Daily Market Outlook, May 22, 2023

Asian equities are mostly in the green as US President Biden's optimistic remarks at the G7 summit in Japan suggested a potential improvement in relations with China in the near future. Speculation arose regarding the lifting of certain sanctions previously imposed. Nevertheless, market sentiment remained constrained due to ongoing worries about a potential US debt default. Talks between Congressional Republicans and the White House on raising the debt ceiling encountered a setback on Friday, with disagreements arising over the magnitude of spending cuts. However, discussions are expected to resume today.

The primary focus for financial markets continues to be the developments surrounding the US debt ceiling negotiations. As a result, today's limited data slate is expected to attract minimal interest. However, speeches from ECB and Fed policymakers could provide additional insight into their monetary policy outlooks. Several Fed policymakers, including Bullard, Daly, Bostic, and Barkin, are scheduled to speak at various events. While the Fed is still expected to pause in June, positive data surprises and hawkish comments from policymakers could alter expectations. Recent increases in US Treasury yields have raised the likelihood of a June rate hike, although a pause remains the most likely scenario.

In the Eurozone, several ECB policymakers, including Vujcic, Guindos, Holzmann, Lane, Villeroy, and de Cos, are set to deliver speeches today. During the last meeting, the ECB signalled a reduction in the pace of rate hikes, indicating an approaching end to tightening measures. However, the ECB's current focus is on addressing inflation and is on track to raise interest rates again next month. ECB President Christine Lagarde reaffirmed over the weekend that the central bank is not yet finished with its actions. Regarding data, investor attention is on the Eurozone consumer confidence figure for May. It is expected that confidence weakened this month, with the headline measure declining from -17.5 to -18.0. This decline partly reflects the moderation in sentiment observed in other surveys such as the German ZEW and Sentix surveys.

FX Options Expiries For 10am New York Cut

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

EUR/USD: 1.0705-20 (2.2BLN), 1.0795-1.0800 (400M)
1.0825-30 (2BLN), 1.0840-50 (1.3BLN)
GBP/USD: 1.2450 (254M), 1.2470 (158M), 1.2500 (160M)
AUD/USD: 0.6650 (230M) . NZD/USD: 0.6165 (300M)
USD/CAD: 1.3500-05 (350M)
USD/JPY: 136.00 (1.3BLN), 137.50 (880M), 138.00 (600M)
AUD/JPY: 89.00 (500M), 92.00 (350M)

CFTC Data As Of 12/05/2023

IMM net USD short grew in May 10-16 period, specs sell into 0.8% $IDX rise
EUR$ fell 0.93% in period, specs bottom-fish +7,667 contracts now +187,089
EUR position remains elephant in room, for now holds w/in 1.07-1.11 range
A break out of EUR/USD's 1.07-1.11 range may see protracted move
$JPY rose 0.88% in period , spec -3,776 contracts short grows to -64,791
GBP$ -1.05% in period, specs buy weakness +8,065 contract now +12,593
AUD$ -1.66% in period. Specs -4,401 contracts now short 53,594
BTC -2.88% in period, specs buy dip add 588 contracts now long 1,011(Source RTRS)