The financial markets are generally steady ahead of holiday weekend. Dollar index is back below 103 handle but is staying in tight range between 102.50/103.50. Gold follows and stays in range between 1125/1140 for the moment. Meanwhile, crude oil is engaging in consolidative in a relatively wider range between 50/54. Trading in stock markets are also subdued with FTSE and DAX trading nearly flat in European morning. In the currency markets, bigger movement is found in Sterling today which trading broadly lower except versus Aussie and Lonnie. In particular, GBP/USD's break of 1.2301 support should confirm completion of recent corrective rise from 1.1946. And deeper fall would likely be seen back to 1.1946 in near term.

On the data front, UK Q3 GDP growth was finalized at 0.6% qoq, revised up from prior estimate of 0.5% qoq. Current account deficit widened to GBP -25.5b in Q3. Index of services rose 1.0% 3mo3m in October. Swiss KOF leading indicator was unchanged at 102.2 in December, below expectation of 103.1. German Gfk consumer sentiment rose 0.1 pts to 9.9% in January.

Canada GDP, US new home sales and U of Michigan sentiment final will be released later today.

Happy holidays to our readers, we'll be back on December 27.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.2249; (P) 1.2313; (R1) 1.2350; More...

GBP/USD's fall from 1.2774 continues day. Break of 1.2301 support confirms that corrective rise from 1.1946 has completed at 1.2774 already. Intraday bias stays on the downside for retesting 1.1946 first. Decisive break there will confirm larger down trend resumption. On the upside, above 1.2390 minor resistance will turn bias neutral and bring consolidations first, before staging another decline.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

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Dollar stays in tight consolidation against European majors but strengthens against commodity currencies in holiday trading. In particular, Canadian dollar is weighed down by the dip in oil price. Released in US, initial jobless claims rose to 274k in the week ended December 17, above expectation of 255k. Durable goods orders dropped -4.6% mom in November, slightly better than expectation of -4.9%. Ex-transport orders rose 0.5% mom, above expectation of 0.2% mom. Q3 GDP was finalized at 3.5% annualized, GDP price index at 1.4%. From Canada, retail sales rose 1.1% mom in October while ex-auto sales rose 1.4% mom. Both were above expectation. But headline CPI slowed to 1.2% yoy and BoC core CPI slowed to 1.5% yoy, missing expectations.

ECB said in its monthly bulletin that "the medium-term outlook for global activity remains one of strengthening growth, albeit below its pre-crisis pace." And, "overall, growth appears to be holding up in advanced economies and seems to have bottomed out in emerging market economies." ECB expected inflation to exceed 1% at the turn of the year. However, the central cautioned some risks to outlook including policy uncertainty in US, rebalance in Chinese economy and low raw material prices.

In UK, Gfk consumer confidence rose to -7 in December, above expectation of -8. Gfk noted that consumers "remain relatively confident about their personal financial situation." However, "confidence in the general economic situation...has collapsed in the face of uncertainty about the future both at home and abroad." And, "looking ahead to 2017, against a backdrop of Brexit negotiations, the decline in the value of sterling, and the prospect of higher inflation impacting purchasing power, we forecast that confidence will be tested by the storm and stress...of the year to come."

New Zealand GDP grew 1.1% qoq in Q3, up from prior quarter's 0.7% qoq, and beat expectation of 0.8% qoq. Statistics New Zealand noted that the data points to "broad-based growth" with 13 of 16 industries up. Main weakness came from agriculture. Household spending "continued its strong growth" and jumped 1.6%. Exports volumes "remain high" even though growth fell over the quarter. Manufacturing activity also rose "on the back of food beverage, and tobacco manufacturing; and transport equipment, machinery and equipment manufacturing." Also from New Zealand, current account deficit widened to NZD -4.89b in Q3.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.0386; (P) 1.0419 (R1) 1.0455; More.....

