Sample Category Title

• GBPJPY reversed from support level 179.40
• Likely to rise to resistance level 182.00

GBPJPY currency pair recently reversed up from the multi-month support level 179.40 (which has steadily reversed the pair from the start of July).

The support level 179.40 was further strengthened by the lower daily Bollinger Band.

Given the strength of the support level 179.40, predominant daily uptrend and strongly bullish sterling sentiment seen today, GBPJPY can be expected to rise further to the next resistance level 182.00 (former minor resistance from the end of last month).

EURUSD keeps negative tone in the first trading day of 2024 and extends pullback from a multi-month high (1.1139) into third consecutive day.

Break through initial support at 1.1041 (Fibo 23.6% of 1.0723/1.1139 upleg) extended through rising 10DMA (1.1011) and cracked psychological 1.10 support, which marks the upper boundary of pivotal 1.1000/1.0980 support zone (psychological/Fibo 38.2%).

Deeper pullback could be expected on violation of these levels, as completion of bearish harami pattern on daily chart signaled reversal after a larger uptrend stalled on approach to 200WMA (1.1151) and left weekly inverted hammer candle, adding to negative near-term signals.

Still, the pullback could be seen as a healthy correction of larger uptrend, with solid support at 1.0931 (50% retracement of 1.0723/1.1139 / daily Kijun-sen) expected to contain extended dips and offer better levels to re-join bullish market.

Short-term action is also underpinned by rising thick weekly Ichimoku cloud, with cloud top marking another key support at 1.0910.

Caution on sustained break of 1.0931/10 pivots, which would neutralize larger bulls and open way for stronger correction of 1.0495/1.1139 Oct-Dec uptrend.

Res: 1.1041; 1.1084; 1.1122; 1.1139.
Sup: 1.0980; 1.0931; 1.0910; 1.0882.

• The medium-term downtrend phase of USD/JPY in place since the 15 November 2023 high has reached a potential inflection level at 140.25.
• A potential countertrend corrective rebound scenario may unfold next.
• Watch the first immediate resistance zone at 142.85/143.40.

The price actions of USD/JPY have plummeted lower as highlighted in our prior report despite the lack of monetary policy guidance for an imminent removal of Japan’s short-term negative interest rate in Q1 2024 during the Bank of Japan (BoJ) Governor Ueda’s press conference for BoJ’s recent monetary policy meeting held on 19 December 2023.

All in all, the USD/JPY has shed a total of 1,166 pips (-7.7%) from a 33-year high of 151.91 printed on 13 November 2023 to an intraday low of 140.25 on 28 December 2023 in the ongoing medium-term downtrend phase in place since 13 November 2023 high.

Medium-term downside momentum has flashed out of exhaustion condition

Fig 1: USD/JPY medium-term trend as of 2 Jan 2024 (Source: TradingView, click to enlarge chart)

The medium-term downtrend of the USD/JPY is still firmly intact as depicted by its price actions that are still trading below the downward-sloping 50-day moving average that is now acting as a medium-term resistance at around 146.70 (also coincides closely with the 50% Fibonacci retracement of the medium-term downtrend from 13 November 2023 high to 28 December 2023 low).

The daily RSI momentum indicator has just flashed out a bullish divergence condition after it hit its oversold region (below 70) on 14 December 2023. These observations suggest that medium-term downside momentum may have been exhausted which reduces the odds of price action to continue downwards to print “lower lows”.

A clearance above 142.85 intermediate resistance (also the area where 20 and 200-day moving averages are acting as a ceiling) may kickstart a more pronounced countertrend corrective rebound to retrace a portion of the ongoing medium-term downtrend phase of the USD/JPY with the next resistances to watch at 144.80 and 146.70 (also the 50-day moving average).

Watch the 140.25 key short-term support

Fig 2: USD/JPY short-term minor trend as of 19 Dec 2023 (Source: TradingView, click to enlarge chart

If the 140.25 key short-term pivotal support manages to hold, the USD/JPY may stage the first leg of the potential countertrend rebound with the immediate resistance zone coming in at 142.85/143.40.

However, failure to hold at 140.25 invalidates the countertrend rebound scenario to reinstate the impulsive down move sequence toward the next immediate support at 139.20 in the first step.

• China Caixin Manufacturing posts slight growth

The Australian dollar is in positive territory on Tuesday. In the European session, AUD/USD is trading at 0.6826, up 0.22%.

The week between Christmas and New Year’s was subdued in the currency markets. Still, the Australian dollar hit a six-month high on Christmas Day, rising to 0.6871. The Aussie ended the year on a roll, gaining 3.1% in December.

China’s Caixin Manufacturing PMI ticked up to 50.8 in December, up from 50.7 in November and above the consensus of 50.4. This was the highest reading since August, but the reading points to stagnation in manufacturing. The reading was better than the official Manufacturing PMI release on Saturday of 49.0 which indicates contraction. The non-manufacturing PMI edged up to 50.4, compared to 50.2 in November. Activity in the non-manufacturing sector has been minimal over the past six months, as China remains mired in an economic slowdown as we move into 2024.

Where is RBA headed?

The Reserve Bank of Australia meets next on February 6 and it’s anyone’s guess what the central bank has in mind for 2024. The RBA has raised interest rates just once since June and held the cash rate at 4.35% at the December meeting. It’s likely that the RBA is done with raising rates, but the timing of a rate cut is unclear. Many economists are circling September for the first rate cut, while Bank of America is predicting a rate cut only in 2025. The markets are more optimistic and have priced in a rate cut in mid-2024.

