Daily Market Outlook, May 12, 2022

Overnight Headlines

  • PBoC Says It’s Making Stabilizing Growth A Higher Priority
  • Japan, China, S.Korea Finance Leaders Urge Caution Amid Ukraine Crisis
  • Japan's Current Account Surplus Widens On Large Investment Gains
  • New Zealand 1-Year Inflation Expectations Rise To 32-Year High
  • New Zealand House Prices Up But Sales Activity Slows
  • Fed’s Bullard: April Inflation 'Hot' But Does Not See 75Bp Hike 'For Now'
  • Fed's Bostic: Rising Market Yields Show Fed Retains Credibility
  • US Senate Confirms Philip Jefferson To The Fed Board
  • US Grapples With Russian Blockade Endangering Global Food Supplies
  • US Treasury Reports Record Budget Surplus In April As Revenues Soar
  • Brussels Predicts EUR195 Bln Bill To Wean EU Off Russian Energy
  • BoJ Official Rules Out Policy Tweak To Counter Weak Yen
  • Oil Slips More Than 1%, Dogged By Recession Fears
  • Shares Drop On Stubborn US Inflation, Rates Worries
  • China To Convene Private-Sector Giants As Markets Mull Crackdown
  • Disney Streaming Subscriptions Top Wall Street Targets

The Day Ahead

  • Focus in the Eurozone will be on ECB’s Makhlouf head of the central bank of Ireland and De Cos head of the central bank of Spain both speak today in the absence of any tier one data releases. Markets will be monitoring their comments for any reference to CPI inflation currently at 7.5% with markets concerned that the central bank will have limited ability to contain inflation in the medium term. Recent ECB central bank speakers have alluded to the need to raise rates inJuly to combat the rise in inflation, specifically ECB head Lagarde referenced the potential for lift off within ‘weeks’.
  • In the US focus will shift to producer prices today. Markets expect core and headline inflation to remain elevated after yesterday's CPI inflation printed 8.5% on an anualised basis in April, many market watchers anticipate that current levels should point to peak inflation in the current cycle, however, as in Europe inflations remains stubbornly high with the FED set to continue on their hiking path in June and July with markets expecting 50bps raises at both meetings.

FX Options Expiring 10am New York Cut

  • EUR/USD: 1.0400 (507M), 1.0600 (1.27BLN), 1.0625 (793M) 1.0645-50 (435M)
  • USD/JPY: 128.00 (414M), 128.25 (400M), 130.00 (321M) 130.95 (318M)
  • GBP/USD: 1.2400 (709M).
  • EUR/GBP: 0.8580-90 (550M) 0.8615 (240M)
  • USD/CHF: 0.9950 (250M). EUR/CHF: 1.0350 (379M)
  • USD/CAD: 1.2745-55 (550M), 1.3000 (300M), 1.3020-25 (270M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.0950 Bullish above

  • EUR/USD opened -0.14% at 1.0513 after whippy reaction to US CPI
  • After trading at 1.0508 EUR/USD edged higher on EUR/GBP and EUR/JPY buying
  • EUR/USD traded to 1.0529 and it is around 1.0525 into the afternoon
  • Bids below 1.0500 support while sellers ahead of 1.0600 cap rallies
  • It is trading with a heavy tone after four straight days of lower highs
  • Support is at a trend-line at 1.0492 and April 29 low at 1.0469
  • Resistance is at yesterday's 1.0579 high and 21-day MA at 1.0643
  • Selling rallies with a stop above 1.0645 is the favoured strategy

GBPUSD Bias: Bearish below 1.30 Bullish above.

  • GBP/USD hits new 2 – year low on negative UK March GDP print
  • Cable falls to 1.2185 on unexpectedly negative UK March GDP print
  • Minus 0.1% vs zero f/c 1.2185 is lowest level since May 2020
  • 1.2196 was low shortly before the 0600 GMT UK GDP data release
  • 1.24 was Wednesday's high -- before risk aversion boosted safe-haven USD
  • Nasdaq closed down 3.2% Wednesday - Bitcoin down.
  • Brexit concerns are helping weigh on GBP

USDJPY Bias: Bullish above 125 Bearish below

  • USD/JPY looks to consolidate in a 'new' range eyeing moves in US yields
  • US CPI suggests inflation could be peaking, US yields off as a result
  • USD/JPY down too but downside limited so far, Asia 129.51-130.05 EBS
  • 128.62-131.35 likely range for now, low May 4-high May 9
  • Japanese importer, some investor, spec dip-buy strategies remain in place
  • Japanese exporters, specs to help cap any rallies
  • US yields heavy post-CPI, Treasury 10s currently @2.894%
  • Asia risk-off after Wall Street plunge, on global growth concerns

AUDUSD Bias: Bullish above .7300 Bearish below

  • AUD/USD opened unchanged at 0.6940 after a whippy reaction to US CPI
  • It fell to 0.6911 early Asia when Tokyo sold AUD/JPY down 0.5% at the open
  • AUD/JPY buyers emerged ahead of 0.6900 and AUD/USD bounced back to 0.6952
  • Weak Asian equity markets limited gains and AUD/USD fell again
  • Small stops below 0.6910 were triggered and it traded to a 2-year low at 0.6905
  • Bids ahead of 0.6900 held again and it is back to 0.6920 into the afternoon
  • AUD/USD remains vulnerable as global growth concerns weigh on sentiment
  • A break below 0.6900 targets the 50% of 0.5510/0.8007 move at 0.6758
  • Resistance at 10-day MA at 0.7040 validated by yesterday's price action