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The Australian dollar has edged lower on Thursday. In the North American session, AUD/USD is trading at 0.6198, down 0.28% on the day.

Australian retail sales point to cautious consumers

Australian retail sales rose 0.8% m/m in November 2024, higher than the downwardly revised 0.5% gain in October but shy of the market estimate of 1%. This was the strongest pace since January but there was some disappointment that pre-Christmas and Black Friday discounts didn’t result in stronger sales. Despite retailer incentives, consumers remained cautious, as high inflation and elevated interest rates have squeezed households and dampened consumer spending.

The Australian economy is struggling and today’s weaker-than-expected retail sales report along with the drop in underlying inflation in December is bolstering the case for a February rate cut. The Reserve Bank of Australia has highlighted household spending and inflation as key factors in its rate decisions and the central bank hasn’t budged from a cash rate of 4.35% for over a year. The RBA is sounding less hawkish but hasn’t hinted at the timeline for a rate cut, saying rate decisions will be data-dependent. The RBA hold its first meeting of the year on Feb. 18 and the money markets have priced in a rate cut at over 70%.

Fed minutes: Concern about Trump

The minutes of the Federal Reserve’s December meeting indicated that members were concerned about the upside risks of inflation due to President-elect Trump’s policies. Members stated that inflation could rise to “the likely effects of potential changes in trade and immigration policy”. Trump has pledged to slap tariffs on China and other US trading partners and has threatened the mass deportation of illegal immigrants.

The minutes also indicated that the Fed plans to “go slow” with further rate cuts in 2025, after starting the easing cycle last September with an oversized 50-basis point cut. The Fed’s December rate projection calls for only two rate cuts in 2025, down from four in the September forecast.

AUD/USD Technical

• AUD/USD tested support at 0.6189 earlier. Below, there is support at 0.6161
• 0.6215 and 0.6243 are the next resistance lines

Daily Pivots: (S1) 1.0276; (P) 1.0317; (R1) 1.0361; More...

Sideway trading continues in EUR/USD and intraday bias remains neutral. Outlook also stays bearish with 1.0457 resistance intact. Firm break of 1.0223 will resume the fall from 1.1213. However, sustained break of 1.0457 will confirm short term bottoming, and turn bias to the upside for 55 D EMA (now at 1.0542).

In the bigger picture, fall from 1.1274 (2023 high) should either be the second leg of the corrective pattern from 0.9534 (2022 low), or another down leg of the long term down trend. In both cases, sustained break of 61.8 retracement of 0.9534 to 1.1274 at 1.0199 will pave the way back to 0.9534. For now, outlook will stay bearish as long as 1.0629 resistance holds, even in case of strong rebound.

Daily Pivots: (S1) 1.2292; (P) 1.2393; (R1) 1.2465; More...

Intraday bias in GBP/USD remains on the downside for the moment. There is no clear sign of bottoming yet. Sustained trading below 1.2256 fibonacci level will carry larger bearish implications. On the upside, break of 1.2376 will turn intraday bias neutral first. Further break of 1.2486 support turned resistance should confirm short term bottoming.

In the bigger picture, price actions from 1.3433 medium term are seen as correcting whole up trend from 1.0351 (2022 low). Strong support is still expected from 38.2% retracement of 1.0351 to 1.3433 at 1.2256 to bring rebound to extend the corrective pattern. However, firm break of 1.2256 will argue that the trend has reversed and target 61.8% retracement at 1.1528.

Daily Pivots: (S1) 0.9082; (P) 0.9106; (R1) 0.9134; More…

No change in USD/CHF's outlook as range trading continues. Intraday bias remains neutral for the moment, and more consolidations could be seen below 0.9136 resistance. Further rally is expected as long as 0.8956 resistance turned support holds. Above 0.9136 will resume the rally from 0.8374 to 0.9223 key resistance next. However, firm break of 0.8956 will turn bias back to the downside for 55 D EMA (now at 0.8888).

