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ECB Chief Economist Philip Lane noted during an event today that services inflation will "come down quite a bit" in the coming months. He attributed much of the anticipated moderation to a slowdown in wage growth. Additionally, firms are reportedly experiencing reduced cost pressures, which should also contribute to easing price increases.

Lane highlighted the challenges of providing a definitive future path for interest rates, citing significant uncertainties in the global economic environment, including escalating trade tensions.

"From our point of view, saying here's where we think the future rate path is going to be conveys a sense of certainty that we don't feel," Lane said, reinforcing the ECB's cautious stance.

On the topic of exchange rates and their influence on prices, Lane pointed out that while movements in the euro-dollar exchange rate can impact European prices over time, the short-term relationship is less predictable. He noted that in the early stages of a significant currency shift, much of the impact is "absorbed by firms.

“The exchange rate, I think, over time plays a role,” Lane said. “But in terms of the month-by-month, quarter-by-quarter correlation between the exchange rate and import prices is not that stable.”

Sentiment was slightly better and the dollar was slightly lower on Tuesday on the back of a softer-than-expected PPI report from the US and on news that Donald Trump’s America First team would only ‘gradually’ increase tariffs on the rest of the world – if that’s any comfort.

Diving deeper, the US core PPI unexpectedly remained steady at the 3.5% level, and the headline PPI jumped from 3% to 3.3% - instead of 3.5% as expected. But many components that feed into the Federal Reserve’s (Fed) PCE index were mixed. Energy prices, for example, surged by 3.5% due to a 9.7% rise in gasoline, transportation and warehousing services saw increases, while food prices fell by 0.1% with fresh and dry vegetables down 14.7%, and service prices remained flat overall. As such, yesterday’s helped cooling worries but didn’t meaningfully reversed them. The US 2-year yield eased to 4.36%, while the 10-year yield flirted with the 4.80% mark for the second straight session. The US dollar eased amid rising hopes that the implementation of new Trump-era tariffs will be less dramatic than investors initially feared. The EURUSD was also boosted by a surprise rebound in Italian manufacturing last November, but the pair is seeing resistance near the 1.03 offers this morning.

All eyes are on the US CPI data due today. The headline inflation in the US is expected to have ticked higher from 2.7% to 2.9% in December, while core inflation is seen sticky near the 3.3% level. A higher-than-expected set of data could reverse yesterday’s selloff in the US dollar and weigh on treasuries and equities, while a softer-than-expected figure could help cooling the hawkish Fed expectations and let the US dollar give back field, and the treasuries and equities take a breather. Given how hawkish the Fed expectations have become, a soft-looking data could have a greater impact in terms of price action today, but in all cases, volatility will likely be on the menu. According to Citigroup, the S&P500 could move 1% up or down after the data based on the pricing of the ATM put and call options, competing with the Fed’s next rate decision.

The S&P 500 closed yesterday slightly up and above the 100-DMA, the CPI data will either keep the index above this level or send it below sustainably. Also on the menu du jour: the US bank earnings. They are expected to print a 40% growth in earnings in Q4 of last year thanks to comfortable comparison to the Q4 of the year before, robust net interest income and improved trading activity.

Elsewhere, the Eurozone countries are also releasing fresh updates to their inflation numbers today with the Eurozone aggregate figure for December due Friday, meanwhile the UK printed a set of lower-than-expected inflation figures this morning. UK’s monthly core and headline inflation ticked higher in December but they came in lower than pencilled in by analysts, while yearly figures fell for both readings, giving the Bank of England (BoE) room to provide relief to the UK’s renewed debt aches if needed.

Yesterday’s bond selloff in the UK went surprisingly well. It was the first major issuance since last week’s debt drama, and the £1bn worth 30-year bond auction was three times oversubscribed. The latter looked like it cooled the downside pressure in the gilt market but the 30-year yield rebounded, while the 10-year yield is back testing the 4.90% this morning. Rachel Reeves hasn’t yet convinced global investors that the gilt selloff is nothing meaningfully more than the global bond selloff and that her spending cuts will be enough to get the budget plans right. The market’s unwillingness to fund her spending plans are weighing on British growth outlook and on sterling beyond the global pressure on government bonds. Cable cleared the 1.22 support this morning after the CPI release and the outlook remains bearish on political uncertainties and expectations of stronger BoE support. Cable is at levels well above the Liz Truss times (when the pair had dived to 1.0350, remember). But the market reaction to Truss gives an idea on how bad things could get in a short period of time, and exacerbate the situation. Risks prevail.

