Daily Market Outlook - Wednesday, June 12

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During the Asian session, China experienced a 0.1% decrease in its consumer price index in May compared to the previous month, which was below expectations. This decline is attributed to price competition intensifying deflationary pressures in the world's second-largest economy.

Meanwhile, Japan saw a significant increase in wholesale inflation in May, marking the fastest annual growth in nine months, partly due to the weakening yen putting upward pressure on prices. This data adds complexity to the Bank of Japan's upcoming decision on when to raise interest rates. The overnight implied volatility for the USDJPY pair surged to its highest level in six weeks, indicating that traders are preparing for a potentially turbulent market.

The markets are expected to be cautious during the morning hours in Europe, with anticipation for a significant session in the U.S. This session includes the release of inflation data before the Federal Reserve's meeting to determine interest rates and share its economic forecasts. This is likely to overshadow the final German CPI figures and the UK's monthly GDP data scheduled for release earlier in the day.

Market watchers predict that the U.S. headline inflation will remain stable in May. A higher inflation rate may not be well-received by the stock markets, especially if it appears to reverse the previous cooling trend seen in April. Markets anticipate a decrease in the US headline CPI inflation month-on-month rate to 0.2% in May from 0.3% in April, primarily due to reduced gasoline prices. As for the core rate (excluding energy and food), markets project the monthly rate to remain unchanged at 0.3%, while the annual rate is anticipated to decrease to 3.5% from 3.6%.

With regards to the FOMC announcement  this evening the focus will be on the economic projections and Federal Reserve Chairman Jerome Powell's explanation during the press conference, as it is expected that the Fed will maintain the current interest rates. The Fed's previous projection in March suggested three rate cuts for the year, but this is likely to change due to persistent inflation and a strong economy. Currently, the market anticipates approximately 40 basis points of rate cuts in 2024. If the median projection decreases to just one 25bp cut, it would be viewed negatively, while a projection of zero cuts would be seen as very hawkish. How Powell presents this information will be crucial - will fewer cuts this year imply more next year, or not? The March projections also indicated longer-term interest rates between 2.4% and 3.8%, with a slight increase from the previous figures. If these projections start to rise, it could disrupt the bond rally that was already impacted by last week's unexpectedly strong jobs report.

Below is an excerpt from Goldmans Sachs Research note to clients with scenario analysis for SPX reaction to US CPI
 

Overnight Newswire Updates of Note

  • FOMC Faces Dot-Plot Cliffhanger As May Inflation Report Looms
  • US Weigh More Limits On China’s Access To Chips Needed For AI
  • China's Mild Inflation Fails To Quell Concerns Over Weak Demand
  • BoJ Set To Keep Ultra-Low Rates, Debate Huge Bond Buying Fate
  • Japan Wholesale Inflation Rises, Complicates BoJ Rate Hike Path
  • Aussie Consumer Confidence Posts Biggest Weekly Fall This Year
  • Bank Of France Cuts Growth Outlook As Budget Cuts Seen Biting
  • Le Maire Warns Of French Debt Crisis If Le Pen’s Party Wins Vote
  • Hamas Says Creates Broad Prospects For Ceasefire Deal In Gaza
  • Oil Holds Gain As Industry Report Points To Lower US Stockpiles
  • Peso Crushed As Investors Worry Sheinbaum’s Win Was Too Big
  • Oracle Sees Strong Bookings, Signals Further Cloud Momentum

