Daily Market Outlook, March 15, 2022

Overnight Headlines

Financial markets remain volatile as the conflict in Ukraine continues and as investors look towards key policy updates by the Fed and the Bank of England later this week. Asian equity markets fell for a third day, led by big falls in Chinese indices, despite stronger-than-expected retail sales and industrial production in China. China’s central bank kept its one-year medium-term lending rate unchanged at 2.85%, but injected liquidity into the financial system. China yesterday denied reports that the US warned its European allies that it is open to providing military support to Russia. Talks between Russia and Ukraine are expected to continue today.

UK labour data released earlier this morning reaffirmed a tight labour market, providing support for the Bank of England on Thursday to raise interest rates by a quarter point for a third successive meeting, to 0.75%. The unemployment rate fell more than expected to 3.9% in the three months to January, down from 4.1%, the lowest since the start of the pandemic. That was despite a slight fall in employment, suggesting labour inactivity is contributing to recruitment difficulties. Job vacancies reached a new high and headline annual earnings growth surpassed expectations with a rise of 4.8%.

The impact of Russia’s invasion of Ukraine is likely to show up in the assessment of current and expected economic conditions in this morning’s German ZEW survey of financial professionals. Expect the current situation index to drop to 30 from -8.1 and the expectations component to fall to 10.0 from 54.3. The latter would be the weakest since the start of the Covid-19 pandemic two years ago. Less timely Eurozone industrial production figures for January are expected to be broadly flat. ECB President Lagarde is scheduled to deliver a speech this afternoon in Berlin. That follows last week’s unexpected announcement by the ECB of a likely end to QE in Q3, reflecting increasing concerns among policymakers about inflation outlook and despite downside risks to growth.

In the US, the focus is on tomorrow’s Fed policy decision with interest rates widely expected to rise by 25bp, the first hike since 2018. Today sees the release of producer price inflation data which are forecast to show further upside pressure, with more likely in the pipeline as a result of the war in Ukraine. The NY Fed Empire manufacturing survey will provide an early regional read for March and is expected to be up from its February level.

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

EUR/USD: 1.0880-85 (521M), 1.0900 (437M) 1.0935-45 (1.65BLN), 1.0965 (408M), 1.1100 (1.28BLN)
USD/JPY: 115.60 (412M), 116.00 (1.57BLN), 117.25 (545M)
GBP/USD: 1.3050 (498M). USD/CHF: 0.9355 (500M)
USD/CAD: 1.2730 (360M), 1.2860-65 (750M)
AUD/USD: 0.7050 (1.19BLN)

EURUSD Bias: Bearish below 1.15 Bullish above

GBPUSD Bias: Bearish below 1.36 Bullish above.

USDJPY Bias: Bullish above 114.50 Bearish below

AUDUSD Bias: Bullish above .7100 Bearish below

Weak tone as early gains fade with commodity slump
AUD/USD opened -1.47% at 0.7186 as longs bailed on commodity weakness
It moved up to 0.7206 early Asia on bargain hunting before commodities slid again
Dalian iron ore fell over 2.0% while WTI crude futures were down over 5% at one stage
AUD/USD traded down to 0.7165 at one stage before settling around 0.7180
There were muted reactions to RBA minutes and better than expected China data
AUD/USD support is at the 61.8 of 0.6967/0.7440 move at 0.7146
A break below 0.7145 will likely spark a trend lower towards year's low
Resistance is at the 21-day MA at 0.7247 and break would ease pressure