Across the Channel, the new French PM Bayrou is walking on a tightrope by giving concessions on the heated pension reform and deficit target to avoid losing the divided government’s support and face the same faith than Barnier. But being the French PM today is like riding a rodeo bull... The rise of the French yields could equally be put on the back of the global debt selloff. But, infine, all comes down to the same rhetoric for most developed economies – high debt levels and slow progress (and even a U-turn) in inflation trajectory suggesting higher inflation levels in the longer run. Note, however, that yields used to be higher before the subprime crisis and the latter didn’t necessarily prevent economies from performing well. Yet the rising volatility in borrowing costs is not ideal.

One good news is that Israel and Hamas are apparently nearing a ceasefire agreement before Trump’s inauguration next week. The latter helped cooling the rally of the US crude prices into the $80pb level, as Brent crude eased below the $80pb mark. But note that some experts warn that Israel may ease pressure in Gaza to strengthen its ties with the US to increase pressure on Iran – which is a major oil exporter with around 1.6mbpd exported in October last year. As such, the geopolitical tensions remain high both on the Russian and Middle Eastern fronts. Minor support to US crude is seen near $76pb, the minor 23.6% retracement on the latest crude rally, while major supports stand near $75.40pb, the 200-DMA, and $74.30pb, the major 38.2% Fibonacci retracement on the latest selloff.

Markets

US president-elect Trump so far didn’t push back against rumours that any possible tariffs would be gradually installed. European stock markets lost some intraday momentum but still managed a 0.5% positive close. The bear steepening of European yield curve continued as well with EU swap rates adding 3.7 bps (2-yr) to 5.5 bps (30-yr) and German yields rising by 2.6 bps (2-yr) to 4.6 bps (30-yr). EUR/USD rebounded from 1.0239 to 1.0309. Apart from the euro-rebound story, USD lost some momentum as well after December producer prices rose less than feared (0.2% M/M vs 0.4% M/M for headline figure). Core PPI gauges painted a similar picture and provided some hope that the feared acceleration in US CPI (release this afternoon) won’t materialize. Daily changes on the US yield curve varied between -1.4 bps (2-yr) and +1.4 bps (10-yr). Stakes going into the CPI release are still high. We see asymmetric risks after the strong sell-off in US Treasuries with the market more eager to respond/rebound on a lower figure.

Sterling extended its underperformance with EUR/GBP testing the October top at 0.8448 as UK Chancellor Reeves was unable to calm investor nerves over the government’s fiscal trajectory. December inflation numbers this morning don’t make the GBP-equation any easier. Headline, core and services inflation all slowed more than hoped in Y/Y-terms, respectively to 2.5%, 3.2% and 4.4%. Recent sterling weakness came on the back of rising risk premia. Slowing inflation is welcome, but could deprive the UK currency faster from short-term interest rate support.

Bank of Japan governor Ueda said that the central bank will make a decision over whether to raise rates next week. He also flagged the (strong) US economy and the momentum toward spring wage negotiations. Together with yesterday’s similar remarks from deputy governor Himino – not ruling out a rate hike in January – and last week’s rumours about upward revision to inflation forecasts in the new quarterly projections (linked to surge in cost of rice and weaker yen), it’s a signal that can’t be ignored. The market implied probability of a 25 bps (to 0.50%) rate hike, our base case, increased from 60% to 75%. By the end of the year, one more additional rate hike (to 0.75%) is currently discounted. Japanese bond yields follow the global momentum. The Japanese 10-yr yield trades above 1.25% for the first time since April 2011. The 2-yr yield crossed 0.7% for the first time since October 2008 in the wake of the Ueda-comments. USD/JPY ticks lower to 157.50, but that move remains technically insignificant. The pair remains attracted by last year’s top at 161.95. Only a return below 148.65 would turn the picture more neutral.

