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• Tokyo Core CPI eases to 2.3%
• US to release ISM Services PMI later today

The Japanese yen has edged lower on Tuesday. In the European session, USD/JPY is trading at 147.08, down 0.10%.

Tokyo Core CPI softer than expected

Tokyo Core CPI, a leading indicator for nationwide inflation, climbed 2.3% y/y in November. This was down from 2.7% in October and below the consensus estimate of 2.4%. This marked the 18^th consecutive month that Tokyo Core CPI has hovered above the 2% target, indicating persistent inflationary pressures. Tokyo’s headline inflation also slowed in November to 2.6%, down from 3.3%.

With inflation persistently above the 2% target, speculation is high that the Bank of Japan will have to tighten its ultra-loose monetary policy. The BoJ has pushed back against these expectations, insisting that the rise in inflation is due to cost-push factors and that higher wages are needed to ensure inflation is sustainable. This message was echoed on the weekend by Bank of Japan board member Asahi Noguchi, who said that sustained wage increases were needed to reach the 2% inflation target.

The Japanese recovery has been slow and that will provide a strong argument for the central bank to continue its massive stimulus, which is aimed at boosting economic growth. The BoJ holds its next meeting on December 18-19. The meetings have been garnering a great deal of attention, as investors await a shift in policy. I don’t expect any significant moves at the December meeting but the BoJ is not known for its transparency and likes to surprise the markets, which means that a change in policy, although unlikely, cannot be completely discounted.

The US releases the ISM Services PMI later today. The October print fell to 51.8, down from 53.6 and the lowest in five months. The PMI isn’t expected to show much change in November, with a consensus estimate of 52.0.

USD/JPY Technical

• 148.77 and 147.72 are the next resistance lines
• 146.48 and 145.96 are providing support

Eurozone's PMI Services for November showed a slight improvement, finalizing at 48.7, up from 47.8 in October. PMI Composite also experienced an uptick, reaching 47.5 from the previous month's 46.5.

Looking at individual member states, PMI composite revealed mixed results. Ireland registered a three-month high at 52.3, while Spain hit a three-month low at 49.8. Italy reported a two-month high at 48.1, and Germany saw a four-month high at 47.8. France remained unchanged, with its PMI holding steady at 44.6.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, stated, "The service sector maintained its downward slide in November." He noted that the modest improvement in the activity index offers little optimism for a swift recovery in the immediate future. De la Rubia also highlighted concerning trends, such as the fifth consecutive monthly decline in new business and subdued business expectations, which remain "well below the long-term average."

Outlook for Eurozone's economy, as inferred from these PMI indicators, is not encouraging. De la Rubia mentioned, "As per our GDP nowcast, factoring in the latest PMI indicators, a fall in GDP is on the cards for the fourth quarter." He warned that if two consecutive quarters of negative growth define a recession, the Eurozone is currently "on the brink" of one.

Full Eurozone PMI services release here.

• US 30 index in the red after recording a new 22-month high
• Aggressive move higher from the October lows
• Some early signs of rally exhaustion from the momentum indicators

The US 30 cash index is trying to record its second consecutive red candle after registering a new 22-month high, 12% higher from the late October lows. It is currently battling with the October 13, 2022 upward sloping trendline with the bulls possibly taking a breather and preparing for the next eventful trading period ahead of the seasonal break.

In the meantime, the momentum indicators are possibly preparing to send some rally exhaustion signals. The RSI has probably peaked, and it is now trading sideways. Similarly, the stochastic oscillator continues to scratch the upper end of its overbought territory, potentially revealing a lack of fresh buying momentum. On the other hand, the ADX has reached a new higher high, confirming the very strong bullish trend in the US 30 index.

Should the bulls remain hungry, they could try to overcome the resistance set by the October 13, 2022 upward sloping trendline. This might not prove an easy task, but, if successful, the bulls could then have the chance to push the US 30 index towards the January 5, 2022 high at 36,951.

On the flip side, the bears are desperately trying to make a stand and could choose to defend the October 13, 2022 trendline. They could then stage a move lower towards the busy 35,496-35,686 range, which is defined by the July 27, 2023 and the April, 2022 highs. Even lower, the 34,930-35,091 area, populated by the December 13, 2022 and May 2021 highs, has proved in the recent past to be a strong support area.

To sum up, US 30 cash index bulls are probably taking a breather ahead of some key market events. The bears could try to take advantage of the situation, but they need help from the momentum indicators to stage decent correction.

Daily Pivots: (S1) 185.18; (P) 185.87; (R1) 186.68; More...

Intraday bias in GBP/JPY remains neutral at this point. Price actions from 188.63 short term top is seen as a near term consolidation pattern for now. As long as 184.44 support holds, further rally is expected. Decisive break of 188.63 will resume larger up trend. However, firm break of 184.44 will turn bias to the downside for deeper correction back to 178.02 support instead.

In the bigger picture, as long as 184.44 support holds, larger up trend from 123.94 (202 low) should still be in progress, next target is 195.86 (2015 high). However, firm break of 184.44 will now argue that a medium term top is formed, possibly in bearish divergence condition in D MACD, and bring deeper fall back to 178.02 support.

Daily Pivots: (S1) 158.88; (P) 159.36; (R1) 160.02; More....

