'The dollar will shift into 105-110 yen range, and around the turn of the year, it's possible it will break 100 yen.' – Eisuke Sakakibara, a former top currency official at Japan's Finance Ministry (based on Bloomberg)

Pair's Outlook

A strong rally on Thursday caused the USD/JPY pair to breach the four-week down-trend, with even the second resistance area failing to limit the gains. The Buck is poised for another bullish development today, with the main target being the 116.00 mark, where the weekly R1 and the monthly PP are located at. The Greenback, however, is likely to struggle at reaching this level, as it has another supply area on its path circa 114.90, formed by the 20 and the 55-day SMAs. Moreover, technical indicators are unable to confirm this outlook, as they are giving mixed signals today.

Traders' Sentiment

Market sentiment is now equally divided between the bulls and the bears. At the same time, the share of purchase orders added nine percentage points, having risen to a total of 69%.

'Most of Asia is already off for the holidays, which is a good time for many to short the metal ... You can see the bids are very weak, which shows the demand right now.' – Ronald Leung, Lee Cheong Gold Dealers (based on Reuters)

Pair's Outlook

The yellow metal continues its way lower, as it entered its fourth consecutive session of decline on Friday. However, the bullion has stopped in the middle of a strong support cluster, which is made up of the weekly S2 at 1,185.14, monthly R1 at 1,184.64 and the 23.60% Fibonacci retracement level, which is located at 1,182.37. As already during the morning hours the metal managed to reach out below the cluster, it can be assumed that it is not strong enough to keep gold from continuing to decline in the near future. In such case, it is most likely set to fall as low as 1,176.66 level, where the 55-day SMA is located at.

Traders' Sentiment

SWFX traders are neutral regarding the yellow metal. In the meantime, 58% of trader set up orders are to buy the metal.

'The worrisome scenario is that the run-up in mortgage rates over the past few months has taken a chunk out of demand'. - Stephen Stanley, Amherst Pierpont Securities

Sales of new homes in the Unites States dropped to a 10-month low last month, official figures revealed on Thursday. According to the Commerce Department, home sales fell 10.4% to a seasonally adjusted annual pace of 536,000 units in December, whereas the November reading was revised up to 598,000 from the originally reported 592,000 unit-pace. Market analysts anticipated a slight decrease to 585,000 units during the reported period. The December figure marked the first monthly decline in the last three months. On an annual basis, sales were down 0.4% compare to December 2015. For all of 2016, new home sales grew 12.2% to 563,000 units, the highest level since 2007. Nevertheless, a severe lack of houses for sale continue to challenge the market. Earlier this week, the NAR said that the supply of preowned houses on the market fell to a 17-month low last month. Analysts say that the rise in mortgage rate is unlikely to have a major impact on the housing market. However, forecasts suggest further increases if the Federal Reserve keeps its promise to raise interest rates at least three times in 2017.

Separately, the Labor Department reported initial jobless claims rose to 259,000 in the week ending January 20, following the preceding week's 237,000 filings and surpassing analysts' expectations for an increase to 247,000.

'The near-term momentum in GDP likely will not compel the Monetary Policy Committee to abandon its view that the economy will slow this year as a result of the Brexit vote'. - Samuel Tombs, Pantheon Macroeconomics

The British economy ignored the widely expected post-Brexit vote slowdown once again in the three month period to December, maintaining the third quarter's growth pace. According to a preliminary GDP estimate released by the Office for National Statistics on Thursday, the UK economy expanded at a quarterly pace of 0.6% in the Q4, unchanged from the Q3. Meanwhile, market analysts anticipated a 0.5% growth rate. In a report, the ONS said economic growth was mainly boosted by services that offset weaknesses in the construction and industrial sectors. The majority of economists expected the British economy to face a severe slowdown after the June 23 referendum. However, the ONS reported the annual growth rate of GDP fell 2.0% in 2016 from 2.2% in the previous year. Moreover, this decrease was mainly due to weak growth registered in the Q1 of 2016. Nevertheless, the economic outlook for 2017 looks darker, as the post-Brexit impacts are likely to become more significant.

Furthermore, the weak Pound is expected to weigh on wages and consumer spending, which is the dominant source of economic growth in the UK. According to the latest forecasts released by the Bank of England, the economy is set to grow 1.4% in 2017. However, this forecast, like all economic forecasts, is subject to change.

S&P500 broke to a new all-time highs which has been expected to happen this week based on substructures of an Elliott Wave triangle. We have seen a nice push above 2272 wave D) swing high that confirmed end of a pattern, so ideally market is now underway up to 2320 after 2300 target has already been reached, but impulse up from 2251 still not finished.