News & Views

The European Commission (EC) approved another delay to Belgium’s submission of the budget plan covering the next couple of years. This second extension comes after missing the end-of-2024 target as negotiations to form a new government are still ongoing. Bart De Wever (N-VA) is leading the talks and expressed hopes to have an Arizona-coalition (including MR, CD&V, Les Engagés and Vooruit) in place no later than January 31. But the EC’s approval comes with some strings attached. The new deadline for the plan is set at end-April and should by then explain in detail which reforms and measures Belgium will be taking to reduce outsized deficits. If it doesn’t, the country will no longer have the option to spread the fiscal effort over 7 years. Instead, it will be locked in into the 4-year trajectory during which Belgium’s primary budget deficit has to decline by 0.72% of GDP over 2025-2028. Increases in expenses during that period are capped at 2.4% in 2025, 1.9% in 2026 and 2% in 2027.

The British Retail Consortium (BRC) after surveying 52 large UK retailers said about two-thirds of the CFOs warned they’ll pass on the increase of employer national insurance contributions to consumers. The increase of the payroll tax was part of the broader £40bn tax rises UK Chancellor Reeves presented during last year’s Autumn budget. Retailers have been warning ever since that it’ll further stoke inflation at a time when it is still well above the Bank of England’s 2%-target. As an example, the BRC said that food price inflation is expected to rise 3.5% this year, compared with the 2.9% in 2024.

In focus today

From the US, we get the most important data release of the day: December CPI. We forecast headline CPI at +0.3% m/m SA (2.8% y/y) and Core CPI at +0.2% m/m SA (3.3% y/y), mostly in line with consensus. The PPI data released already yesterday pointed towards slightly lower-than-expected price pressures. In the evening, a range of Fed speakers will be on the wires, including Barkin, Kashkari, Williams and Goolsbee.

In the euro area, industrial production data for November is released, which is expected to show a small increase of 0.3% m/m by consensus. However, given data released on individual countries we expect production rose 0.7% m/m as Germany rose 1.5% m/m.

In the UK, December inflation data is released this morning at 8:00 CET. Consensus expects headline to remain put at 2.6% y/y but easing in core and services inflation. Focus will be on momentum in core services, which is key for the BoE in determining underlying inflation pressure. Considering the recent sell-off in Gilts and GBP FX, today's print is set to prove highly important for UK markets.

In Sweden, the final details of the December inflation print will be released at 8:00 CET. The flash estimates were below market and Riksbank forecasts. We expect no changes to preliminary outcomes (CPIF 1.5% y/y, CPIF ex Energy 2.1% y/y). Details may affect the January inflation outlook due to volatile price components. Riksbank speeches from Bunge at 9:10 CET and Thedéen at 15:30 CET may offer insights into the inflation print and potential timing of the next rate cut.

Economic and market news

What happened yesterday

In the US, the Core PPI came in lower than expected; keep in mind this (unusually) comes ahead of the CPI due for release tomorrow. EUR/USD edged higher, while UST yields declined. There has been a significant slowdown in the growth of services ex. transportation and core goods PPI. The NFIB survey indicates a continued rebound in US business confidence following the election. Looking at the survey components, it reveals that firms are considerably more optimistic about sales expectations and the general outlook for business expansion. Hiring plans have remained steady, although actual employment changes have slightly weakened. Firms' price plans (which often correlate well with the CPI), have also remained steady. Those firms reporting rising profits mainly attributed this to improving real volumes rather than increased selling prices, which is likely welcomed by the Fed.

In China, the credit and monetary growth data were released, showing slightly stronger than expected results. Year-to-date aggregate financing reached CNY 32260.0 bn (cons: CNY 31560.0bn). although details are not yet available, this overall trend suggest a pick-up in credit in December, supported by stimulus measures. M2 growth increased to 7.3% y/y (prior: 7.1% y/y) in line with consensus.

Equities: Global equities were higher yesterday, driven by cyclical stocks, small caps, and, notably, financials. We had yet another day of supportive macroeconomic figures from the US, but it is important to note that most gains occurred ahead of the key figure releases. When discussing cyclical outperformance over the past few years, it has largely been related to technology, consumer discretionary, and communication services. However, year to date, the best-performing sector is energy, with oil prices up by 7%, followed by materials. While it aligns with the business cycle to see energy and materials outperforming, we believe better data from China is necessary to support continued outperformance in these sectors. In the US yesterday, the Dow was up by 0.5%, the S&P 500 increased by 0.1%, the Nasdaq declined by 0.2%, and the Russell 2000 rose by 1.1%. Markets are mixed in Asia this morning, while both European and US futures are marginally higher.

