Daily Market Outlook - Tuesday, March 19

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Despite positive cues from Wall Street overnight, Asian stock markets are predominantly lower on Tuesday as traders adopt a cautious stance after monetary policy announcements from the Reserve Bank of Australia and the Bank of Japan. Additionally, anticipation surrounds the US Fed's monetary policy announcement on Wednesday, with investors keen for insights into the outlook for interest rates. Although Asian markets closed mostly higher on Monday, ongoing uncertainty prevails in the current session. The Fed is widely anticipated to maintain interest rates unchanged following recent inflation readings that have tempered optimism regarding a rate cut in June. However, market attention will be directed towards the central bank's accompanying statements and economic projections, which hold the potential to significantly influence rate expectations. Looking ahead, the Bank of England and the Swiss National Bank are also scheduled to announce their monetary policy decisions later in the week, adding to the market's anticipation and volatility.

The Bank of Japan (BoJ) has increased its interest rates for the first time in almost 20 years, making it the last central bank in the world to end negative rates as indications of strengthening inflation emerge. The BoJ Policy Board, led by Governor Kazuo Ueda, voted 7-2 to raise the overnight interest rate from around -0.1 percent to 0 to 0.1 percent. The central bank also decided to terminate its yield curve control policy, which had kept the interest on 10-year Japanese government bonds around zero. Market expectations were high for the BoJ to discontinue its unconventional and extremely loose policy measures implemented in 2016 to combat persistent deflation. This marks the first rate hike since 2007, following recent data showing an increase in inflation. In recent weeks, several BoJ rate-setters have indicated that the 2 percent inflation target is within reach.

Today's German ZEW survey for March marks the beginning of several Eurozone data releases for the month, with the PMI and IFO surveys scheduled for Thursday and Friday, respectively. Unlike the PMI and IFO surveys, the ZEW survey polls analysts rather than companies. The previous reading for February indicated that the current conditions component was at its lowest level since 2020, during the height of Covid concerns. However, the forward-looking expectations part of the survey has seen seven consecutive months of growth, suggesting that analysts anticipate better times ahead. Similar outcomes are expected for March.

Stateside, there are indications of improvement in the housing market. For instance, yesterday's NAHB housing market index for March reached an eight-month high. Although housing starts experienced a nearly 15% decline in January, this could be attributed to adverse weather conditions rather than economic factors such as the recent rise in mortgage rates. Prior to this decline, housing starts had increased for four consecutive months. Additionally, new building permits, which are less susceptible to weather impacts, held up better in January. Therefore, it will be intriguing to observe the extent to which housing starts rebounded in February.

Overnight Newswire Updates of Note

  • Japan Raises Interest Rates For The First Time In 17 Years
  • RBA Holds Rates, Drops Explicit Warning Over Further Rises
  • Japan FinMin Suzuki: Strong Wage Growth Drives Positive Economic Momentum
  • RBA’s Bullock: Need More Confidence On Inflation Lowering To Consider Cut
  • Deal Reached To Avoid Shutdown, Negotiators Resolve Homeland Security Bill
  • Jump In UK Minimum Wage Keeps Bank Of England On Alert
  • BoJ’s Dovish Tone After First Rate Hike Since 2007 Weighs On Yen
  • Oil Holds Gain With Russian Refining And OPEC+ Curbs To The Fore
  • BoJ Rate Hike Unlikely To Derail Stock Rally, Strategists Say
  • Nvidia Joins Ongoing Race In Quantum-Computing Cloud Services
  • Israel And Hamas Start Detailed Hostage Negotiations For First Time In Months

(Sourced from Bloomberg, Reuters and other reliable financial news outlets)

FX Options Expiries For 10am New York Cut 

(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)

  • EUR/USD: 1.0800 (EU760.6m), 1.0790 (EU680.3m), 1.1100
  • USD/JPY: 150.00 ($732.8m), 151.50 ($500m), 143.30 ($500m)
  • AUD/USD: 0.6275 (AUD545m), 0.6800 (AUD412.7m), 0.6575 (AUD371.6m)
  • USD/CNY: 7.1750 ($336.9m), 7.2100 ($332.9m), 7.2260 ($300m)
  • USD/CAD: 1.3100 ($602m), 1.3545 ($341.1m)
  • GBP/USD: 1.2500 (GBP430.4m)
  • NZD/USD: 0.5900 (NZD335m)
  • Warnings about USD/JPY gamma positioning have surfaced, indicating potential market dynamics. Following the BoJ announcement, the USD/JPY reaction was subdued, as the outcome had been extensively anticipated. Post-event, there's a marginal decrease in implied volatility and option premiums. Reports suggest the market is holding a long gamma position (short-dated expiry options) below 151.00. However, this gamma positioning is expected to shift to a short gamma position above 151.00, with a notable increase in short gamma positioning above 152.00 and particularly significant levels above 153.00.Short gamma positioning tends to heighten volatility and could drive FX spot rates higher. Given this scenario, USD/JPY bulls may perceive current FX option prices as favorable, especially considering the potential for increased volatility in the market.

CFTC Data As Of 15/03/24

  • Bitcoin net short position is -994 contracts
  • Euro net long position is 74,407 contracts
  • Japanese Yen net short position is -102,322 contracts
  • Swiss Franc posts net short position of -17,870
  • British Pound net long position is 70,451 contracts
  • Equity fund managers cut S&P 500 CME net long position by 3.983 contracts to 913,990
  • Equity fund speculators increase S&P 500 CME net short position by 71,149 contracts to 474,044

Technical & Trade Views

SP500 Bullish Above Bearish Below 5150

  • Daily VWAP bearish
  • Weekly VWAP bullish
  • Below 5090 opens 5060
  • Primary support 5096
  • Primary objective is 5220

(Click on image to enlarge)

EURUSD Bullish Above Bearish Below 1.09

  • Daily VWAP bearish
  • Weekly VWAP bullish
  • Below 1.0840 opens 1.0795
  • Primary support 1.08
  • Primary objective is 1.10

(Click on image to enlarge)

GBPUSD Bullish Above Bearish Below 1.2770

  • Daily VWAP bearish
  • Weekly VWAP bullish
  • Below 1.2670 opens 1.2630
  • Primary support  is 1.2660
  • Primary objective 1.29

(Click on image to enlarge)

USDJPY Bullish Above Bearish Below 149

  • Daily VWAP bullish
  • Weekly VWAP bearish
  • Above 151 opens 152
  • Primary support 145.85
  • Primary objective is 152

(Click on image to enlarge)

AUDUSD Bullish Above Bearish Below .6600

  • Daily VWAP bearish
  • Weekly VWAP bearish
  • Below .6550 opens .6520/00
  • Primary support .6477
  • Primary objective is .6700

(Click on image to enlarge)

BTCUSD Bullish Above Bearish below 68000

  • Daily VWAP bearish
  • Weekly VWAP bullish
  • Below 64000 opens 59588
  • Primary support  is 52800
  • Primary objective is 78000

(Click on image to enlarge)

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