What all the views can agree on is that the inflation rate will play a critical role in determining the RBA’s rate path. Inflation has fallen to 4.9% but remains much higher than the RBA’s target band of 2-3%. Australia will release the December inflation report on January 10 and the release should be treated as a market-mover.

AUD/USD Technical

• AUD/USD is testing resistance at 0.6812. Next, there is resistance at 0.6845
• 0.6779 and 0.6746 are providing support

UK PMI Manufacturing was finalized at 46.2 in December, down from November's 47.2. This marks the seventeenth consecutive month where the index has remained below the neutral 50 threshold, indicating ongoing contraction. According to S&P Global, key aspects such as output, new orders, and employment are all in decline. Additionally, business optimism has reached a 12-month low.

Rob Dobson, Director at S&P Global Market Intelligence, pointed out demand environment remains challenging, with new orders continuing to decline due to difficult conditions in both domestic and key export markets, particularly the European Union.

The downturn is prompting companies to adopt a more cautious approach to costs. There have been notable cutbacks in stock levels, purchasing, and employment as firms grapple with the ongoing challenges.

Full UK PMI manufacturing final release here.

• GBPUSD pares some gains after posting a 4-month peak
• But remains within its upward sloping channel
• Positive bias holds as momentum indicators are skewed to the upside

GBPUSD had been forming a profound structure of higher highs following its break above a crucial descending trendline in early November. Although the pair’s rally has temporarily paused at the four-month peak of 1.2826, the impending completion of a golden cross between the 50- and 200-day simple moving averages (SMAs) could infuse upside pressures.

Given that the short-term oscillators are providing cautiously positive signals, the bulls could attempt to erase the latest weakness and conquer the December resistance of 1.2793. A violation of that hurdle could open the door for the four-month peak of 1.2826. Failing to halt there, the pair might advance towards the June high of 1.2847.

On the flipside, if the pair reverses lower, a couple of previous resistance territories such as 1.2732 and 1.2678 may now act as initial lines of defense. Piercing through that floor, the price may then descend towards the recent support of 1.2611. Even lower, the December bottom of 1.2500 could provide downside correction.

In brief, even if GBPUSD’s advance seems to be losing steam, near-term risks remain cautiously tilted to the upside. For that to change, the price needs to decisively break below its upward sloping channel.

Eurozone's PMI Manufacturing was finalized at 44.4 in December, up slightly from November's 44.2. Despite this minor uptick, marking a seven-month high, the index remained below the critical 50.0 threshold, signaling a continued deterioration in operating conditions across the sector.

Country-by-country breakdown of Manufacturing PMI reveals a diverse picture. Greece stands out with a PMI of 51.3, indicating expansion and marking a four-month high. In contrast, other major economies like Ireland, Spain, Italy, the Netherlands, Germany, France, and Austria all recorded PMIs indicative of contraction, with varying degrees of severity. Notably, France registered a PMI of 42.1, a 43-month low. On the other hand, Germany rose to an 8-month high at 433.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, remarked on the "relentless slump" in Eurozone's manufacturing sector, noting that the marginal improvement in the PMI does little to alleviate concerns about the persistent decline in activity and demand for manufactured goods. The consistent sluggishness in new orders was particularly alarming, reflecting a pervasive gloom across the sector.

According to HCOB's Nowcast model anticipates a contraction in the Eurozone's GDP for the fourth quarter. This projection, if realized, indicates that Eurozone may have already entered a recession as early as the third quarter.

Full Eurozone PMI manufacturing final release here.

Daily Pivots: (S1) 179.07; (P) 179.80; (R1) 180.30; More...

Intraday bias in GBP/JPY stays neutral as range trading continues. Further decline is expected as long as 184.15 resistance holds. On the downside, break of will resume the decline from 188.63 and target 38.2% retracement of 148.93 to 188.63 at 173.46. However, decisive break of 184.15 will argue that pull back from 188.63 has completed and bring retest of this high.

In the bigger picture, price actions from 188.63 medium term top are currently seen as a correction to the up trend from 148.93 (2022 low) only. As long as 172.11 resistance turned support holds, larger up trend from 123.94 (2020 low) is still in favor to resume through 188.63 at a later stage.

Daily Pivots: (S1) 155.24; (P) 156.10; (R1) 156.55; More...

Range trading continues in EUR/JPY and intraday bias stays neutral. On the upside, above 158.55 will resume the corrective rebound from 153.15. On the downside, break of 153.15 will resume whole fall from 164.39 to 61.8% retracement of 139.05 to 164.29 at 148.69.

In the bigger picture, price actions from 164.29 medium term top are tentatively seen as a correction to rise from 139.05 for now. As long as 148.48 resistance turned support holds (2022 high), larger up trend from 114.42 (2020 low) could still resume through 164.29 at a later stage.

Daily Pivots: (S1) 0.8653; (P) 0.8677; (R1) 0.8693; More...

Break of 0.8649 minor support argues that EUR/GBP's rebound from 0.8548 has completed at 0.8713. Intraday bias is back on the downside for retesting 0.8548 support. On the upside, however, break of 0.8713 will resume the rebound to 0.8764 key resistance next.

In the bigger picture, current development suggests that down trend from 0.9267 (2022 high) is still in progress. This decline is seen as the third leg of the pattern from 0.9499 (2020 high). Break of 0.8201 will target 100% projection of 0.9499 to 0.8201 from 0.9267 at 0.7969. In any case, outlook will stay bearish as long as 0.8764 resistance holds.