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The Nasdaq 100 rallies as improved US consumer sentiment showed a falling inflation outlook. The direction remains up as pullbacks have been met with enthusiasm so far. The index is pushing into the supply zone from the mid-December sell-off with 11580 as the first resistance. Its breach may gather more interests and send the price to 11900 right under last month’s spike (12200). A break above that area could turn the mood around in the medium-term. 11330 is the immediate support and 11100 a second line of defence.

Silver steadies as traders continue to dump the US dollar. The price is testing the support-turned-resistance at 24.50 from last April’s sharp sell-off. The previous test caused a limited fallback, but a bounce off 23.20 indicated that the bulls are still in the game. A bullish breakout would trigger a runaway rally as sellers scramble to cover, opening the door to the psychological level of 26.00. In the meantime, after the RSI showed a double top in the overbought area, the metal may seek support above 23.55.

The US dollar struggles on speculation that the Fed is nearing the end of its tightening. The pair is holding on to its gains after breaking above May’s high of 1.0780. A bearish RSI divergence suggests a deceleration in the momentum and may foreshadow a potential pause in the rally. But as sentiment improves, the bulls may see a pullback as an opportunity to stake in with 1.0750 as the first support. 1.0660 at the origin of the latest breakout and on the 30-day moving average is a major level. 1.0950 is the target in case of a bounce.

Markets

Yesterday’s most striking market move happened in the gas market. Europe’s main reference, the Dutch TTF future, dropped more than 14% to the lowest level since September 2021 (55.45 €/MWh). Well-filled storage sites and the up until now very mild winter explain the consistent downtrend over the past months. Breaking through key support at 61.50 put an accelerator on the move yesterday. Other markets, including equities (ended flattish) and core/German bonds (moves between -2.7 bps at the front and +1.3 bps at the long end) showed little signs of life in absence of economic data and guidance from the US. EUR/USD at first sought to extend recent gains but in the end closed, you guessed it, almost unchanged in the low 1.08(2) area. Sterling held stable as well around the EUR/GBP 0.8867 resistance level (Oct. 2022 high).

The Asian session this morning revolves around the Chinese Q4 GDP release. Numbers crushed consensus with the economy flatlining Q/Q, defying expectations for a 1.1% contraction. Y/Y and YtD, China’s economy is now about 3% larger. The accompanying monthly data series gives a flavour of where the upbeat surprise came from. Industrial production rose 1.3% YtD while retail sales were less worse than feared (-0.2% YtD vs -0.8% expected) despite the country’s messy exit from zero-Covid. Property investment contracted 10% YtD, highlighting the ongoing malaise in the sector. The Chinese stock indices and the yuan don’t profit though, on the contrary. USD/CNY extends a rebound after hitting support at 6.69 (61.8% retracement on the 2022 rally) on Monday to 6.768 today as the PBOC injected short-term cash by the most in four years. In an interview with the FT published this morning, ECB’s Lane said risks of raising the policy rate further are not yet two-sided, meaning that the cost of doing too little still outweighs that of doing too much. According to the chief economist, rates currently are in “ballpark” of neutral. The euro trades stoic around yesterday’s closing levels. The dollar doesn’t pick sides either. US Treasuries open lower after the long weekend with yields advancing 1.3-5.3 bps.

Today’s economic calendar already used up a lot of its ammo with the Chinese GDP release. Remaining data contains a solid UK labour market report. Employment rose by 27k in the three months through November vs a stagnation expected. Earnings also surpassed consensus estimates, coming in at 6.4%. A first glimpse for December employment was slightly less than forecasted (28k vs 60k). EUR/GBP quickly erased a small uptick shortly after the release to trade at 0.887 currently. For the dollar, we’re on the lookout whether last week’s tentative bottoming out signals continue. EUR/USD’s upside is capped around 1.0942 with first downside protection kicking in at 1.073. The same applies for core bond yields. The US 10y yield hit important support last week at 3.42%. The technical picture for the German 10y yield is a bit more neutral.

News Headlines

Euronext yesterday announced that the European expansion of Euronext Clearing to Euronext derivatives markets is planned for Q3 2024. It will be the final step in a process which started in the April 2021 purchase of Borsa Italiana which included the CC&G clearing house in Milan. That way, Euronext no longer had to completely rely on third-party providers such as LCH (subsidiary of London Stock Exchange). Euronext will pay a €36mn termination fee with LSE and is willing to sell its 11.1% stake in LCH France back to its British majority owner. Euronext will by the end of 2024 be able to manage the entire trading value chain of its markets: directly operating clearing activities for cash, listed derivatives and commodities markets, providing one single platform for clients to access information on collateral, risk and clearing, implementing a new Value-at-Risk methodology and other smaller efficiency gains.

Australian Westpac Consumer confidence rose from 80.3 to 84.3 in January, which is the biggest increase since April 2021. The main driver for the improvement was interest rates. Consumers have been responding to rate hikes from the RBA every month since May last year, but in January there was no meeting and thus no increase, offering some temporary relief to borrowers. Overall, sentiment remains in deeply pessimistic territory, but there signs that consumers can see some light at the end of the tunnel. Confidence among mortgage holders rose and there was an improvement in the outlook for the labour market. House prices are still expected to rise over the next 12 months, which is something to keep an eye on. AUD/USD holds around 0.6950.

Daily Pivots: (S1) 156.17; (P) 156.62; (R1) 157.20; More...

Intraday bias in GBP/JPY is turned neutral first as it recovered ahead of 155.33 support. Outlook will remain bearish as long as 161.22 resistance holds. Decisive break of 155.33 will resume whole decline from 172.11 to 153.70 fibonacci level.