Intraday bias in EUR/USD remains neutral for consolidation above 1.0351 temporary low. Upside of recovery should be limited below 1.0669 resistance and bring another fall. Below 1.0351 will extend the larger down trend to 100% projection of 1.1298 to 1.0518 from 1.0872 at 1.0092, which is close to parity.

In the bigger picture, break of 1.0461 key support indicates that consolidation from there has completed as a triangle at 1.1298. And, the down trend from 1.6039 (2008 high) is resuming. Current downtrend is now expected to target 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

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New Zealand dollar stays soft today in spite of better than expected data. GDP grew 1.1% qoq in Q3, up from prior quarter's 0.7% qoq, and beat expectation of 0.8% qoq. Statistics New Zealand noted that the data points to "broad-based growth" with 13 of 16 industries up. Main weakness came from agriculture. Household spending "continued its strong growth" and jumped 1.6%. Exports volumes "remain high" even though growth fell over the quarter. Manufacturing activity also rose "on the back of food beverage, and tobacco manufacturing; and transport equipment, machinery and equipment manufacturing." Also from New Zealand, current account deficit widened to NZD -4.89b in Q3.

NZD/USD is staying in tight range of 0.69 at the time of writing. The medium term outlook ins the pair is cautiously bearish. The break of the channel support from 0.6102 argues that corrective rise from there is completed at 0.7484. This is supported by the rejection from 50% retracement of 0.8835 to 0.6102 at 0.7484, and break of 55 weeks EMA. Deeper decline is expected as long as 0.7237 resistance holds. Firm break of 0.6674 support will likely resume the larger down trend through 0.6102 low.

In UK, Gfk consumer confidence rose to -7 in December, above expectation of -8. Gfk noted that consumers "remain relatively confident about their personal financial situation." However, "confidence in the general economic situation...has collapsed in the face of uncertainty about the future both at home and abroad." And, "looking ahead to 2017, against a backdrop of Brexit negotiations, the decline in the value of sterling, and the prospect of higher inflation impacting purchasing power, we forecast that confidence will be tested by the storm and stress...of the year to come."

Elsewhere, the economic calendar in US is rather busy today ahead of holidays. US Q4 GDP, house price index, leading indicators and personal income will be featured. Canada will also release retail sales and CPI.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.7221; (P) 0.7250; (R1) 0.7266; More...

Intraday bias in AUD/USD remains neutral for consolidation above 0.7221 temporary low. Some consolidations could be seen but upside of recovery should be limited by 4 hours 55 EMA (now at 0.7334) and bring fall resumption. Break of 0.7221 will target key near term support at 0.7144. As noted before, the whole corrective pattern from 0.6826 bottom should have finished. Break of 0.7144 support will likely extend the larger down trend through 0.6826.

In the bigger picture, AUD/USD is staying inside long term falling channel and it's likely that the down trend from 1.1079 is still in progress. Break of 0.6826 low will confirm this bearish case and target 61.8% projection of 0.9504 to 0.6826 from 0.7777 at 0.6122 next. We'll be looking for bottoming sign again as it approaches 0.6008 key support level. Meanwhile, sustained break of 0.7833 resistance will be a strong sign of medium term reversal.

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Yen trades mildly higher in otherwise quiet markets today. The Japanese Cabinet Office upgraded assessment of the economy for the first time in 21 months. The office said in its December report that "the Japanese economy is on a moderate recovery, while delayed improvement in part can be seen." That compared to prior description that the economy was in a moderate recovery "while weakness can be seen recently." In particular, exports and private consumptions outlook are more upbeat, showing "movements of picking up". Nonetheless, improvement in business investment "appears to be pausing", same as prior assessment. Also, the government cautioned that "attention should be given to the uncertainty in overseas economies and the effects of fluctuations in the financial and capital markets."

The Japanese Yen remains the weakest major currency for the month. But downside momentum is diminishing. Yen crosses turned into sideway trading as USD/JPY, EUR/JPY and GBP/JPY made temporary tops at 118.65, 124.08 and 148.42 respectively. But near term outlook remains bullish as long as 114.76, 120.90, 142.98 support levels hold. CAD/JPY, which is the strongest pair this month, also made a temporary top at 88.90. Some consolidations would be seen in near term. But outlook will stay bullish as long as 85.59 minor support holds. Current rally from 75.80 is expect to head to 61.8% retracement of 106.48 to 74.80 at 94.37 next.

