Daily Market Outlook, March 2, 2022

Daily Market Outlook, March 2, 2022 Overnight Headlines EU Agrees On Sanctions To Exclude Some Russian Banks From SWIFT World Bank Preparing $3 Billion Support Package For Ukraine US Officials: US To Ban Russian Flights From American Airspace Australia’s Economy Rebounds, Confronts Darkening Global Outlook Japan's Q4 Capex Growth Picks Up In Positive Sign For Economy US President Biden: ‘Top Priority’ Is Getting Prices Under Control RBC: UK Shop Prices Rise At Fastest Rate In Over Ten Years Rate-Hike Bets Are Unwinding And Taking Bond Yields With Them Euro Testing Support As Ukraine Crisis Looms Over Growth Oil Tops $110 As Russia Struggles To Maintain Energy Sales Asian Stocks Fall As Sanctions On Russia Hit Global Market SentimentThe Day Ahead When the yield on Germany's benchmark Bund, considered one of thea safest assets in the world, posts its biggest one-day fall since 2011 (as it did on Tuesday), something has changed. The slide in borrowing costs in Germany, with 10-year yields back in negative territory where they remain this morning, echoes similar moves in other major bond markets and is symptomatic of a big shift in investor thinking. ‘Risk off’ sentiment dominated markets yesterday and has continued to do so overnight. European and US markets fell sharply yesterday, and Asian markets are mostly down this morning. Oil and gas prices have surged with Brent crude touching above $111bbl. Government bond yields plummeted across several markets as traders scaled back their expectations for interest rate rises. Meanwhile, the US dollar is up sharply against the euro and sterling. In his annual State of the Union address, US President Biden said that Russian leader Putin “will pay a high price” for his actions towards Ukraine. However, much of his speech was about his plans to combat higher inflation as he attempted to lift his plummeting polling ratings. The Eurozone February CPI is forecast to show a further rise. Indeed, following stronger-than-expected reports for some member countries, analysts have raised forecasts and now expect annual headline inflation to be 5.8% (from 5.1% in January), a new high the single currency era. The European Central Bank, the ECB, continues to take some comfort from the fact that ‘core’ inflation is much closer to target. However, today’s reading is also likely to show a modest rise in that measure to 2.6% from 2.3%. With inflation everywhere else set to move even higher in the wake of the Ukrainian crisis, central banks have to weigh up whether they are more concerned about that or potential downside risks to economic growth. Comments so far since the crisis escalated have suggested that the European Central Bank may now be more cautious in changing their policy stance. However, the US Federal Reserve and the Bank of England seem to be indicating that they are still on course to make some near-term policy tightening moves. Fed Chair Powell will testify to Congressional committees today and tomorrow. This will be his last opportunity to signal the Fed’s intentions before the blackout period ahead of the March policy meeting. It seems likely that he will use the opportunity to confirm that a US rate hike is still on the cards for March and that further tightening moves are likely this year. However, he may also repeat previous comments that, in the present uncertain environment, the Fed needs to be ‘nimble’ and if necessary, change direction quickly. A couple of BoE policymakers are also scheduled to speak today including external Monetary Policy Committee member Tenreyro who typically seems to be the most dovish member of the rate-setting Committee. Meanwhile, the Bank of Canada will give its latest policy update. It is expected to hike rates by 0.25% despite recent events.G10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls ) USDJPY - 116.60 470m. 114.90/115.00 951m. 114.20/30 669m. EURUSD - 1.1370/80 699m. 1.1350/60 1.43bn (939m P). 1.1300/20 2.19bn (1.43bn P). 1.1100 435m. 1.1050/60 668m. GBPUSD - 1.3400 818m. 1.3270 603m. AUDUSD - 0.7370 692m. 0.7350 615m. 0.7130 590m. USDCAD - 1.2840 450m. 1.2770/80 538m. 1.2590 538m. 1.2560/70 777m. EURJPY - 129.20/30 799m. 127.70 702m. Technical & Trade ViewsEURUSD Bias: Bearish below 1.15 Bullish above Steadies after coming under pressure early EUR/USD opened -0.85% at 1.1124 after EUR fell against every major currency It is being negatively impacted by flows out of Europe due to Ukraine crisis EUR/USD eased to 1.1111 early Asia before finding buyers Heading into the afternoon it is unchanged around 1.1120/25 EUR/USD weighed down by heavy cross selling in EUR/JPY, EUR/CHF and EUR/AUD EUR/USD trending lower with the 5, 10 and 21-day MAs in a bearish alignment Only a break above the 10-day MA at 1.1255 would ease the pressure Support is at the 76.4 of the 1.0636/1.2349 move at 1.1040GBPUSD Bias: Bearish below 1.36 Bullish above. Sterling soft, as inflationary pressures build Steady in the middle of a tight but busy 1.3322-1.3338 range Brent up 5% to $110.00 in Asia, fanning the fames of inflation UK retailers raise prices by most since 2011 - BRC BoE stuck between a rock and a hard place on March 17th Charts; momentum studies, 5, 10 & 21 day moving averages head south Bearish setup targets 1.3166-75, Dec 2021 low and 38.2% 2020-2021 rise Close above 1.3457 50% February fall would end the downside bias Sterling vulnerable as oversold signals easeUSDJPY Bias: Bullish above 114.50 Bearish below USD/JPY through topside offers, to 115.18 into London USD/JPY up to 115.18 EBS in late Asia trade, into the London open Pair bid during most of Asia, up from 114.79 early, 114.70 in NY Demand into the Tokyo fix again and short-covering behind moves Despite lower US yields and risk off mood, Nikkei -1.7% to 26,393 Short-US rates firm on funding demand - tom/next, spot/next, week et al Talk circulating of good Japanese 'whale' bids towards 114.50 Tech support below including 114.44-58 daily Ichi cloud, 114.43 100-DMA Nearby option expiries now seen supportive, $1 bln between 114.85-115.03AUDUSD Bias: Bearish below 0.7250 Bullish above Session high as commodities soar in Asia AUD/USD opened -0.18% at 0.7252 but was resilient in risk off US session After trading at 0.7248 it tracked higher as key commodities soared Brent crude was up over 5.0% and Dalian iron ore popped over 4% higher AUD/USD moved up to 0.7265 when Aus GDP came in better than expected AUD/USD didn't react to the data, but maintained bid tone and traded 0.7283 Heading into the afternoon it is steady around 0.7275 AUD benefiting from flows out of Europe due to Ukraine crisis EUR/AUD is down over 5.5% since the start of February AUD/USD trending higher with major resistance at 200-day MA in sight Both the 200-day MA and the 61.8 of 0.7555/0.6867 come in around 0.7330 Support is at the 10-day MA at 0.7218 and break eases upward pressure

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