fell to their lowest levels this year. The consensus expectation for May is for a further slowing in pace of growth.
  • In the Eurozone, Q1 GDP is a second reading. The expectation is that this will not be revised. However, a much larger-than-expected quarterly growth in Ireland of 10.8% points to some upside risks. The report will also contain more detail and there will be particular interest in what components of expenditure led the rebound from Omicron and whether consumer expenditure will show any signs of a negative impact from surging inflation. Eurozone employment data for Q1 will also be released.
  • The OECD will publish its latest set of economic forecasts this morning. Its last update in March gave its first impressions of the potential economic impact of the war in Ukraine. This new release will provide further information now that it has more time to consider potential effects. It will be particularly interesting to see the organisation’s economic policy recommendations, including the extent to which it expects interest rates to rise.

FX Options Expiring 10am New York Cut

  • EUR/USD: 1.0550-60 (640M), 1.0580-85 (431M)
  • 1.0600 (545M), 1.0650 (537M), 1.0665-70 (310M), 1.0685 (302M)
  • 1.0720 (300M), 1.0750-60 (830M), 1.0800 (880M)
  • USD/JPY: 132.00 (210M), 133.45-51 (333M). EUR/JPY: 141.00 (228M)
  • GBP/USD: 1.2450 (702M). 0.8450 (363M), 0.8590-95 (805M)
  • AUD/USD: 0.7250 (203M), 0.7300-10 (485M)
  • NZD/USD: 0.6315 (1.063BLN). USD/CAD: 1.2570-80 (310M)
  • USD/CHF: 0.9525 (630M). USD/ZAR: 15.00 (450M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.07 Bullish above

  • EUR/USD opened +0.07% at 1.0711 after fall in US yields gave support
  • USD/JPY broke above 133.00 early Asia and gave USD a bid tone
  • EUR/USD slipped below 1.0700 and tracked down to 1.0682
  • EUR/USD is consolidating with clearly defined technical levels
  • Resistance is at the 38.2 fibo of the 2022 high/low at 1.0786
  • A break above 1.0790 should result in the EUR/USD heading towards 1.09
  • Support is at at 1.0628 and break targets below 1.0500
  • Consolidation may continue ahead of ECB decision Thursday
  • EUR/USD VWAP remains bullish

GBPUSD Bias: Bearish below 1.26 Bullish above.

  • -0.2% with a broadly firmer USD amid cooling risk appetite, E-minis -0.3%
  • Trades at the base of a 1.2564-1.2597 range with plenty of interest on D3
  • Tuesday's bullish outside day needs a close above 1.2600 to confirm
  • Daily momentum flips bullish
  • 20 day VWAP bands rise - modest topside bias
  • 1.2482 NY low then early London 1.2433 base initial supports
  • 1.2600 NY high then 1.2666 May high are first resistance

USDJPY Bias: Bullish above 127 Bearish below

  • USD/JPY 132.61 to 133.22 EBS in Asia today, continuing moves higher
  • Specs eyeing push towards 135.00, 135.20 high Jan 2002, maybe 150
  • BoJ easy stance supportive of view, data out today policy supportive
  • Relatively firm US yields also USD/JPY supportive, Treasury 10s @2.993%
  • Japanese importers remain in bind, must buy, demand higher too
  • Bloc instrumental in recent push up, unable to buy enough on 128, 129
  • US funds, others also recently buyers of USD calls, cash USD/JPY
  • Periodic Japanese exporter sales, at Tokyo fix today, but impact ephemeral
  • Talk more option barriers above from 133.50, every 50 ticks up, 135 large

AUDUSD Bias: Bullish above .7200 Bearish below

  • AUD/USD opened +0.53% at 0.7231 after easing US yields underpinned
  • After trading at 0.7234 the AUD/USD began a slow grind lower
  • A break above 133.00 in USD/JPY led the USD broadly higher
  • AUD/USD is trading at the session low at 0.7200/05 into the afternoon
  • Support is at 0.7191 with buying tipped ahead of 0.7150
  • AUD/USD trending higher with the 20 day VWAP bands
  • A fall below 0.7095 would signal trend is over
  • Resistance is at 0.7257 and June 3 high at 0.7282