Daily Market Outlook - Wednesday, March 20

Image Source: Pixabay

On Wednesday, most Asian stock markets are seeing higher trading, influenced by the positive performance of global markets and the recent monetary policy announcements from the Bank of Japan, People's Bank of China, and the Reserve Bank of Australia. Investors are also cautiously anticipating the monetary policy decision from the US Fed later in the day. The Bank of Japan made a historic shift by ending 8 years of negative interest rates and implementing the first-rate hike in 17 years. It is widely anticipated that the Fed will maintain unchanged interest rates, but the accompanying statement from the central bank could have a significant impact on rate outlook. 

Earlier this morning, UK data revealed a decline in headline CPI inflation to 3.4% in February, down from 4.0% in January, marking the lowest level since September 2021. This outcome slightly undershot the consensus forecast of 3.5%. Core CPI, excluding energy and food, also decreased to 4.5% from 5.1%, slightly below the consensus forecast of 4.6%. Notably, within core inflation, services CPI fell to 6.1% from 6.5%. The main contributors to the decline in inflation were food and hotel and restaurant prices.

Later today, the focus will shift to the US Federal Reserve policy decision, with Chair Powell's press conference following shortly after. While no immediate change to interest rates is expected, market attention will be on the Fed's guidance regarding future policy moves. In its last update in early February, the Fed hinted at potential interest rate cuts later in the year, although not as early as March. Since then, US economic data, including inflation, have generally exceeded expectations, though some activity indicators such as retail sales have disappointed. Given the uncertain economic outlook, the Fed is likely to maintain flexibility regarding the timing of any policy adjustments. This suggests that while a rate cut in May seems improbable, reductions in June or July remain distinct possibilities. The Fed will also release updates of policymakers' forecasts, including the 'dot plot' of interest rate projections. Speculation abounds that this may indicate a reduction in the number of forecasted rate cuts for the year from three to two, signaling a cautious approach following the initial move. However, it's more likely that policymakers will await further developments before revising their forecasts.

In addition to the Fed's policy update, the ECB will host a conference titled "The ECB and Its Watchers XXIV," focusing on inflation and monetary policy. Key speakers include ECB President Lagarde, Chief Economist Lane, and Executive Board member Schnabel.

Overnight Newswire Updates of Note

  • China Banks Hold Lending Rates As PBoC Refrains From Easing
  • Chinas Economic Recovery Is Still Facing Challenges
  • Investors, Economists Split On Whether BoJ Will Raise Rates Again
  • NZ Consumer Confidence Rises In Q1 To Highest In More Than 2 Yrs
  • Fed To Give Fresh Clues On Path Of Interest-Rate Cuts
  • US Air Force Says It Conducted Hypersonic Weapon Test In Pacific
  • Expected Decline In UK CPI Could Reinforce Early Rate Cut Bets
  • Yen Falls To Lowest Against Euro Since 2008 After BoJ Rate Hike
  • Pimco Says BoJ Rate Hike Has Put Japanese Bonds Back On The Map
  • Ether ETFs Likely Won't Get Approved In May, Bloomberg Analyst Predicts
  • Oil Steadies As Focus Shifts To US Stockpiles And Fed’s Decision
  • Nvidia Looks To Procure High-Bandwidth Memory Chips From Samsung
  • US Weighs Sanctioning Huawei’s Secretive Chinese Chip Network

(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)

  • USD/JPY: 150.00 ($1.51b), 150.50 ($1.24b), 147.50 ($852.5m)
  • EUR/USD: 1.1000 (EU1.24b), 1.0800 (EU1.14b), 1.0875 (EU1.06b)
  • AUD/USD: 0.6700 (AUD1.22b), 0.6500 (AUD1.14b), 0.6375 (AUD934m)
  • USD/CNY: 7.2000 ($3.6b), 7.3000 ($798.1m), 7.1800 ($401m)
  • USD/CAD: 1.3400 ($630.1m), 1.3600 ($497.3m), 1.3515 ($496.7m)
  • GBP/USD: 1.2700 (GBP489.5m), 1.2385 (GBP475m)
  • USD/MXN: 16.70 ($610m), 17.50 ($325.9m)
  • NZD/USD: 0.6175 (NZD362.7m)
  • EUR/GBP: 0.8545 (EU465.3m)
  • The risk premium for EUR/USD options has doubled due to the Fed's influence, as indicated by the implied volatility in FX options premiums. The overnight expiry has doubled in price from 6.0 to 12.0, indicating increased FX volatility expectations. However, the long-term low of 6.0 suggests a recent lack of realized volatility. The benchmark 1-month expiry volatility is at 5.4, close to the multi-year low of 5.0 last week. This may return to those lows if the Fed does not lower rate cut expectations.

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 bullish
  • 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 150.50

  • Daily VWAP bullish
  • Weekly VWAP bullish
  • 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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