EUR/USD

Current level - 1.0662

The recent break through 1.0710 confirms the reversal below 1.0780 and my outlook remains negative, for a slide towards 1.0580. Initial intraday resistance lies at 1.0710.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 115.24

My outlook here remains bullish, for a break through 115.65 hurdle, towards 116.70 area. Initial intraday support lies at 114.80, followed by 114.10.

GBP/USD

Current level - 1.2546

Yesterday's slide has confirmed a reversal at 1.2672 and my outlook is negative, for a sell-off towards 1.2415 area. Initial intraday resistance lies at 1.2608.

The pair continues to move lower after rally showed signals of stall but is still holding above key supports at 0.7493/89 (100 / 200 SMA’s).

Near-term studies turned bearish and keep the downside under pressure, as break below initial trigger at 0.7535 (daily Tenkan-sen) generated negative signal.

Daily indicators turned south and support negative scenario.

Firm break below 100/200SMA’s is needed for stronger bearish signal and extension towards next strong support at 0.7467 (top of thickening daily cloud).

The pair is on track for the first bearish weekly close after one month that would add on growing bearish pressure.

Res: 0.7542, 0.7550, 0.7583, 0.7607
Sup: 0.7489, 0.7467, 0.7437, 0.7397

The pair extends bounce from strong supports at 112.50 zone, where near-term base is forming.

Fresh bullish acceleration cracked first upper pivot at 115.13 (daily cloud top) and eyes next trigger at 115.55 (daily Kijun-sen line).

Immediate downside risk has been sidelined and near-term focus is turning higher.

Sustained break above the top of thickening daily cloud and Kijun-sen line (that also marks 50% of 118.59/112.50 pullback) is needed to confirm reversal and higher base at 112.50, for further retracement of 118.59/112.50 correction.

Failure to emerge above the cloud would signal recovery stall, however, risk is expected to remain shifted up while daily Tenkan-sen (114.05) holds.

Res: 115.13, 115.55, 116.30, 116.85
Sup: 113.37, 114.05, 113.60, 113.03

Yesterday's long red candle weighs on market, as fresh weakness after rejections at 1.0770 zone broke below daily Tenkan-sen support at1.0680 (now reverted to resistance).

Thursday's low at 1.0656 (also Fibo 61.8% of 1.0587/1.0773 upleg) is under pressure, as today's consolidation was capped at 1.0700 zone.

Scope is seen for extension towards next strong support at 1.0607 (Fibo 38.2% of 1.0339/1.0773) reinforced by 20SMA, with break here to accelerate towards 1.0560 (daily cloud base / Kijun-sen).

Initial resistances lay at 1.0680/1.0700, with extended upticks expected to stay under 1.0725.

Res: 1.0680, 1.0700, 1.0725, 1.0742
Sup: 1.0656, 1.0607, 1.0586, 1.0560

Sunrise Market Commentary

• Rates: Short covering or US GDP-inflicted losses?
  Today’s main item on the agenda is the US Q4 GDP reading. A stronger reading will sour core bond sentiment further while a disappointment could trigger some short covering going into the weekend following this week’s losses.
• Currencies: Dollar rebound gains traction
  Yesterday, the dollar found a better bid across the board even as the rise of equities and core yields slowed. This morning, the dollar rebound continues. USD/JPY takes the lead as BOJ bond buying suggest that the bank tries to block a tentative rise in bond yields. Sterling traders will keep a close eye on the Trump/May meeting

The Sunrise Headlines

• US equities ended close to unchanged yesterday. The S&P 500 traded temporary above the 2300-mark for the first time ever, but couldn’t close above. Overnight, Asian stock markets trade mixed with China closed.
• Signals from Japan's CPI figures were broadly positive. The pace of decline in the core price gauge slowed in December and was above expectations. Headline inflation eased, but this reflected cooling fresh food prices .
• UK PM May cautioned the U.S. against withdrawing from world affairs saying that the relationship between the US and the UK is one of the “greatest forces for progress this world has ever known.”
• Jens Weidmann, the Bundesbank president, has echoed the remarks his fellow German Sabine Lautenschläger, a member of the ECB’s executive board, made Tuesday and indicated the debate on trimming QE should begin soon.
• The White House floated the idea of imposing a 20% tax on goods from Mexico to pay for a wall at the southern U.S. border, sending the peso tumbling and deepening a crisis between the two neighbours.
• Alphabet, the owner of Google, missed earnings expectations in the fourth quarter, as higher taxes and investments in data centres, buying content for YouTube and hardware weighed on margins, despite a big jump in revenue.
• Turkish President Erdogan said he favoured the use of a single central bank policy rate and wanted to do away with the interest rate corridor which the bank uses to set policy, newspapers reported.
• Today’s eco calendar contains EMU M3 money supply data, US Q4 GDP, durable goods orders and the final reading of Michigan consumer confidence. Chinese markets are closed for Lunar New Year and reopen on Friday, February 3.

