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Intermarket:
• SP Futures 4200 (-0.31%)
• EUSTXX 4138 (-0.36%)
• Crude Oil 71.95 (-0.28%)
• US 10YR 1.57% (+4.67%)
• EurUsd 1.1998 (+0.02%)
• UsdJpy 110.69 (-0.02%)
• DAX 15675 (-0.26%)
Equity markets remain under pressure into Thursday’s European open after strong declines yesterday post-FOMC. The overnight reverse repo rate and the IOER were hiked by 5bps to 0.05% and 0.15% respectively. Fed chair Powell indicated that “you can think of this meeting as the talking-about-talking-about meeting” for a taper. In addition, the dots plot now points to 7 and 13 Fed members in favour of a rate hike in 2022 and 2023 respectively (up from 1 and 4 previously), prompting the futures market to fully price in one hike by end of 2022. VIX rose to 18.15. US yields rose. USD strengthened. Gold declined.
As a response, some analysts are now (finally) starting to expect more bond market volatility ahead of the Jackson Hole conference in August, as markets start to discount the end of the low rates environment. Looking ahead: today we get the EU CPI, US Philadelphia Fed business outlook, US initial jobless claims and leading index. ECB’s Villeroy, Lane and Elderson are also speaking.
Matters that Matter:
• Fed signals higher rates in 2023, bond-buying taper talks as virus fades
• BOJ may kick off debate around 2023 on ending negative rates - ex-BOJ Maeda
• AU May Employment, 115.2k, 30.0k f’cast, -30.6k prev
• NZ economy surges as housing, retail drive post-COVID recovery
• BOC Gov Macklem – Complete recovery will take time, CAD rise could weigh on growth, signs of cooling in hot housing market
Majors 1-Day View:
Comment: Volatility has spiked across all markets as the USD posted strong gains after projections from Fed policymakers indicated an earlier start to rate hikes than previously forecast and optimism about the recovery suggested a clearer path toward reducing other pandemic-related easing. Yields rose from 1.50% to 1.57%, weighing on stocks, risk assets and cryptocurrencies.
USDJPY
After the false break of April highs, prices initially declined to 109.20 but have since been recovering, with the 4rd consecutive higher daily high & low posted on Wednesday via gains of 1 Big Fig. As such, signals remain positive for Thursday but with some caution as momentum readings are extended and pullbacks towards yesterday’s Marabuzo are favoured.
EURUSD
After Friday’s 1 Big Fig decline, prices stalled ahead of 1.2100 but positive momentum remained weak. Sellers returned to the market on Wednesday, prices declining by 1 ¼ Big Fig, reaching the May 5 low at 1.1986. As such, signals maintain a short bias into Thursday but with extended readings on momentum, pullbacks are favoured towards 1.2030s or even yesterday’s Marabuzo at 1.2060.
AUDUSD
After remaining rangebound for nearly 2 months, prices posted a bearish close outside of the range on Wednesday via the 4th lower daily low in a row, keeping signals bearish for Thursday. Some caution is advised still, as prices are negotiating an accumulation/support zone from late March/early April. As such, with caution, selling into rallies towards the Apr 13 close remains the favoured play today.
GBPUSD
Prices posted fresh 5-wk lows on Wednesday via the 3rd lower daily low in a row and losses of 1 ½ Big Figs. As such, the bias remains negative for Thursday and selling into rallies towards the 13 May Low at 1.4007 or yesterday’s Marabuzo at 1.4034 remains favoured bias for today. The main target is the May 6 open at 1.3908.
USDCAD
Buyers returned from close to 1.2000 over the past weeks, prices recovering to post fresh 5-week highs on Wednesday at 1.2283 via the 5th higher daily low in a row and gains of 1 ¼ Big Fig. As such, signals remain positive for Thursday but with some caution as momentum readings are extended and pullbacks are to be expected. Buying towards yesterday’s Marabuzo is the favoured play.
FX Relative ATR Grid
Comment: volatility levels finally increased yesterday across the board, following the hawkish surprise from FOMC. We would expect this range expansion to extend.
FX Relative Strength Grid
Comment: the strongest trends are currently USD (bullish), NZD (bearish). The strongest momentum was seen yesterday in USD (bullish), EUR (bearish).