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Daily Pivots: (S1) 1.6782; (P) 1.6818; (R1) 1.6848; More...

EUR/AUD's fall is resuming by breaking 1.6759 support. Intraday bias is back on the downside. Next target is 138.2% projection of 1.8554 to 1.7245 from 1.8160 at 1.6351. On the upside, however, break of 1.7060 resistance will indicate short term bottoming, and turn bias back to the upside for stronger rebound.

In the bigger picture, fall from 1.8554 medium term top is still in progress. Sustained break of 38.2% retracement of 1.4281 to 1.8554 at 1.6922 will argue that it's already reversing whole up trend from 1.4281 (2022 low). Deeper fall would be seen to 61.8% retracement at 1.5913. For now, risk will stay on the downside as long as 55 D EMA (now at 1.7303) holds even in case of strong rebound.

Daily Pivots: (S1) 0.9105; (P) 0.9125; (R1) 0.9155; More....

Intraday bias in EUR/CHF remains on the downside at this point. Current down trend should extend to 261.8% projection of 0.9394 to 0.9268 from 0.9347 at 0.9017 next. On the upside, however, break of 0.9180 resistance will now indicate short term bottoming, and bring lengthier consolidations.

In the bigger picture, down trend from 0.9928 (2024 high) is still in progress with falling 55 W EMA (now at 0.9334) intact. Next target is 61.8% projection of 1.1149 to 0.9407 from 0.9928 at 0.8851. Outlook will stay bearish as long as 0.9394 resistance holds, in case of recovery.

Markets

Some more disappointing data came yesterday on the heels of last week’s sub-par set of labour market data. US retail sales failed to grow at the end of last year, missing expectations for a solid 0.4% expansion. The Q4 Employment Cost Index meanwhile rose at the slowest pace since 2021. It may ease some of the remaining concerns at the Fed about upside inflation risks. US yields dropped between 3.3 and 7.4 bps in a market that was already on high alert going into the delayed payrolls (and annual 2025 revision) release today ever since Fed Waller’s “Zero. Zip. Nada.” speech flagged the risk of basically no employment growth throughout last year. Long end outperformance pushed the likes of the 10-yr yield below 4.2% support to the YtD lows. German yields dropped 0.9-3.7 bps in sympathy. Corporate bond markets were all about Alphabet’s massive (AI) financing spree in which a 10-times oversubscribed sterling centennial obviously drew the biggest attention. JPY stood out in FX markets, rallying against all major peers on continued hopes for a Japanese revival under PM Takaichi and her supermajority. JGBs by the way also gave the government the benefit of the doubt from a fiscal perspective by dropping 6-8 bps at the long end of the curve. USD/JPY closed near the intraday lows just north of 153. EUR/JPY neared the January troughs around 182. EUR/USD stabilized near 1.19, EUR/GBP bounced back above 0.87 with sterling’s grace period following PM Starmer’s survival apparently already ending.

Japan’s yen is extending this week’s rebound today but we should add that it happens in thinned trading with Japanese markets closed for National Foundation Day. The US dollar remains in the defensive while Treasuries (in the futures market) are rising going into what possibly are going to be pivotal payrolls. The January edition is combined with the annual revision of last year. The risk for 2025 is that the +/- 600k cumulative job growth is going to be wiped out and more: expectations are for a -825k downward adjustment. This is where Fed Waller and his repeated calls for rate cuts to support a weakening labour market come into play. The bar for January is set at a 65k job growth with unemployment stabilizing at 4.4%. There are nuances to today’s numbers, such as seasonal effects, deportation efforts (leading to lower employment but with less impact on the unemployment rate as the supply pool shrinks) and productivity growth (leading to GDP expansion despite fewer or even no hirings). But we doubt these will be given any consideration in the current circumstances. We see asymmetric market risks with the bigger reaction – a weaker dollar, front-end curve outperformance and potentially weaker stocks – in case of a downside surprise. Belgium takes center stage in European politics with the European Industry Summit today ahead of tomorrow’s informal summit to boost European competitiveness.

News and views

China’s January price data published this morning confirmed the deflationary tendencies. Consumer price inflation was reported that 0.2% M/M, reducing the Y/Y measure from 0.8% in December to 0.2%. Both goods price (0.3% Y/Y from 1%) and services inflation (0.1% Y/Y from 0.6%) eased, suggesting absence of demand pressures. Core inflation slowed to 0.8% Y/Y from 1.2%. Producer prices turned slightly less negative in a yearly perspective, ‘rising’ from -1.9% Y/Y to -1.4% Y/Y, the ‘highest’ level since July 2024. Prices of producer goods to some extent have improved due to higher raw materials costs. However, prices of consumer goods leaving the factory gate declined further (-1.7% Y/Y from -1.3%). The yuan this morning maintains its recent gains. At USD/CNY 6.91, the yuan trades near the strongest levels against the US dollar since May 2023.