On the data front, UK public sector net borrowing rose to GBP 12.2b in November. Japan all industry index rose 0.2% mom in October. Australia Westpac leading index rose 0.0% mom in November. New Zealand trade deficit narrowed to NZD -705m in November.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 121.83; (P) 122.30; (R1) 122.90; More...

Intraday bias in EUR/JPY stays neutral for consolidation below 124.08 temporary top. As long as 120.90 support holds, further rally is expected in near term. Above 124.08 will target 126.09 key resistance next. Considering bearish divergence condition in 4 hours MACD, we'd be cautious on topping around 126.09. Meanwhile, break of 120.90 will indicate short term topping and turn bias to the downside for 55 days EMA (now at 118.56).

In the bigger picture, price actions from 109.20 medium term bottom are seen as correcting whole down trend from 149.76 to 109.20. There is prospect of another rise towards 126.09 key resistance level before completion. But even in that case, we'd expect strong resistance between 126.09 and 141.04 to limit upside, at least on first attempt.

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US equities surged yesterday on Santa rally, yet DJIA failed to take out 20k handle and closed at 19974.62, up 91.56 pts, or 0.46%. It was, nonetheless, a record high. Meanwhile, S&P 500 also gained 8.23pts, or 0.36%, to close at 2270.76. Treasury yields also closed higher with 10 year yield gained 0.026 to 2.568 but stayed in recently established range. Dollar stays firm and is trading higher against most major currencies for the week, except versus Yen as USD/JPY is stuck in consolidation. In other markets, Gold trading sin tight range between 1125/1145 as sideway consolidation extends. WTI crude oil is trading higher at 53.6 but is held below recent resistance at 54.51.

US president-elect Donald Trump announced on Tuesday the plan to create an infrastructure "task force" for implementing a top level spending program. Meanwhile, the proposed "border adjustment tax" is expected to boost inflation. A key concern is, however, that the loose fiscal policy would likely result in higher budget deficit. US equities are staying in near term bullish trend and will pay close attention on the more details of Trump's plan to be unveiled in January. For moment, DJIA is on course for 61.8% projection of 10404.49 to 18351.36 from 15450.56 at 20361.72.

On the data front, Japan all industry index rose 0.2% mom in October. Australia Westpac leading index rose 0.0% mom in November. New Zealand trade deficit narrowed to NZD -705m in November. UK will release public sector net borrowing in European session. Eurozone will release consumer confidence while US will release existing home sales later in the day.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.7233; (P) 0.7247; (R1) 0.7273; More...

AUD/USD formed a temporary low at 0.7221 after breaching 61.8% projection of 0.7777 to 0.7310 from 0.7523 at 0.7234. Intraday bias is turned neutral for consolidations. Recovery should be limited by 4 hours 55 EMA (now at 0.7356) and bring fall resumption. Break of 0.7221 will target key near term support at 0.7144. As noted before, the whole corrective pattern from 0.6826 bottom should have finished. Break of 0.7144 support will likely extend the larger down trend through 0.6826.

In the bigger picture, AUD/USD is staying inside long term falling channel and it's likely that the down trend from 1.1079 is still in progress. Break of 0.6826 low will confirm this bearish case and target 61.8% projection of 0.9504 to 0.6826 from 0.7777 at 0.6122 next. We'll be looking for bottoming sign again as it approaches 0.6008 key support level. Meanwhile, sustained break of 0.7833 resistance will be a strong sign of medium term reversal.

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The recent selloff in Japanese yen and widening in US-Japan yield differentials have been driven by the FOMC rate hike and expectations of further tightening in US monetary policy. Indeed, BOJ’s action has minimal impact on the phenomena of late. BOJ on Tuesday left its interest rate targets unchanged with the short-term and -10 bps and the 10-year JGB yield at around 0%. The asset purchase program also stays at approximately 80 trillion yen of JGBs annually. The central bank also upgraded its current economic assessment and outlook.