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern, with rise from 0.8374 as the third leg. Overall outlook will continue to stay bearish as long as 0.9223 resistance holds. Break of 0.8332 low is in favor at a later stage when the consolidation completes. However, decisive break of 0.9223 will be an important sign of bullish trend reversal.

Daily Pivots: (S1) 157.99; (P) 158.27; (R1) 158.64; More...

Intraday bias in USD/JPY is turned neutral first with current retreat. But further rally will remain in favor as long as 156.01 support holds. Break of 61.8% projection of 139.57 to 156.74 from 148.64 at 159.25 will extend the rally from 139.57 to retest 161.94 high. However, considering bearish divergence condition in 4H MACD, firm break of 156.01 support will indicate short term topping. Intraday bias will then be back on the downside for 55 D EMA (now at 153.98) instead.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

While Sterling continues to be the market's primary focus as it faces heavy losses, Japanese Yen is quietly staging a modest, but broad-based recovery. However, Yen’s rally appears driven more by position adjustments ahead of tomorrow’s US non-farm payrolls report, as risk sentiment has across markets has turned more cautious. Meanwhile, there little support for Yen from increasingly dovish expectations surrounding BoJ policy.

The probability of a BoJ rate hike this month is waning. Although Japan's wage growth has shown strong improvement, economic uncertainty is casting doubt on immediate action. March is now starting to appear to be a more plausible timeline for further policy normalization.

Former BoJ Governor Haruhiko Kuroda noted in a recent research paper that while gradual rate hikes are anticipated, estimating the neutral interest rate remains challenging, making the path for monetary policy less clear.

Separately, ex-BoJ board member Makoto Sakurai expressed skepticism about a January hike, attributing it to the uncertainties surrounding global economic trends and the incoming US Trump administration. Sakurai suggested a 70% likelihood of a March hike, indicating that BoJ might prefer to wait for more clarity.

In the UK, government officials attempted to downplay concerns over the recent financial market volatility. Chief Secretary to the Treasury Darren Jones dismissed calls for emergency intervention, stating there was “no need” for such measures despite the sharp drop in Sterling and government bond prices. Jones attributed the movements to broader global financial dynamics and emphasized the government’s firm stance on borrowing only for investment purposes. However, these reassurances did little to lift the Pound, which remains near multi-month lows.

Overall for the day so far, Yen leads gains, followed by Dollar and Swiss Franc. Sterling is the day’s worst performer, followed by Aussie and Kiwi. These rankings reflect a tilt toward risk aversion. Euro and Canadian Dollar hover in the middle. Nevertheless, the global equities have yet to reflect significant negativity.

Technically, Copper's strong rally this week and break of 4.2831 resistance suggests that fall from 4.6904 has completed at 3.9667. Rise from there is now seen as the third leg of the corrective pattern from 3.9127 low, and could extend further towards 4.6904.

However, the fundamental backdrop for Copper raises questions about sustainability. China’s economic sluggishness, coupled with the looming threat of new US tariffs under the incoming administration, could temper the optimism in commodity markets. Yet, extended rally in Copper could help AUD/USD bounces off 0.6169 key support level.+

Eurozone retail sales marginally rise 0.1% mom in Nov, lag expectations

Eurozone retail sales edged up by 0.1% mom in November, falling short of expectations for 0.3% mom increase. Within the retail sectors, volume of sales rose slightly for food, drinks, and tobacco by 0.1%, while non-food product sales, excluding automotive fuel, contracted by -0.6%. Meanwhile, sales of automotive fuel increased by 0.8%, providing a modest lift to the overall figure.

At the EU level, retail sales grew by 0.2% mom. Among member states, Cyprus posted the strongest retail performance with a 2.3% increase, followed by Bulgaria at 1.3%, and Denmark and Latvia, both recording a 1.1% rise. Conversely, Belgium faced the sharpest contraction at -2.4%, with Germany and Spain both reporting a -0.6% decline. Poland and Finland also recorded slight decreases of -0.2%.