Deputy Governor of the Reserve Bank of Australia, Andrew Hauser, warned that too high inflation remains a challenge for the monetary policy committee. Hauser assessed that the some of the recent rebound in inflation ‘reflects growing underling pressure about a pick-up in demand against supply constraints in the economy’. The risk is for higher inflation to persist, a scenario the RBA can’t allow to occur. The RBA last week raised its policy rate by 25 bps to 3.85% after (trimmed mean) core inflation rose further north of the 2-3% inflation target. Markets see an 80% chance for a rate hike in May. The Aussie dollar extended gains after the comments, with AUD/USD jumping north of 0.71, nearing the early 2023 top.

Daily Pivots: (S1) 1.1878; (P) 1.1904; (R1) 1.1920; More….

Intraday bias in EUR/USD remains mildly on the upside for retesting 1.2081 high. Decisive break there and sustained trading above 1.2 psychological level will carry larger bullish implications. On the downside, however, sustained trading below 55 D EMA (now at 1.1749) will raise the chance of reversal on rejection by 1.2 psychological level, and target 1.1576 support for confirmation.

In the bigger picture, as long as 55 W EMA (now at 1.1470) holds, up trend from 0.9534 (2022 low) is still in favor to continue. Decisive break of 1.2 key psychological level will add to the case of long term bullish trend reversal. Next medium term target will be 138.2% projection of 0.9534 to 1.1274 from 1.0176 at 1.2581. However, sustained trading below 55 W EMA will argue that rise from 0.9534 has completed as a three wave corrective bounce, and keep long term outlook bearish.

Daily Pivots: (S1) 153.53; (P) 154.91; (R1) 155.76; More...

Intraday bias in USD/JPY stays on the downside for 152.07 support. Price actions from 159.44 are still seen as a corrective pattern only. Hence, downside should be contained by 38.2% retracement of 139.87 to 159.44 at 151.96 to bring rebound. On the upside, above 154.57 minor resistance will turn intraday bias neutral first. However, sustained break of 151.96 will argue suggests that it's reversing the rise from 139.87 already.

In the bigger picture, outlook is unchanged that corrective pattern from 161.94 (2024 high) should have completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94. This will remain the favored case as long as 55 W EMA (now at 151.68) holds. However, sustained break of 55 W EMA will argue that the pattern from 161.94 is extending with another falling leg.

Daily Pivots: (S1) 1.3621; (P) 1.3660; (R1) 1.3682; More...

Intraday bias in GBP/USD remains neutral and outlook is unchanged. On the upside, firm break of 1.3732 resistance will suggest that pullback from 1.3867 has completed as a correction at 1.3507. Retest of 1.3867 should be seen first. Firm break there will resume larger up trend towards 1.4284 key resistance. On the downside, however, sustained trading below 55 D EMA (now at 1.3497) will raise the chance of larger scale correction, and target 1.3342 support for confirmation.

In the bigger picture, rise from 1.0351 (2022 low) is resuming by breaking through 1.3787 high. Further rally should be seen to 1.4284 key resistance (2021 high). Decisive break there will add to the case of long term bullish trend reversal. For now, outlook will stay bullish as long as 1.3008 support holds, even in case of deep pullback.

Daily Pivots: (S1) 0.7645; (P) 0.7666; (R1) 0.7704; More….

USD/CHF's fall is in progress and intraday bias stays on the downside for retesting 0.7603 low. Decisive break there will resume larger down trend to 0.7382 projection level next. On the upside, though, above 0.7687 minor resistance will delay the bearish case and extend the corrective pattern from 0.7603 with another leg.

In the bigger picture, larger down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.8152) holds.

Daily Pivots: (S1) 1.3524; (P) 1.3552; (R1) 1.3582; More...

USD/CAD's fall is in progress and intraday bias stays on the downside for retesting 1.3480 low. Firm break there resume larger down trend from 1.4791 to 61.8% projection of 1.4791 to 1.3538 from 1.4139 at 1.3365. On the upside, above 1.3575 minor resistance will delay the bearish case, and extend the corrective pattern from 1.3480 with another leg.