EUR/JPY's fall from 164.29 is in progress and intraday bias stays on the downside. Sustained break of 161.8% projection of 164.29 to 161.22 from 163.70 at 158.73 will target 154.32 cluster support (38.2% retracement of 139.05 to 164.29 at 154.64). On the upside, above 159.83 minor resistance will turn intraday bias neutral and bring consolidations first.

In the bigger picture, bearish divergence condition in 55 D EMA indicates that a medium term top could be formed at 164.29 already, after hitting rising channel resistance. But price actions from there are tentatively seen as a correction only. There is no clear sign that the up trend from 144.42 (2020 low) has completed yet. As long as 55 W EMA (now at 152.12) holds, another rally through 164.29 is still in favor as a later stage.

Daily Pivots: (S1) 0.8564; (P) 0.8574; (R1) 0.8589; More....

Intraday bias in EUR/GBP remains on the downside for the moment. As noted before, rebound from 0.8491 should have completed as a corrective move at 0.8764. Deeper fall should be seen to retest 0.8491 low first. Firm break there will resume larger down trend. On the upside, above 0.8599 minor resistance will turn intraday bias neutral and bring consolidations first, before staging another decline.

In the bigger picture, current development suggests that down trend from 0.9267 (2022 high) is still in progress. This decline is now 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.

Daily Pivots: (S1) 1.6300; (P) 1.6339; (R1) 1.6410; More...

Intraday bias in EUR/AUD is turned neutral first with break of 1.6449 support turned resistance. Some consolidations should be seen first, but another fall is expected. Break of 1.6267 will resume the decline from 1.7062 to 100% projection of 1.7062 to 1.6319 from 1.6844 at 1.6106 next.

In the bigger picture, the break of medium term trend line support now suggests fall from 1.7062 correcting the whole up trend from 1.4281 (2022 low). Deeper decline would be seen to 38.2% retracement of 1.4281 to 1.7062 at 1.6000. Strong support could be seen there to bring rebound on first attempt. But risk will stay on the downside as long as 1.6844 resistance holds. Sustained break of 1.6000 would bring further fall to 61.8% retracement at 1.5343.

Daily Pivots: (S1) 0.9429; (P) 0.9467; (R1) 0.9497; More...

Intraday bias in EUR/CHF stays on the downside for retesting 0.9407/16 support zone. Decisive break there will resume larger down trend. On the upside, touching 0.9504 minor resistance will delay the bearish case and turn intraday bias neutral for consolidation first.

In the bigger picture, rejection by 0.9691 cluster resistance (38.2% retracement of 1.0095 to 0.9416 at 0.9675) maintains medium term bearishness in EUR/CHF. Firm break of 0.9047 support (2022 low) will resume long term down trend. Next target will be 61.8% projection of 1.1149 to 0.9407 from 1.0095 at 0.9018. For now, outlook will be neutral at best as long as 0.9683 holds.

• EURUSD holds in trading range in weekly chart
• 50-week SMA acts as strong support
• RSI and stochastic suggest more losses

As the year is coming to an end, EURUSD’s market price is holding slightly higher than at the beginning of 2023. The pair is consolidating within a consolidation area with upper boundary the 200-week simple moving average (SMA) around 1.1150, despite the move above it in July, and lower boundary the ten-month low of 1.0450.

Currently, the price is testing the 50-week SMA at 1.0800, which is acting as strong support level for the bulls. Weekly oscillators suggest that upside momentum is losing steam, reflecting the latest pullback in the market. The RSI has turned down in the positive territory, while the stochastic oscillator posted a bearish crossover within its %K and %D lines in the overbought area, indicating bearish retracement. However, the MACD oscillator is flattening near its zero level, mirroring the bigger neutral outlook in the pair.

In case buyers take back control and pierce above the 200-week SMA of 1.1150, that would bring the price towards the 17-month high of 1.1275. Surpassing this level, the door could open for the 1.1500 psychological mark, registered in February 2022 ahead of the 1.1690 resistance, which would potentially be tested during next year.

Now should sellers stay in charge, the first obstacle to the downside might be the 100-week SMA at 1.0650, which has acted both as support and resistance in recent weeks. If violated, the spotlight would then shift to the 1.0450 barrier, which halted the retreat in early October.

Summarizing, the long-term outlook remains neutral. A decisive break above 1.1275 is needed to bring the positive outlook back into play. On the other hand, a decline below 1.0450 could switch the bias to bearish.

In an interview with Reuters, ECB Executive Board member Isabel Schnabel remarked that the slowdown to 2.4% in Eurozone's November flash CPI a "very pleasant surprise." More importantly, that made "further rate increase rather unlikely".

Schnabel emphasized the significance of the decline in "underlying inflation", which has proven "more stubborn", is now also "falling more quickly than we had expected". Such trends have bolstered her confidence in achieving ECB's 2% inflation target no later than 2025.

However, she cautioned against premature victory declarations over inflation, expecting some upticks in the coming months due to fiscal changes and base effects, and not ruling out potential new spikes in energy or food prices.

On the growth front, Schnabel acknowledged mixed signals. While some hard data points are concerning, softer indicators, like PMI, are showing signs of stabilization and are "giving us hope."

She forecasts a gradual uptick in growth next year, driven by rising real incomes, which should boost confidence and consumption. Regarding the labor market, she noted some softening but does not anticipate a significant deterioration or a deep, prolonged recession.

Full interview of ECB Schnabel here.