(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: 1.0700 (636M), 1.0750 (350M), 1.0760-70 (714M), 1.0800 (377M)
  • 1.0820-30 (1BLN)
  • USD/CHF: 0.8950-55 (720M), 0.9000 (301M)
  • EUR/CHF: 0.9700 (316M), 0.9725 (1.1BLN)
  • AUD/USD: 0.6615-20 (1.1BLN), 0.6650 (340M), 0.6665-80 (516M)
  • AUD/CAD: 0.9060 (431M)
  • USD/CAD: 1.3695-1.3700 (1.2BLN), 1.3755-60 (429M),
  • USD/JPY: 158.00-10 (420M), 158.25 (259M)
  • EUR/USD: 1.0665-75 (722M), 1.0700 (567M), 1.0725 (490M), 1.0740-45 (402M)
  • 1.0800-10 (3.1BLN), 1.0885 (677M), 1.0900 (710M)
  • USD/CHF: 0.8970-80 (650M), 0.9000 (365M)
  • EUR/CHF: 0.9650 (240M). EUR/GBP: 0.8480 (459M), 0.8530 (229M)
  • GBP/USD: 1.2700 (361M), 1.2795-1.2805 (2.4BLN)
  • AUD/USD: 0.6615-20 (2.6BLN), 0.6630 (1.1BLN), 0.6650 (797M)
  • NZD/USD: 0.6100 (1BLN), 0.6200 (1.5BLN)
  • AUD/NZD: 1.0700 (605M), 1.0900 (2BLN)
  • USD/CAD: 1.3755 (200M), 1.3775 (277M), 1.3800 (751M)
  • USD/JPY: 156.00 (940M), 156.50 (440M), 156.80 (756M), 157.00 (841M)
  • 157.50 (610M)
  • EUR/NOK: 11.458 (490M)
  • The inclusion of U.S. CPI in the overnight options initially led to underpricing. Traders may have been waiting for the expiry to coincide with the Fed meeting on Wednesday. With the Fed now included, the implied volatility for overnight expiry is appropriately higher. Current levels are similar to those before the May CPI, but with the added impact of the June Fed meeting. For EUR/USD, overnight implied volatility is now at 14.0, compared to 7.5 when CPI was first included and 7.5 prior. Similarly, AUD/USD overnight volatility is now at 19.25, compared to 12.0 when CPI was first included and 11.5 prior. For USD/JPY, overnight volatility is now at 16.0, compared to 13.5 when CPI was first included and 10.25 prior.


CFTC Data As Of 07/06/24

  • Bitcoin net short position is -1,119 contracts
  • Swiss Franc posts net short position of -45,763 contracts
  • British pound net long position is 43,210 contracts
  • Euro net long position is 67,870 contracts
  • Japanese yen net short position is -132,101 contracts
  • Equity fund managers cut S&P 500 CME net long position by 23,186 contracts to 954,821
  • Equity fund speculators increase S&P 500 CME net short position by 2,269 contracts to 332,326
  • Gold NC Net Positions up to $237.3K from previous $236.6K
     

Technical & Trade Views

SP500 Bullish Above Bearish Below 5360

  • Daily VWAP bullish
  • Weekly VWAP bullish 5319
  • Below 5330 opens 5300
  • Primary support 5275
  • Primary objective is 5403

(Click on image to enlarge)

EURUSD Bullish Above Bearish Below 1.08

  • Daily VWAP bearish
  • Weekly VWAP bearish 1.0830
  • Above 1.880 opens 1.0940
  • Primary resistance 1.0981
  • Primary objective is 1.0650

(Click on image to enlarge)

GBPUSD Bullish Above Bearish Below 1.2760

  • Daily VWAP bearish
  • Weekly VWAP bearish 1.2720
  • Below 1.2740 opens 1.2690
  • Primary support  is 1.2670
  • Primary objective 1.2850

(Click on image to enlarge)

USDJPY Bullish Above Bearish Below 156

  • Daily VWAP bullish
  • Weekly VWAP bullish 156.60
  • Below 155.30 opens 154.50
  • Primary support 152
  • Primary objective is 160

(Click on image to enlarge)

XAUUSD Bullish Above Bearish Below 2320

  • Daily VWAP bearish
  • Weekly VWAP bearish 2355
  • Above 2365 opens 2390
  • Primary support 2300
  • Primary objective is 2262

(Click on image to enlarge)

BTCUSD Bullish Above Bearish below 70000

  • Daily VWAP bearish
  • Weekly VWAP bearish 68015
  • Below 66300 opens 64500
  • Primary support is 65000
  • Primary objective is 78200

(Click on image to enlarge)


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