In the bigger picture, price actions from 1.4791 are seen as a corrective pattern to the whole up trend from 1.2005 (2021 low). Deeper fall could be seen as the pattern extends, to 61.8% retracement of 1.2005 to 1.4791 at 1.3069. For now, medium term outlook will be neutral at best, until there are signs that the correction has completed, or that a bearish trend reversal is confirmed.

The US dollar weakened yesterday after retail sales data showed no growth in December on a monthly basis. The annual figure retreated to 2.43%, from around 3.6% printed a month earlier. That pulled the Atlanta Fed’s GDPNow forecast for Q4 down to 3.7%. The figure was hovering above 5% in early January.

There’s more: delinquency rates rose to the highest levels since the pandemic for some groups — in line with waning consumer confidence, weakening jobs data and growing complaints about the cost-of-living crisis — something the White House would rather not talk about.

But it may be happening. US consumer spending may be weakening for real this time. That is a major threat for an economy where consumer spending is the main pillar of growth. Massive AI investment will certainly continue to do the heavy lifting, but it won’t necessarily create jobs on a net basis, nor will it ease the cost of living overnight.

If that’s the case, the two-speed growth in the US will require the Federal Reserve’s (Fed) support to feel better. This is why we see the US 2-year yield — which best captures Fed expectations — falling to 3.5-year lows and the US dollar weakening. Softer yields and a cheaper dollar are positive for equities, but with a nuance. A softer Fed reinforces the rotation trade and fuels appetite for smaller and non-tech companies, rather than Big Tech — which ultimately benefits from a weaker dollar but is now being questioned by investors over ambitious AI investment plans, increasingly financed by debt.

And that’s a big deal. One of Big Tech’s bright spots — what made these companies relatively immune to rate cycles and global crises — was their strong balance sheets and ample free cash flow. But the past three years of heavy investment have eaten into that cash, forcing them to turn to debt markets. Google just issued a $20bn debt this week on top of $17.5bn issued last November, and it is not alone. Meta issued $30bn in debt in October, Oracle a whopping $43bn since last September, and Amazon $15bn. The problem is that rising debt changes their leverage profile and risk dynamics — and that should weigh on valuations.

Obviously, a softer rate environment would help. But for now, investors are focused on valuations. The S&P500 was offered near a record high yesterday, while its equal-weighted version hit a fresh record high. The Dow and the mid-cap index also extended gains to fresh records. Small caps looked more timid — likely reflecting the rapid deterioration in Main Street data.

Today, the US will release its latest jobs data — originally due last Friday but postponed to today due to a partial government shutdown. Expectations are weak. The US economy is expected to have added around 66K nonfarm jobs in January, with wage growth slowing to 3.6% year-on-year. The unemployment rate is seen steady near 4.4%.

If we dig deeper, however, unemployment among workers aged 16–24 stood above 10% in December. The struggle is real.

A soft data set would likely reinforce dovish Fed expectations, push short-term US yields and the dollar further lower, and support the rotation trade. Stronger-than-expected data may reduce expectations for earlier Fed cuts, but it won’t change the broader narrative that part of the US economy — excluding tech — is heading in the wrong direction. Main Street needs the Fed’s help. And softer spending could temper inflation, allowing the Fed to support the economy.

Fed funds futures are now tilting toward a possible rate cut by April instead of June. The probability of a June cut is approaching 80%, up from roughly 50-50 earlier this year. The probability of an April cut stands at 42%, moving closer to a coin toss.

The Japanese yen is one of the biggest beneficiaries of the softer dollar. The USDJPY slipped below 153 this morning in Japan, in a surprising move after Takaichi won the weekend’s snap election. The next key support is 152.18 — the 38.2% Fibonacci retracement of the April 2025-to-January 2026 rebound. A break below that level would signal the end of the yen’s nearly year-long debasement.

Elsewhere, the tech oscillated between promise and pressure. TSMC continues to extend gains into uncharted territory after announcing a 37% jump in revenue this January — partly flattered by the fact that last year’s Chinese New Year fell in January — though the figure remains consistent with its 30% growth target for this year. Asian tech stocks extend gains to ATHs, also fueled by rising Fed and PBoC support.

Software stocks are less enthusiastic - desperate, hit by a fresh wave of weakness after news that an AI startup called Altruist released a new tool to help financial advisers personalize investment and wealth management strategies for their clients. Charles Schwab, which had been gently grinding higher, suddenly tripped and fell more than 7%. The news interrupted a rebound in software stocks that were battered by similar developments from Anthropic last week.