FI: European government bond yields continued to rise yesterday and there was a modest bearish steepening of the various EGB curves. The Bund ASW-spread keeps testing the 0bp-level and we do expect to break through the level and go towards -10bp to -15bp given the supply as well as no QE. We discuss the outlook for the Bund ASW-spread as well as ECB and our top trades for 2025 in our special edition of RTM EUR. See RtM EUR - Outlook and top trades in 2025, 14 January.

FX: Yesterday proved another relatively soft session for the USD with EUR/USD moving back above the 1.03 level. Also, the JPY had a relatively weak session with USD/JPY moving sideways to marginally higher. In the Scandies, lower energy prices weighed on the NOK while the SEK remained close to unchanged. Finally, GBP had another volatile and nervous session ahead of today's CPI print.

Key Highlights

• WTI Crude Oil prices started a fresh increase above the $73.50 resistance zone.
• A connecting bullish trend line is forming with support at $75.35 on the 4-hour chart.
• Gold prices started a consolidation phase above the $2,635 support.
• The US CPI could increase by 2.9% in Dec 2024 (YoY).

WTI Crude Oil Price Technical Analysis

WTI Crude Oil price found support near the $72.00 zone. A base was formed and the price started a fresh increase above $75.00.

Looking at the 4-hour chart of XTI/USD, the price traded gained pace for a move above the $76.80 resistance zone, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour).

The bulls even pushed prices above the $78.00 level. A high was formed at $79.28 and the price is now consolidating gains. There was a minor decline toward the 23.6% Fib retracement level of the upward move from the $72.92 swing low to the $79.28 high.

On the upside, the price is facing hurdles near the $79.20 level. The main hurdle is now near the $80.00 zone, above which the price may perhaps accelerate higher.

In the stated case, it could even visit the $82.50 resistance. Any more gains might call for a test of the $85.00 resistance zone in the near term. On the downside, the first major support sits near the $76.85 zone.

A daily close below $76.85 could open the doors for a larger decline. The next major support is $75.35 and the trend line. Any more losses might send oil prices toward $72.00 in the coming days.

Looking at Gold, there was a steady increase above the $2,635 level and the price is now consolidating gains.

Economic Releases to Watch Today

• US Consumer Price Index for Dec 2024 (MoM) – Forecast +0.3%, versus +0.3% previous.
• US Consumer Price Index for Dec 2024 (YoY) – Forecast +2.9%, versus +2.7% previous.
  US Consumer Price Index Ex Food & Energy for Dec 2024 (YoY) – Forecast +3.3%, versus +3.3% previous.

Short Term Elliott Wave view in AUDUSD suggests that cycle from 9.30.2024 high is in progress as an impulse. Down from 9.30.2024 high, wave 1 ended at 0.6434 and wave 2 rally ended at 0.6528. Pair resumed lower in wave 3 towards 0.6176 as the 1 hour chart below shows. Wave 4 rally ended at 0.63. Internal subdivision of wave 4 unfolded as a zigzag Elliott Wave structure.

Up from wave 3, wave ((a)) ended at 0.6225 and pullback in wave ((b)) ended at 0.6194. Wave ((c)) higher ended at 0.63 which completed wave 4 in higher degree. Pair has resumed lower in wave 5 which subdivides into another 5 waves. Down from wave 4, wave ((i)) ended at 0.6128. Wave ((ii)) rally is in progress as a zigzag with wave (a) ended at 0.6207 and wave (b) ended at 0.6162. Expect wave (c) higher to end at 0.624 – 0.629 area and this should complete wave ((ii)) in higher degree. As far as pivot at 0.6302 high stays intact, expect rally to fail in 3, 7, 11 swing for further downside.