BoJ regional report highlights broadening price hikes

BoJ, in its latest Regional Economic Report, upgraded its economic outlook for two of Japan’s nine regions—Tohoku and Hokuriku—citing signs of moderate recovery.

The assessment for the remaining seven regions was left unchanged, with all areas described as either “picking up” or “recovering moderately.”

The report highlighted an increasingly widespread trend of price hikes by firms aiming to accommodate rising wages. While some companies, particularly larger ones, are already deliberating the scale of wage increases, smaller firms remain cautious. Concerns about the impact of higher costs on profit margins have slowed their willingness to commit to pay raises.

Japan's nominal wage gains hit 3% in Nov, but inflation erodes real earnings

Japan’s real wages fell by -0.3% yoy in November, marking the fourth consecutive monthly decline as wage growth failed to outpace inflation again.

While nominal wages rose by a robust 3.0% yoy—beating expectations of 2.7% yoy and extending a 35-month streak of growth—consumer prices grew at an even faster pace of 3.4% yoy during the same period, up from 2.6% yoy in October.

A notable highlight in the data was the sharp rise in special cash earnings, including bonuses, which surged by 7.9% yoy. Excluding bonuses and nonscheduled payments, average wages increased by 2.7% yoy, the fastest rate in 32 years, suggesting some underlying improvement in base wages.

Australia's retail sales growth misses expectations at 0.8% mom in Nov

Australia's retail sales increased by 0.8% mom in November, falling short of market expectations for 1.1% mom rise. Despite the miss, all retail industries recorded growth during the month, reflecting the ongoing impact of Black Friday.

This marks the third consecutive month of retail sales growth, following gains of 0.5% mom October and 0.4% mom in September. The steady trend highlights a degree of resilience in consumer spending, though the pace remains moderate.

Robert Ewing, head of business statistics at the Australian Bureau of Statistics, noted “Black Friday sales events proved once again to be a big hit”. He also pointed out that the sales promotions now extend beyond the traditional weekend, influencing spending patterns across the entire month of November.

China's inflation stalls at 0.1% in Dec, factory prices remain deflationary

China’s inflation decelerated again in December, with the CPI rising only 0.1% yoy, matching expectations and marking the slowest pace since April.

This brings full-year inflation for 2024 to 0.2%, far below the official target of around 3%, extending a 13-year streak of missing the annual inflation goal.

Core inflation, which strips out volatile food and energy prices, offered a slight reprieve, ticking up from 0.3% yoy to 0.4% yoy, the highest in five months.

PPI data showed a marginal improvement, with factory-gate prices contracting by -2.3% yoy compared to -2.5% yoy in November, slightly better than market expectations of -2.4% yoy. However, PPI has now stayed in deflationary territory for an extended 27 months.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 157.99; (P) 158.27; (R1) 158.64; More...

Intraday bias in USD/JPY is turned neutral first with current retreat. But further rally will remain in favor as long as 156.01 support holds. Break of 61.8% projection of 139.57 to 156.74 from 148.64 at 159.25 will extend the rally from 139.57 to retest 161.94 high. However, considering bearish divergence condition in 4H MACD, firm break of 156.01 support will indicate short term topping. Intraday bias will then be back on the downside for 55 D EMA (now at 153.98) instead.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

• Oil prices have started 2025 strong, defying expectations of a downturn fueled by worries about slowing demand.
• Cold weather, coupled with US policy decisions on offshore drilling, have contributed to the upward price movement.
• Brent Crude has broken through key resistance levels, is $80 a barrel a matter of time?

Oil prices have had a surprisingly positive start to 2025. The reason I say this is because the narrative heading into 2025 was one of concerns largely centered on dwindling demand, particularly from China.

There has been an uptick in demand however, as winter grips Europe and America leading to heightened fuel demand. This coupled with repositioning as the New Year began could in part explain the recent rally.

US Offshore Drilling in 2025 – Trump vs Biden

Since the US election in November, markets have been eyeing reduced regulations around US offshore oil drilling which could lead to increased supply and weigh on prices. However, this week President Biden used his executive powers to stop offshore drilling in over 625 million acres of U.S. ocean, the White House said Monday.

