European Open: Yields continue higher overnight, futures point lower

It was another day of red for equity traders as upside pressures on yields showed no signs of abating.

Charts (5)

Asian Indices:

  • Australia's ASX 200 index fell by -76.3 points (-1.03%) and currently trades at 7,332.50
  • Japan's Nikkei 225 index has fallen by -790.02 points (-0.28%) and currently trades at 27,467.23
  • Hong Kong's Hang Seng index has fallen by -93.26 points (-0.39%) and currently trades at 24,019.52
  • China's A50 Index has fallen by -113.61 points (-0.74%) and currently trades at 15,183.66

UK and Europe:

  • UK's FTSE 100 futures are currently down -33 points (-0.44%), the cash market is currently estimated to open at 7,530.55
  • Euro STOXX 50 futures are currently down -24.5 points (-0.58%), the cash market is currently estimated to open at 4,233.32
  • Germany's DAX futures are currently down -77 points (-0.49%), the cash market is currently estimated to open at 15,695.56

US Futures:

  • DJI futures are currently down -156 points (-0.44%)
  • S&P 500 futures are currently down -103.5 points (-0.68%)
  • Nasdaq 100 futures are currently down -24.5 points (-0.54%)

20220119moversFOREXfx

Asian equities were lower overnight as upside pressure on global bond yields persisted. The Australian 2-year bond rose 16 basis points to a two-year high, whilst the 5-year rose 23 bps. The Nikkei bared the brunt of selling as it fell -3%, taking a leaf from Nasdaq’s bearish book which fell -2.7% yesterday. China’s CSI300 and Australia’s ASX 200 were down around -1%.

The yen caught a late-session bid

Currency markets were mostly quiet despite weak sentient for equities, yet in the past hour we’ve seen the Japanese yet move broadly higher against its forex major peers. USD/JPY has broken beneath yesterday’s lows and EUR/JPY broke key support.

UK inflation data is at 07:00 GMT

UK inflation rose to 5% according to December’s report which piled even more pressure on the BOE to raise rates. At the time, it was still unclear whether Omicron would derail the economy and the potential for the BOE to hike rates, yet the market have since decided all is fine and driven the British pound to a five-week high, as of last week during a short-covering rally. Unless we see some notably weak inflation numbers today (which we very much doubt) then the BOE are likely to be forced to hike rates in the coming weeks. Yet what is driving the pound lower this week is the markets renewed appetite for the dollar thanks to a hawkish Fed and bond-market sell-off.

EUR/GBP probes cycle low

A large bearish engulfing candle formed on the daily chart of EUR/GBP yesterday. Yield differentials between the two regions points to a downside break and trader have tried to push hit lower overnight. Yet we are urging caution at these lows given potential support levels nearby which diminish the potential reward/risk. The weekly S1 pivot sits at 0.8320, the monthly S1 at 0.8312 and historical support at 0.8304 (not to mention 0.8300 being a round number).

Of course, another potential catalyst is the ousting of Boris Johnson. But he was to be “out by Christmas” yet still clings on to power. And should he last the week it may even give the pound another boost.

GBP/CAD in focus for Canadian inflation

Just after lunch at 13:30 Canada will release their inflation report. Given the UK release theirs earlier in the day and GBP/CAD sits below a key resistance level, GBP/CAD is of interest. The daily chart has produced a head and shoulders top pattern which projects a target around 1.6823 and remains in play, so long as prices stay below the 1.7065 neckline.

20220119gbpcadFX

However, and alternative scenario is a countertrend rally within a bearish channel. A Doji and bullish hammer have formed on this timeframe so if we see momentum turn higher then a swing low has formed. Yet a minor rally from current levels (and respect of 1.0765 resistance) suggests the H&S top is in play.

FTSE 350: Market Internals

20220119moversFTSEfx

FTSE 350: 4287.22 (-0.68%), 19 January 2022

  • 14 stocks rose to a new 52-week high, 20 fell to new lows
  • 89 (25.36%) stocks advanced, 250 (71.23%) stocks declined

Outperformers:

  • +8.237% - Just Group PLC (JUSTJ.L)
  • +6.869% - Qinetiq Group PLC (QQ.L)
  • +4.985% - Darktrace PLC (DARK.L)

Underperformers:

  • ·-11.5% - Petropavlovsk PLC (POG.L)
  • ·-8.07% - Trustpilot Group PLC (TRST.L)
  • ·-7.583% - Chrysalis Investments Ltd (CHRY.L)

Up Next (Times in GMT)

20220119calendarGMT2

 

 

How to trade with FOREX.com

Follow these easy steps to start trading with FOREX.com today:

  1. Open a Forex.com account, or log in if you’re already a customer.
  2. Search for the pair you want to trade in our award-winning platform.
  3. Choose your position and size, and your stop and limit levels.
  4. Place the trade.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account