AUDUSD 60 Minutes Elliott Wave Chart

AUDUSD Elliott Wave Video

https://www.youtube.com/watch?v=wsLrJqyGzFc

•  Down Jones reversed from support level 42000.00
• Likely to rise to resistance level 43000.00

Down Jones index recently reversed up with the daily Piercing Line reversal pattern from the pivotal support level 42000.00, which has been reversing the price from September.

The support level 42000.00 was strengthened by the lower daily Bollinger Band and the 50% Fibonacci correction of the upward impulse from August.

Given the strength of the support level 42000.00 and the improvement in investor sentiment as seen across the global equity markets, Down Jones index can be expected to rise to the next resistance level 43000.00.

• NZDJPY reversed from key support level 87.00
• Likely to rise to resistance level 89.40

NZDJPY currency pair recently reversed up from the key support level 87.00, which is the lower border of the sideways price range inside which the pair has been moving for the last few weeks.

The support level 87.00 was also strengthened by the lower daily Bollinger Band and the 50% Fibonacci correction of the upward impulse from August.

NZDJPY currency pair can be expected to rise to the next resistance level 89.40 (upper border of the active sideways price range and the top of the previous waves B and 1).

The NZDUSD pair continues to rise for the second straight day, trading near 0.5610 on Tuesday morning. This boost is partly due to China's recent economic support measures, as New Zealand's close trade ties with China mean its economy heavily influences the New Zealand Dollar. China's central bank officials have announced plans to use tools like interest rate adjustments and increased fiscal spending to stabilize their economy and keep the Yuan exchange rate steady, which has fueled market optimism.

After reports from US President-elect Donald Trump's team considered a gradual approach to raising import tariffs and easing fears of sudden inflation, the New Zealand dollar also gained from positive risk sentiment. Meanwhile, the US Dollar has eased slightly after hitting a high last seen in November 2022, supported by strong US labor market data and rising Treasury yields. At the same time, traders are waiting for December's US Producer Price Index (PPI) data, which could further influence the US Dollar's movements. Overall, the Kiwi Dollar remains strong amid global economic developments.

NZDCAD – H4 Timeframe

The price action on the 4-hour timeframe of NZDCAD already shows an initial break below the previous low. The price is currently inching toward the supply zone at the origin of the bearish impulse. The said supply zone is in confluence with the 88% Fibonacci retracement level and trendline resistance.

NZDCAD – H1 Timeframe

The SBR pattern on the H1 timeframe aligns perfectly with the sentiment from the 4-hour timeframe chart of NZDCAD. Here, we can see the sweep above the previous high, immediately followed by a bearish break of structure, further confirming the likelihood of a bearish continuation at the retest of the rally-base-drop supply zone.

Analyst's Expectations:

• Direction: Bearish
• Target: 0.80139
• Invalidation: 0.81525

The GBPUSD pair has fallen sharply for five days, reaching its lowest point since November 2023, around 1.2120. The British Pound has been struggling due to concerns about "stagflation," which combines high inflation with weak economic growth. Adding to the pressure, rising UK government bond yields after the Labour government's budget plan in October have raised fears that borrowing targets may not be met. Meanwhile, a strong US Dollar, backed by expectations that the Federal Reserve will pause rate cuts soon, is further weighing on the Pound.

The US Dollar remains strong after better-than-expected job numbers for December, which showed 256K jobs added and a slight drop in the unemployment rate to 4.1%. Ongoing global risks, like the Russia-Ukraine conflict and Middle East tensions, are boosting demand for safer assets like the Dollar. Even though the Pound has recovered slightly from its daily low, the overall market outlook suggests it could face more downward pressure. Investors remain cautious, and any bounce-back for GBPUSD might not last long.

GBPNZD – D1 Timeframe

Following the bullish break of structure on the daily timeframe chart of GBPNZD, we see a steady downward glide as the price aims for the demand zone at the origin of the bullish break. Interestingly, the 100-day moving average and a trendline support the drop-base-rally demand at the base of the impulse.

GBPNZD – H4 Timeframe

On the 4-hour timeframe of GBPNZD, we can see that price had a sweep of liquidity just before the onset of the bullish momentum. In this light, and with the other confluences observed on the daily timeframe, it is safe to conclude in favor of a bullish outcome.

Analyst's Expectations:

• Direction: Bullish
• Target: 2.21677
• Invalidation: 2.13569