The recent rally in US Treasury yields has sent the JGB yields higher. Meanwhile, depreciation of Japanese yen has accelerated with USDJPY rising to 10-month highs. Yet, the BOJ retained the measure to control the 10-year JGB yield at around 0%. At the press conference, Governor Kuroda, affirmed that the current monetary policy framework was key to sustaining momentum toward achieving the 2% inflation target. It would be premature to consider raising the 10-year yield target for now. He added that the yield target has been set at 'around' 0%. As such, a certain degree of deviation from 0% is acceptable. He added that BOJ is ready to increase regular or fixed-rate JGB purchases if necessary. Kuroda was not concerned about recent depreciation in Japanese yen, noting it has only returned to the level seen in February.

As mentioned in the accompanying statement, Japan’s economy has 'continued its moderate recovery trend' with both exports and production 'picked up 'from 'more or less flat'. The reference that'although exports and production have been sluggish due mainly to the effects of the slowdown in emerging economies' was removed. Meanwhile, BOJ also removed the reference that 'relatively weak developments [in private consumption] have been seen in some indicators'. On the economic outlook, BOJ noted that 'Japan’s economy is likely to turn to a moderate expansion' and removed the previous concern that 'although sluggishness is expected to remain in exports and production for some time'. On inflation, policymakers retained the judgment that 'it is expected to increase toward +2%' but removed the timeline, 'in the second half of the projection period'.

On the monetary policy outlook, BOJ reaffirmed that it would 'make policy adjustments as appropriate, taking account of developments in economic activity and prices as well as financial conditions, with a view to maintaining the momentum toward achieving the price stability target'.

Dollar jumps today on safe haven flows on report of "probable terrorist attack" in Germany. In addition, markets were also nervous on the Russia/Turkey issue after Russian ambassador to Turkey was fatally shot. Meanwhile, the greenback is supported by Fed chair Janet Yellen's upbeat comments on the employment conditions. The dollar index surges to as high as 103.65 so far, breaking near term resistance at 103.56 to resume recent up trend. The index is on course to medium term projection target at 105.19. In the currency markets, Sterling is so far the weakest one for the week, followed closely by commodity currencies and Euro. Yen, despite today's weakness, is supported mildly by risk aversion with the Swiss Franc.

On the data front, Canada wholesale sales rose 1.1% mom in October. UK CPI realized sales rose to 35 in December. Eurozone current account surplus widened to EUR 28.4b in October. German PPI rose 0.3% mom, 0.1% yoy in November. Swiss trade surplus widened to CHF 2.6b in November.

Yesterday, Fed Chair Janet Yellen's keynote speech at the University of Baltimore did lift yields a bit. While not offering hints for the monetary policy outlook, Yellen was upbeat over the employment conditions. As she suggested that the US is at "the strongest job market in a decade" and that "there are also indications that wage growth is picking up". However, she also added that that productivity growth was disappointing.

BoJ offered a brighter view on the economy after keeping monetary policies unchanged. Interest rate was held at -0.1% and the asset purchase program was also kept unchanged under the yield curve control framework. The vote on YCC was by 7-2 vote with policymakers Sato and Kiuchi opposing. The central bank noted in the statement that "Japan's economy continues to recover moderately as a trend", with consumption "moving on a firm note".Though, CPI is expected to be "slightly negative or about 0 percent for the time being. BoJ also noted that risks to the outlook including development in "emerging and commodity exporting economies", particularly China; developments in US; and Brexit. Separately, the Japanese government projected the real GDP to grow 1.5% in the year starting next April, revised up from prior projection of 1.2%. Nominal GDP growth is projected to be 2.5%, up from prior projection of 2.2%. CPI is forecast to be at 1.1%, down from prior estimate of 1.4%. Meanwhile, the initial budget for next fiscal year is JPY 97.5T, a mild 0.8% from the current year.

