Daily Market Outlook, June 9, 2022

Overnight Headlines

  • China’s May Trade Balance Surplus Balloons On Exports Surge
  • Beijing Cases Hover Near Lows As Regional Outbreaks Under Focus
  • RBNZ To Begin Five-Year Exit From QE Bond Holdings Next Month
  • IMF's Gopinath Sees Risk Of De-Anchoring US Inflation Expectations
  • UK Gov Northern Ireland Protocol Legislation Now Expected Next Week
  • UK BCC: UK Growth Will 'Grind To A Halt', 10% Inflation On The Way
  • Iran Expands Advanced Centrifuge Work Underground, IAEA Report Shows
  • Yen Extends Slide, Euro Steady As All Eyes On ECB Meeting
  • Ethereum Moves Closer To Blockchain Revamp After Milestone Test
  • Oil Hovers Near 13-Week High On Robust US Demand, China Optimism
  • Asian Shares Slip And US Bond Yields Rise As Investors Await ECB
  • Twitter Will Give Elon User Data, But It's Not The Data He Needs - Axios
  • EU Lawmakers Uphold Ban On New Combustion Engine Cars By 2035

The Day Ahead

  • Asian equity markets are mostly lower this morning. Brent crude oil has risen towards $124 a barrel, adding to inflation concerns, and US 10-year Treasury yields have edged further above 3%. There were also reports Shanghai is introducing lockdown restrictions in some districts for mass Covid testing. That offset better data on China’s trade flows. The OECD yesterday downgraded its global GDP growth forecast for this year to 3.0% from 4.5% and sees it moderating further to 2.8% in 2023. It predicted UK growth of 3.6% this year before stagnating in 2023.
  • Today’s focus is the policy update from the European Central Bank. The policy decision will be announced at 12:45BST, followed by the press conference with President Lagarde from 13:30BST. Although interest rates are expected to be left unchanged, markets will be watching for confirmation of an imminent end to net asset purchases under its QE programme. That would pave the way for interest rate lift-off at the next meeting on 21 July. ECB President Lagarde has indicated that 25bp hikes are on the table for both July and September, which would bring the deposit rate out of negative territory from the current -0.5% to 0%.
  • President Lagarde has played down prospects of a larger 50bp increase in one go, although there is pressure from some rate-setters to move more quickly. There is also speculation that the ECB will also announce measures to counter the risk of wider peripheral bond yield spreads within the Eurozone as QE ends and interest rates start to rise.
  • A reassessment of the inflation outlook will be provided in the ECB’s new macroeconomic projections. Eurozone inflation has continued to surprise on the upside, with the latest May reading at 8.1% for headline CPI, while even core inflation (excluding food and energy) is well above target at 3.8% reflecting strong price rises for services and non-energy industrial goods.
  • Overnight, the UK RICS survey’s house price balance eased to 73% in May from 80% in April. The organisation said that new buyer enquiries fell but constrained supply will continue to support house prices. Later today, PM Johnson is expected to give a speech which will include housing market reform, including extending right to buy to people renting from housing associations.
  • Elsewhere, US weekly jobless claims are expected to reaffirm a tight labour market. Expect initial claims to have edged just below 200k and to remain not too far above March lows. China will release CPI and PPI inflation data early Friday.

FX Options Expiring 10am New York Cut

  • EUR/USD: 1.0600-05 (1.03BLN), 1.0620-25 (288M)
  • 1.0650 (258M), 1.0750-55 (1.06BLN), 1.0800 (294M)
  • USD/JPY: 130.95-00 (621M)
  • GBP/USD: 1.2400-10 (374M), 1.2575-80 (336M)
  • 1.2600-05 (574M). EUR/GBP: 0.8600 (200M), 0.8650 (312M)
  • EUR/CHF: 1.0350 (831M)
  • AUD/USD: 0.7100 (763M), 0.7135 (475M), 0.7165-75 (900M)
  • 0.7180-85 (406M)
  • USD/CAD: 1.2500 (389M), 1.2690-00 (460M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.07 Bullish above

  • EUR/USD opened +0.12% at 1.0717 after rising against all major currencies
  • After trading 1.0709 it edged higher on pre-ECB positioning
  • It traded 1.0733 and is around 1.0730 into the afternoon
  • EUR/USD not trending, but ECB decision/message may spark fresh trend
  • Offers seen towards 1.0790/1.08
  • 1.0620 Fibo is a 38.2% retrace of the 1.0349-1.0787 May recovery
  • EUR/USD's recent rise ground to a halt by key 1.0787 Fibo supply
  • 1.0787 Fibo is a 38.2% retrace of the 1.1495 to 1.0349 (EBS) fall

GBPUSD Bias: Bearish below 1.26 Bullish above.

  • Steady after trading in a 1.2523-1.2542 range with modest interest
  • Tight ranges for the major currencies in Asia into ECB rate decision
  • Cost of living pressures begin to weigh on UK housing market
  • Cable drops to 1.2505 before UK PM delivers first policy speech since Monday
  • 1.2505 = two-day low (1.2515 was Wednesday's low)
  • 41% of Tory MPs voted against Johnson in confidence vote Monday
  • 1.2433 was Tuesday's low, courtesy of political damage to Johnson from vote
  • 1.26 = ensuing top (after shorts squeezed). By-election tests for PM June 23

USDJPY Bias: Bullish above 127 Bearish below

  • JPY remains on the back-foot across the board, USD/JPY to 134.56 high
  • Low limited to 134.12, 133.84 EBS later, no verbal intervention today
  • In fact, IMF Salgado backed-up BoJ view weak JPY due to fundamentals
  • USD/JPY dip-buy interest still from Japanese importers, some investors
  • Tech support from 133.74 - 133.24
  • Some Japanese exporter sales, more offers eyed @134.50+, towards 135
  • Talk any option barriers at 135.00 could be large, large too at 135.50

AUDUSD Bias: Bullish above .7200 Bearish below

  • AUD/USD opened -0.59% at 0.7189 after rise in US yields supported USD
  • It traded 0.7193 early before drifting lower through the morning
  • Soft equities and report Shanghai COVID restrictions increasing weighed
  • AUD/USD fell to 0.7161 before buyers returned to give support
  • Heading into the afternoon it is trading 0.7175/80
  • Key support at 0.7105/10 a 38.2 fibo