Daily Market Outlook, May 10, 2022

Overnight Headlines

Asian equity market performance is mixed overnight. That follows another day of big losses in European and US markets as concerns about economic growth and inflation remain to the fore. In its semi-annual Financial Stability Report the US Federal Reserve warned about deteriorating liquidity conditions across markets. Meanwhile, oil prices fell to their lowest in two weeks on concerns about the demand outlook. In its quarterly monetary policy report China’s central bank promised to be proactive in addressing mounting economic pressures and boosting market confidence.

Today’s data is light with nothing of note in the UK. In the Eurozone the German ZEW survey will provide some of the first insights into May economic conditions in the single currency area. As a survey of financial analysts, it might be considered less reliable than surveys of businesses. However, it is timely as other gauges such as the first readings of the PMI surveys will not be available for another couple of weeks.

The prints for both March and April showed sharps falls in the updates for both current conditions and expectations. Last month the current conditions measure was at its lowest since May 2021, while expectations slipped to their lowest since the start of the first lockdown in March 2020. That probably reflects the region’s and in particular Germany’s close economic links to both Russia and the Ukraine. Further falls in both measures are forecast for May.

The April update for the US NFIB small business sentiment measure is expected to show a fourth consecutive monthly fall. Already released readings for some of the subcomponents showed unfilled job openings unchanged at an elevated level. Meanwhile, the percentage of firms who have recently increased or expect to raise wages fell modestly but only to a still historically high level.

A number of US Federal Reserve policymakers are set to speak today. Their comments will be watched for any further colour on last week’s monetary policy announcement by the US central bank. That saw interest rates raised by 0.50%, while Fed Chair Powell said that similar sized rises were on the table for both June and July. Things to look for today include any indications on what might stop the Fed from going ahead with those rises and signs that some officials might favour a larger rise of 0.75% at least one meeting.

April CPI data for China due early Wednesday are expected to show a modest acceleration in annual inflation. Nevertheless, inflation remains much lower than elsewhere and seems unlikely to stand in the way of the authorities continuing to prioritise loose monetary policy.

USD/CAD: 1.2900-10 (480M), 1.2935 (3.34BN)
EUR/USD: 1.0500 (335M), 1.0540-50 (467M), 1.0570-75 (500M), 1.0600 (454M), 1.0625 (519M), 1.0665-75 (715M)
USD/JPY: 129.00 (262M), 129.80-83 (330M)
AUD/USD: 0.7050 (429M), 0.7200 (506M)

EURUSD Bias: Bearish below 1.0950 Bullish above

GBPUSD Bias: Bearish below 1.30 Bullish above.

USDJPY Bias: Bullish above 125 Bearish below

AUDUSD Bias: Bullish above .7300 Bearish below

Recovers from early spill as Asian markets settle
AUD/USD opened -1.74% at 0.6951 after heavy falls in equities and commodities
Asia opened on a sour note with AXJ index falling 2.0% and Dalian iron ore falling over 6.0%
AUD/USD fell to 0.6911 before bids ahead of 0.6900 gave some support
Asian markets recovered some ground and AUD/USD reversed higher
Heading into the afternoon it is trading around 0.6970 as shorts pare back
AUD/USD likely to remain heavy while risk assets remain under pressure...
Resistance is at the 10-day MA at 0.7080 and break would ease the pressure
There isn't any strong support until the 50% of pandemic low/high at 0.6758