This could have contributed to the rise in Oil prices at the start of the week. Incoming President Donald Trump said he will immediately reverse such a move when he takes office, however this does not appear to have dampened the move.

The incoming President made similar promises in 2016, but opposition from states like Florida led him in 2020 to sign a memo telling the Interior secretary to block drilling off the coasts of Florida, Georgia, and South Carolina until 2032. It will be intriguing to see how this plays out as President elect Trump gave in during his previous administration. Will we see a similar story this time around?

China Demand and US Dollar Dynamic

Saudi Arabia will export less crude oil to China in February compared to January. This comes after the country raised prices and OPEC+ continued cutting production in the first quarter.

Saudi Aramco plans to ship about 43.5 million barrels to China in February, down from 46 million barrels in January, which was the highest in three months.

This week’s inventory data from the API on January 7, showed U.S. crude oil supplies dropped by 4 million barrels, and stocks at Cushing, Oklahoma, fell by 3.1 million barrels. At the same time, gasoline and distillate (like diesel) supplies went up.

The EIA report yesterday revealed that U.S. crude stocks fell by almost 1 million barrels, with Cushing’s storage hitting its lowest level in 10 years. Gasoline and distillate supplies also increased.

The recent bullish move for Oil prices may face headwinds from a strong US Dollar. Moving forward it will be key to see if US President Elect Trump reels back President Biden’s offshore drilling ban while US policy toward Iran and Russia may also affect oil prices moving forward.

Technical Analysis

As discussed last week, Oil prices have managed to break above the key confluence level at 76.35 which has acted as support since.

Yesterday saw a pullback in Oil prices following a somewhat bearish EIA report on inventories while the continued advance of the US dollar ripples across markets.

There are few possible scenarios for oil prices. let us look at how each of them may play out.

Bulls remain in control for now but a deeper retracement in price toward the 75.00 psychological level or the 100-day MA at 74.55 cannot be ruled before fresh highs are printed above the 78.157 handle. This would be scenario 1.

Looking at the technicals and a rally from here toward recent highs at 78.157. A break of this opening up a retest of the psychological 80.00 mark.

These are the two most likely scenarios toward the end of the week barring any significant surprises. Even then i expect one of these potential scenarios to play out with a any unforeseen changes likely to just serves as a catalyst and speed up the move.

Brent Crude Oil Daily Chart, January 9, 2025

Source: TradingView (click to enlarge)

Support

• 76.35
• 75.00 (psychological level)
• 74.55 (100-day MA)

Resistance

• 77.50
• 78.15
• 80.00

The British pound is on a nasty slide and has lost 1.8% since Monday. In the European session, GBP/USD is currently trading at 1.2294, down 0.53%. Earlier, the pound fell as low as 1.2237 (1%), it lowest level since Nov. 2023.

BRC shop inflation hits 3.5 year low

The latest setback for the pound was Thursday’s British Retail Consortium (BRC) Shop Price index, which came in at -1% in December, lower than the November reading of -0.4% and the market estimate of -0.6%. This was the lowest level since July 2021. This points to weaker consumer spending, a key engine of the economy.

The BRC has projected that food inflation will continue to accelerate, which will add to the squeeze that weary consumers are feeling from inflation and high interest rates. The UK government introduced a “tax and spend” budget last October but retailers have argued that this recipe will lead to retail job cuts and higher prices.

Fed minutes point to Trump worries

The Federal Reserve minutes of the December meeting, released on Wednesday, indicated that policy makers were concerned about the upside risk to inflation, particularly due to incoming President-elect Trump’s potential trade and immigration policies. Trump has promised to slap punishing tariffs on US trade partners, including China. Trump has also called for mass deportations of illegal immigrants.

The minutes did not mention Trump by name but there was no doubt that Fed members had Trump in mind. Members noted their concern that inflation could rise due to “the likely effects of potential changes in trade and immigration policy”.

