Daily Market Outlook, May 24, 2022

Daily Market Outlook, May 24, 2022 Overnight Headlines Quad Leaders Vow To Stand Together For Free, Open Indo-Pacific Biden: No Change To Policy Of Strategic Ambiguity On Taiwan US Trade Chief Tai: The US Must Be ‘Strategic’ On China Tariffs Fed's Bostic Suggests Pausing Rate Hikes In Sep To Assess Impact Fed's George Sees Policy Interest Rate Around 2.0% By August German Minister Expects EU Embargo On Russian Oil 'Within Days UK To Start Legislating Against Brexit Deal Within Three Weeks China Rolls Out Tax Relief, Construction Bonds To Spur Economy Beijing Covid Cases Drop As Capital Remains Under Restrictions Japan’s Factory Activity Grows At Slowest Rate In Three Months Oil Prices Ease On Recession Concerns, Weaker Consumption Asian Equity Markets Slip With US Futures, Euro Holds Gains Snap Leads After Hours Tech Rout After Issuing Profit Warning The Day Ahead Asian equity markets have fallen this morning despite yesterday’s gains in Europe and the US. Futures for the US are also down as reports suggest that tech stocks are leading the sell-off. A further rise in Covid cases in China and that yesterday’s optimism about a US tariff reduction on Chinese goods may be misplaced have also be cited as concerns. In the UK, Northern Ireland Secretary Lewis said that the government plans to introduce a bill to override the Northern Ireland protocol in the Brexit deal within three weeks. Just released data showed UK government borrowing for April, the first month of the new financial year, at £17.8bn. That was close to expectations and down from £23.4bn at the same point a year ago. Meanwhile, media reports suggest that Chancellor Sunak is preparing plans for a windfall tax on power generators and oil & gas companies. Today’s ‘flash’ estimates for the May manufacturing and services PMIs are potentially the most interesting releases of the week in the UK. While showing some evidence of slowing growth in the past couple of months partly as post-Omicron impetus begins to fade, both measures still point to continued growth. That means they seem more positive than official GDP data which showed no growth in February and a small fall in March. The May readings will again be impacted by the Ukrainian crisis and by Covid restrictions in China but, overall, expect another set of solid prints. Look for the manufacturing measure rising to 56.5 from 55.8 in April and the services measure down to 57 from 58.9. Eurozone PMI data will also provide indications of May economic trends. As in the UK, the Eurozone PMI data are still solidly in growth territory, expect that to once again be the case in May. However, look for both measures to be down from their April levels. In the US, PMI data tend to be less closely watched than the longer-running ISM surveys. However, those will not be available for another week. In the meantime, the US PMIs are forecast to show both manufacturing and services mostly still growing at a relatively strong pace. The latest New Zealand central bank policy update due early Wednesday is expected to result in the fifth increase interest rates. Rates have already gone up from a low last October of 0.25% to 1.5%. However, economists are split over the size of this week’s rise with a majority forecasting a second successive 50 basis point increase to 2% but some suggesting a smaller hike of 25bp. FX Options Expiring 10am New York Cut EUR/USD: 1.0370 (1.76BLN), 1.0435-40 (592M) 1.0445-50 (462M), 1.0480 (279M), 1.0540-50 (813M) 1.0585 (784M), 1.0600 (401M), 1.0650-55 (833M) 1.0740 (952M) USD/JPY: 127.00 (599M), 128.00 (405M), 128.50 (229M) 129.00 (631M), 130.00 (300M) GBP/USD: 1.2500 (378M), 1.2600 (302M) EUR/GBP; 0.8380-85 (256M) AUD/USD: 0.7135 (247M), 0.7245-50 (628M) USD/CAD: 1.2690-00 (326M) 1.2820-25 (258M), 1.2720 (225M), 1.2820-25 (410M) 1.2870 (605M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.07 Bullish above EUR/USD has swiftly risen towards overbought territory It's unlikely to rise much further in the short-term 20-day two standard deviation is 1.0745 Consolidation likely, perhaps slide towards the VWAP 1.0535 Given importance of Jun ECB/Fed meets a lengthy consolidation possible EUR/USD VWAP has turned bullishGBPUSD Bias: Bearish below 1.26 Bullish above. GBP nursing its topside breakout as it fails to extend above 1.2600 A negative session would damage prospects for a run into the 1.27s Still respect May 13 key day reversal but wary of fresh bearish signals 14-day momentum has flipped to bullish Daily VWAP has turned bullishUSDJPY Bias: Bullish above 127 Bearish below Correction of USD/JPY's overbought uptrend has stalled by 127.00-EBS Supports include late April lows, and 23.6% Fibo The minimum correction taken off 112.53-131.35 advance is at 126.91 Pressure from overbought daily RSIs has been relieved However, weekly and monthly studies remain top-heavy Bearish unless daily ranges are made above the 129.00AUDUSD Bias: Bullish above .7200 Bearish below AUD/USD opened +0.84% at 0.7111 after USD fell and Wall Street soared It came under pressure early when E-minis opened around 1.0% lower Talk in street glut of China growth outlooks from major banks also weighed AUD/USD traded down to 0.7066 before settling at 0.7080/85 late morning Support is at 0.7041 A break below 0.6995 would put the trend low at 0.6829 in focus Resistance is at the 38.2 of the 0.7661/0.6829 move at 0.7146

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