The divergence between AI enablers and software stocks is striking, to the point where the software dip may start to look attractive for those who believe AI tools won’t replace all lawyers and all client advisers overnight.

But what do I know…

In focus today

In the US, the January Jobs Report, that was originally scheduled for last Friday, will be published today. We still forecast NFP growth at +60k, unemployment rate at 4.4% and the annual benchmark revisions at negative -1.1 million (early estimate was -919k).

Economic and market news

What happened overnight

In China, January CPI inflation eased sharply to 0.2% y/y (cons: 0.4%, prior: 0.8%), marking the lowest print since October. Food prices fell for the first time in three months (-0.7%), but also non-food inflation slowed (0.4%). Meanwhile, PPI fell 1.4% y/y (cons: -1.5%, prior: -1.9%), extending the contraction to a 40th consecutive month. The slower decline reflects Beijing's continued efforts to rein in excessive price competition. However, in monthly terms, the PPI rose 0.4% m/m in January, accelerating from a 0.2% rise in December.

In the US, the Treasury Department issued a general license to facilitate oil and gas exploration and production in Venezuela, allowing the use of US goods, technology, and services. The move aims to boost Venezuela's crude production. According to the US Energy Information Administration, output could rise by up to 20% in the coming months. Payments to sanctioned entities must be made into a US-overseen fund, and the license prohibits the formation of new joint ventures.

What happened yesterday

In the US, December retail sales excluding autos, gas, building materials and food services (SA) declined by 0.1% m/m (cons: 0.4%). Retail sales showed broad declines across categories, though the heavily seasonally adjusted December data should be interpreted with caution. On a non-seasonally adjusted basis, control group sales grew by 4.4% y/y, which remains a healthy pace in historical terms.

The Q4 Employment Cost Index also surprised to the downside. The ECI remains closely correlated with the JOLTs data, which suggests that wage growth will continue to slow down during H1 2026.

In Norway, January core inflation rose to 3.4% y/y (cons: 3.0%, NB: 2.9%), marking a hawkish surprise as domestic service price inflation, excluding rents, drove the increase. Higher municipality fees and insurance costs contributed to the upside, while few downside surprises were observed across subcomponents. The release came with higher-than-usual uncertainty due to annual reweightings and potential volatility in municipality fees.

In Denmark, January inflation fell to 0.8% y/y from 1.9% in December, driven mainly by the near removal of the electricity tax. Food prices rose 2.4% m/m, ending a five-month decline, with the increase being slightly above the seasonal norm. Overall, underlying inflation remains close to 2%.

In climate politics, President Trump is set to repeal the Obama-era endangerment finding that declared carbon dioxide a threat to human health, removing the legal basis for federal greenhouse gas regulations. The repeal targets vehicle emission standards but excludes stationary sources like power plants. Industry groups are cautious about supporting the move due to legal uncertainties, and critics warn it could harm global climate efforts while boosting China's clean energy industry. The repeal is expected to face significant legal challenges.

Equities: Equities finished broadly unchanged yesterday. Asia, led by Japan, outperformed, while both the US and Europe saw modest declines. Interestingly, the Dow Jones managed to close at a fresh all-time high. We didn't have big rotation yesterday. However, banks was among the weaker performers as yields ticked lower. In the US yesterday, Dow +0.1%, S&P 500 -0.3%, Nasdaq -0.6% and Russell 2000 -0.3%. This morning, the constructive tone in Asia continues, again with Japan leading gains, but with broad-based strength across the region. US and European futures are also trading higher at the time of writing.

FI and FX: In the US, yields declined across the curve following yesterday's weak December retail sales and ECI data, with the 2-year Treasury yield down 3bp and the 10-year falling 5bp. EUR/USD remains anchored around the 1.19 mark ahead of today's US jobs report. USD/JPY has continued to grind lower below 154, supported by a steady JGB market. CHF continues to be among the top performers this year with EUR/CHF and USD/CHF trading at the lowest level since the SNB removed removal of the floor in 2015. The Swedish krona had a constructive session yesterday, with EUR/SEK heading below 10.60 once again. Yesterday marked a very volatile session in Norwegian markets following the much higher-than-expected Norwegian core inflation print for January, with EUR/NOK dropping to the low 11.30s. EUR/DKK climbed to its highest level since mid-January yesterday, breaking above the 7.4700 level.