Members also indicated that the Fed was “at or near the point” of slowing the pace of easing. After starting the easing cycle with a jumbo rate cut of 50 basis points, the Fed has delivered back-to-back cuts of 25 basis points. At the December meeting, the Fed lowered its rate forecast for 2025 to two cuts, down from four in the September forecast.

After the December meeting, the currency markets reacted sharply to the revised forecast and the US dollar shot up against the majors. The Fed again sounded hawkish in the minutes but this time the US dollar showed little movement against the majors, with the exception of GBP/USD.

GBP/USD Technical

• GBP/USD is testing support at 1.2292. Below, there is support at 1.2220
• 1.2393 and 1.2465 are the next resistance lines

Eurozone retail sales edged up by 0.1% mom in November, falling short of expectations for 0.3% mom increase. Within the retail sectors, volume of sales rose slightly for food, drinks, and tobacco by 0.1%, while non-food product sales, excluding automotive fuel, contracted by -0.6%. Meanwhile, sales of automotive fuel increased by 0.8%, providing a modest lift to the overall figure.

At the EU level, retail sales grew by 0.2% mom. Among member states, Cyprus posted the strongest retail performance with a 2.3% increase, followed by Bulgaria at 1.3%, and Denmark and Latvia, both recording a 1.1% rise. Conversely, Belgium faced the sharpest contraction at -2.4%, with Germany and Spain both reporting a -0.6% decline. Poland and Finland also recorded slight decreases of -0.2%.

Full Eurozone retail sales release here.

The USD/JPY pair remained near the 158.00 mark on Thursday, consolidating at levels last seen in mid-2024. Although the pair is no longer surging as it did earlier in the year, the fundamental preconditions for further growth persist.

The yen continues to face significant downward pressure due to the strength of the US dollar. The greenback is buoyed by hawkish signals from the US Federal Reserve, reinforcing expectations of a measured pace of rate cuts in 2025. The US dollar’s rally is further bolstered by renewed market concerns over tariff threats from US President-elect Donald Trump, adding to its safe-haven appeal.

Domestic data weighs on the yen

Japan’s domestic economic landscape is also contributing to the yen’s weakness. Fresh data showed that real wages in Japan fell by 0.3% year-on-year in November, marking the fourth consecutive month of declines. This wage downturn reflects ongoing challenges in the labour market and erodes consumer spending power, which is critical for economic recovery.

Adding to these woes, consumer sentiment in Japan deteriorated further in December, highlighting public concerns about economic stability. These signals make the likelihood of an interest rate hike by the Bank of Japan (BoJ) increasingly remote. The BoJ has maintained an accommodative monetary policy stance for years, and this latest data reinforces its reticence to tighten monetary conditions.

Japan’s Finance Minister, Katsunobu Kato, reiterated this week the government’s readiness to intervene in currency markets should speculative, one-way moves in the yen persist. While such statements underline the government’s concerns about volatility, they have become a familiar refrain, offering little immediate support for the currency.

Since 4 December 2024, the yen has been in an active weakening phase, and there is little indication that this trend is nearing completion.

Technical analysis of USD/JPY

On the H4 chart, the USD/JPY pair has formed a broad consolidation range around the 157.33 level. This range is expanding upwards, with the market targeting the 158.63 level as its primary objective. After reaching this target, a corrective wave to the 156.00 level could materialise. The MACD indicator supports this outlook, with its signal line positioned above the zero mark and pointing sharply upwards, indicating sustained bullish momentum.

The H1 chart shows the USD/JPY market amid a growth wave targeting 158.63. A consolidation range is forming around the 157.33 level, with an intermediate target at 158.40 already being worked out through an upward breakout. A minor correction back to 157.33 (testing the level from above) is possible. Upon completing this correction, the pair is expected to resume its upward movement towards the 158.63 level, the primary target for the current wave.

The Stochastic oscillator confirms this scenario, with its signal line positioned above the 50 mark and pointing decisively upwards, indicating bullish momentum remains intact.