RBA minutes for the December meeting warned of the high levels of household debt due to low interest rates. The central bank left its cash rate unchanged at 1.5% this month. As suggested in the minutes, "over recent years, the board had sought to balance the benefits of lower interest rates in supporting growth and achieving the inflation target with the potential risks to household balance sheets…Members recognized that this balance would need to be kept under review". The central bank remained cautious over the job market, reiterating that there was "considerable uncertainty" about the employment situation and "there was expected to be excess capacity in the labour market for some time, which was consistent with further indications of subdued labour cost pressures". More in RBA Minutes Unveils Concerns Over Elevated Household Debts.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0370; (P) 1.0425 (R1) 1.0457; More.....

EUR/USD's fall resumes after brief consolidation and intraday bias is turned back to the downside. Current decline is part of the larger down trend and should target 100% projection of 1.1298 to 1.0518 from 1.0872 at 1.0092, which is close to parity. On the upside, above 1.0479 minor resistance will turn bias neutral again for consolidations.

In the bigger picture, break of 1.0461 key support indicates that consolidation from there has completed as a triangle at 1.1298. And, the down trend from 1.6039 (2008 high) is resuming. Current downtrend is now expected to target 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

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RBA in its minutes for the December meeting cautioned the high levels of household debt due to low interest rates. It also warned of the 'considerable uncertainty' in the labor market. The central bank maintained a neutral bias at the meeting while leaving its cash rate unchanged at historic low of 1.5%. Note the meeting was held a day before the release of 3Q15 GDP growth which shrank -0.5%.

The minutes unveiled that policymakers were concerned about the 'high levels' of household debts. As suggested in the minutes, the 'members discussed the effect of lower interest rates on asset prices and the decisions by households to borrow, particularly given the already high levels of household debt'. It added that 'the Board had sought to balance the benefits of lower interest rates in supporting growth and achieving the inflation target with the potential risks to household balance sheets. Members recognized that this balance would need to be kept under review'.

Another area of concerns was on the employment market. Despite the recent decline in the unemployment rate, the members acknowledged that 'all of the growth in employment over 2016 had been in part-time employment'. They also noted that 'wage growth had remained low and continued to be lower than implied by the historical relationship with the unemployment rate'. There was still considerable uncertainty about the momentum in the labour market.

Australia's GDP contracted -0.5% q/q in 3Q16. It was the 4th time of economic contraction in the country in 25 years. The December RBA meeting was held a day before the release of the report. We look forward to the February meeting which would be the first meeting that the RBA would react to the contraction.

On global economic developments, RBA discussed the problem of capital outflow in China and the FOMC rate hike. While FOMC rate hikes might worsen the capital outflow issue in China and other emerging economies, it might help alleviate RBA's concerns over strong Australian dollar.

Yen weakens mildly today even though BoJ offered a brighter view on the economy after keeping monetary policies unchanged. Interest rate was held at -0.1% and the asset purchase program was also kept unchanged under the yield curve control framework. The vote on YCC was by 7-2 vote with policymakers Sato and Kiuchi opposing. The central bank noted in the statement that "Japan's economy continues to recover moderately as a trend", with consumption "moving on a firm note".Though, CPI is expected to be "slightly negative or about 0 percent for the time being. BoJ also noted that risks to the outlook including development in "emerging and commodity exporting economies", particularly China; developments in US; and Brexit. Separately, the Japanese government projected the real GDP to grow 1.5% in the year starting next April, revised up from prior projection of 1.2%. Nominal GDP growth is projected to be 2.5%, up from prior projection of 2.2%. CPI is forecast to be at 1.1%, down from prior estimate of 1.4%. Meanwhile, the initial budget for next fiscal year is JPY 97.5T, a mild 0.8% from the current year.