Currencies: Dollar Rebound Gains Traction

Dollar shows tentative signs of bottoming out

Yesterday, there was no unequivocal driver for USD trading. The data had no impact. Earlier this week, the dollar’s performance was a bit disappointing given the global reflation trade. Yesterday, the uptrend in equities slowed and so did the rise in core bond yields. Even as the reflation trade slowed, the dollar bottomed out. EUR/USD dropped below 1.07 (currently 1.0685). USD/JPY regained the 114 mark.

This morning, several Asian markets ex-Japan are closed for regional holidays. The yen remains under pressure. The rise in USD/JPY is partially due to the overall USD rebound. At the same time, markets source indicate that the BOJ stepped up bond buying in the 5-to-10 year sector. The operate underscores the Bank’s intention to keep the 10-year benchmark yield below 0.1% and illustrates that it wants to keep monetary conditions ultra-easy. USD/JPY extends this week’s rebound north of 115. The rise of the dollar against the yen remains more modest. EUR/USD hovers in the 1.0665 area.

Today, the market expects US growth of 2.2% in Q4, following a 3.5% growth pace in Q3. The growth contribution of personal consumption is expected solid, but smaller than in Q3. We expect positive contributions from construction, business investment and inventories. Net export will be a main drag on growth. We side with consensus but are aware of some downside risks. December durables should rebound from November’s 4.5% M/M decline, but the more important measure excluding transportation will be quite similar as in November at 0.5% M/M. Michigan consumer sentiment (final) should confirm the preliminary reading of 98.1. So, the US data might be fairly neutral for the dollar. Aside from the data, the looming trade war between the US and Mexico and meeting of Trump and UK PM May might produce plenty of headlines. We look out whether/to what extent the tensions with Mexico will become an issue for global sentiment on risk. If so, it might slow the incumbent rebound of the dollar. That said, yesterday’s and this morning’s USD price action suggests some bottoming out on the recent USD correction. The recent low (USD/JPY 112.5)/ top (EUR/USD 1.0775) have become a more solid bottom for the dollar. A cautious buy USD on dips approach can be reconsidered

Global context: EUR/USD touched a multi-year low (1.0341) early this month. After the Trump rally, plenty of good USD news was discounted while US/EMU rate differentials narrowed (correction), causing a dollar correction. Longerterm, the absolute interest rate support should provide a USD floor, if US data remain good and as long as there are no profound doubts on Trump’s progrowth policy. The day-to-day USD momentum is improving. Still, a return above 1.0874 would question the USD positive outlook. On the downside, EUR/USD 1.0341 is the first key support. USD/JPY is trading well off the post- Trump highs (118.60/66). The rebound off the 112.57/53 reaction low is gathering pace. USD/JPY 111.16 (38% retracement of the 99.02/118.66 rally) is a tough support

EUR/USD: dollar rebounds

EUR/GBP

Focus on the May - Trump talks

Yesterday, UK Q4 GDP growth was higher than expected at 0.6% Q/Q and 2.1% Y/Y (0.5% Q/Q expected). Sterling set an intraday top around the publication of the data. EUR/GBP touched the 0.8470 area, but there were no follow-through gains. EUR/GBP even returned to the 0.85 area. So, the recent sterling rebound looked like losing momentum. The UK Parliament will debate the legislation to trigger Article 50 of the Lisbon treaty on Jan 31/Feb1. In the afternoon, the moves in the USD changed the picture in the sterling cross rates. The decline of EUR/USD pushed EUR/GBP below 0.85. The pair closed the session at 0.8480 (from 0.8507). Cable set an intraday top around 1.2675 at the time of the GDP release. Sterling softness and a better USD momentum later in the session sent the pair south to close the session at 1.2597 (from 1.2624).

Today, the focus of UK trading will be on the meeting between the UK PM May and US president Donald Trump. Trade relations between the two countries will be high on the agenda. Yesterday, there were ‘nervous’ comments from EU officials stressing that EU members can only discuss trade deals as part of the bloc, illustrating the tensions between the UK and the EU on the issue as they prepare for the Brexit-negotiations. The US and UK laying the groundwork for some kind of a trade agreement could put pressure on the EU-Brexit talks. The immediate consequences for sterling are not that easy to see. If markets conclude that the UK might get more leverage in its negotiations with the EU, it might be slightly/temporary supportive for sterling. Longer term, we still look to sell sterling as long as there is no clear indication that the BoE prepares to tighten policy to fight rising inflation. The Brexit divorce remains a complicated process. Given the strong day-to-day momentum of sterling, there is no reason to row against the tide right now. EUR/GBP 0.8579 50% retracement and 62% retracement (0.8515) of the 0.8304/0.8854 rebound is broken. The correction low comes in at 0.8451 and should provide a strong support. A break would be significant from a technical point of view.

EUR/GBP nears 0.8450 support

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