Released earlier in the day, the RBA minutes for the December meeting warned of the high levels of household debt due to low interest rates. The central bank left its cash rate unchanged at 1.5% this month. As suggested in the minutes, "over recent years, the board had sought to balance the benefits of lower interest rates in supporting growth and achieving the inflation target with the potential risks to household balance sheets…Members recognized that this balance would need to be kept under review". The central bank remained cautious over the job market, reiterating that there was "considerable uncertainty" about the employment situation and "there was expected to be excess capacity in the labour market for some time, which was consistent with further indications of subdued labour cost pressures".

In US, Fed Chair Janet Yellen's keynote speech at the University of Baltimore did lift yields a bit. While not offering hints for the monetary policy outlook, Yellen was upbeat over the employment conditions. As she suggested that the US is at "the strongest job market in a decade" and that "there are also indications that wage growth is picking up". However, she also added that that productivity growth was disappointing.

On the data front, Swiss will release trade balance today. German PPI, Eurozone current account and UK CBI realized sales will also be featured. Canada wholesale sales will be released in US session.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 143.98; (P) 145.64; (R1) 146.75; More...

GBP/JPY formed a temporary top at 148.42 and turn into consolidation. The pair recovered mildly after breaching 4 hours 55 EMA but stays in range. Intraday bias remains neutral for sideway trading. Further rally is expected as long as 142.98 support holds and above 148.42 will target long term fibonacci level at 150.43. As rebound from 122.36 is seen as part of a correction pattern, we'd be cautious on topping at 150.43 on first attempt. Meanwhile, considering bearish divergence condition in 4 hours MACD, break of 142.98 should confirm short term topping and turn bias to the downside for 55 days EMA (now at 138.53).

In the bigger picture, the down trend from 195.86 top (2015 high) should have made a medium term bottom at 122.36 after hitting 100% projection of 195.86 to 154.70 from 163.87 at 122.71. Rise from there is now expected to develop into a medium term corrective pattern. Further rise should be seen to 38.2% retracement of 195.86 to 122.36 at 150.4. We'd expect strong resistance from there to limit upside. But sustained break there will extend the rise to 61.8% retracement at 167.78.

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Euro stays soft against Dollar in spite of better than expected confidence data. German IFO business climate rose to 111.0 in December, up from 110.4, above expectation of 110.7. Current assessment gauge rose to 116.6, up from 115.6, above expectation of 115.9. Expectations gauge rose to 105.6, up from 105.5, above expectation of 105.5. Ifo president Clemens Fuest noted that "the German economy is in a festive mood."And, "assessments of the current business situation improved, reaching their highest level since February 2012. The business outlook for the first half of 2017 is also slightly more optimistic. The German economy is making a strong finish to the year."

S&P maintained Australia's AAA credit rating with negative outlook. The rating agency warned that "the government's worsening forecast fiscal position, as outlined in its latest budget projections earlier today, further pressures the rating". And, it remains "pessimistic about the government's ability to close existing budget deficits and return a balanced budget by the year ending June 30, 2021". Fitch and Moody's maintained Australia's rating at AAA with a stable outlook. Also from down under, New Zealand NBNZ business confidence rose to 21.7 in December, building permits rose 2.6% mom in October.

BoJ announcement will be the focus in the coming Asian session. The central bank is widely expected to keep policies unchanged, with interest rate at -0.1% and uses the Yield Curve Control framework to cap long term interest rates. Recent sharp depreciation on the Japanese yen eased much pressure on BoJ to add stimulus. Australia will also release RBA minutes.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.0405; (P) 1.0440 (R1) 1.0479; More.....

A temporary low is in place at 1.0365 and intraday bias is turned neutral for consolidation. Upside of recovery should be limited below 1.0669 minor resistance and bring fall resumption. Below 1.0365 will extend that larger down trend to next near term target at 100% projection of 1.1298 to 1.0518 from 1.0872 at 1.0092, which is close to parity.

In the bigger picture, break of 1.0461 key support indicates that consolidation from there has completed as a triangle at 1.1298. And, the down trend from 1.6039 (2008 high) is resuming. Current downtrend is now expected to target 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

Economic Indicators Update

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