In the bigger picture, as long as 163.02 support turned resistance holds, decline from 172.11 medium term top is expected to continue to 38.2% retracement of 123.94 to 172.11 at 153.70. Sustained break there will raise the change of trend reversal and target 61.8% retracement at 142.34. Nevertheless, break of 163.02 support turned resistance will argue that the decline has completed, and retain medium term bullishness.

Daily Pivots: (S1) 138.45; (P) 138.87; (R1) 139.51; More....

Intraday bias in EUR/JPY is turned neutral first as it recovered ahead of 137.37 support. Outlook will stay bearish as long as 142.84 resistance holds. Break of 137.37 will resume whole decline from 148.38 to 135.40 fibonacci level next.

In the bigger picture, as long as 55 week EMA (now at 138.64) holds, larger up trend from 114.42 (2020 low) is still in progress for 149.76 long term resistance. However, firm break of 55 week EMA will bring deeper fall to 38.2% retracement of 114.42 to 148.38 at 135.40. Sustained break there will raise the chance of trend reversal, and target 61.8% retracement at 127.39.

Daily Pivots: (S1) 0.8854; (P) 0.8866; (R1) 0.8886; More...

EUR/GBP is staying in consolidation from 0.8896 and intraday bias remains neutral first. Further rally is expected as long as 0.8768 support holds. On the upside, break of 0.8896 will resume the rally from 0.8545 to 61.8% projection of 0.8545 to 0.8876 from 0.8768 at 0.8973.

In the bigger picture, with 55 week EMA (now at 0.8616) intact, the favored case is that rise from 0.8545 is part of the whole up trend from 0.8201 (2022 low). Sustained trading above 61.8% retracement of 0.9276 to 0.8545 at 0.8997 will pave the way to retest 0.9267 high next. However, break of 0.8768 support will dampen this view and bring retest of 0.8545 low instead.

Daily Pivots: (S1) 1.5506; (P) 1.5539; (R1) 1.5592; More...

Intraday bias in EUR/AUD remains neutral and outlook is unchanged. Another fall cannot be ruled out, but strong support could be seen from 38.2% retracement of 1.4281 to 1.5976 at 1.5329 to complete the correction from 1.5976. Firm break of 1.5614 minor resistance will turn bias back to the upside for retesting 1.5976. However, sustained trading below 1.5329 will carry larger bearish implication and target 61.8% retracement at 1.4928.

In the bigger picture, it's still early to confirm if rise from 1.4281 represents bullish trend reversal. But as long as 1.5271 support holds, such rally is in favor to continue. Break of 1.5976 will target 1.6434 key resistance next. On the other hand, firm break of 1.5271 will retain medium term bearishness instead.

Daily Pivots: (S1) 1.0001; (P) 1.0023; (R1) 1.0047; More....

EUR/CHF is staying in consolidation below 1.0095 and intraday bias remains neutral. Downside of retreat should be contained by 0.9953 resistance turned support to bring another rally. On the upside, break of 1.0095 will resume the rise to 100% projection of 0.9407 to 0.9953 from 0.9720 at 1.0266 next.

In the bigger picture, break of 38.2% retracement of 1.1149 to 0.9407 at 1.0072 and 55 week EMA (now at 1.0041) is taken as an initial sign of long term bullish reversal. Further rally is expected as long as 55 days EMA (now at 0.9866) holds. Next target is 1.0505 cluster resistance (2020 low at 1.0505, 61.8% retracement of 1.1149 to 0.9407 at 1.1484). Reactions from there should reveal long term momentum.

European stocks kick off the week on last week’s positive vibes, adding more gains to their best ever start to a year.

But sentiment in Asia was mixed; futures point at bearish start.

On the data front, China grew 3%, well below the government’s 5.5% target last year, but the Q4 rebound was well above market expectations. Retail sales contracted significantly less than expected as well, while unemployment unexpectedly fell.

Could the European stock rally extend? 

The DAX extended its advance above the 15000 mark, to the fresh highs since before the war in Ukraine started.

And the French CAC40 took over the 7000 resistance, and is only around 4% below the 2022 peak.

The recovery in European stocks is impressive, and coincides with the rebound of the euro against the US dollar since end of September – which makes the energy and raw material costs more affordable for European companies, and boosted by a mild start to the winter, which gave a broad comfort to the Europeans that the energy shortage will certainly not be on this winter’s agenda.

Could the European stock rally persist? It depends.

We expect a further recovery in the EURUSD throughout this year, but the looming interest rate hikes in Europe, and the base-case scenario that energy and raw material costs will rally – due to the Chinese reopening, hint that the recovery could meet some obstacles along the way.

And the rally in material costs is also not a given, as fear of global recession could also hinder rally at this end. In this sense, we see that oil prices have hard time picking up upside momentum since the China reopening news. The barrel of US crude is now above the 50-DMA for the third day, but appetite above the $80 level is decidedly limited.

Copper futures also took a 2% dive yesterday, as recession was the major topic in WEF.

Anyway, recession expectations – per se – are not bad news for the markets. Decline in profit expectations, as a result of recession, is. So, all eyes are on corporate earnings!

In the FX 

The US dollar was better bid yesterday, but the price recoveries in the dollar could be interesting opportunities to sell the tops, as the dollar is set to give back last year’s gains against most majors, due to the softening Fed expectations, that come along with the recession worries.

The dollar-yen, where some interesting FX action is expected to happen this week, is steady-ish around the 128 mark, with JPY bulls waiting in ambush to push the pair lower in case we hear a hawkish development from the Bank of Japan (BoJ) due tomorrow.

Elsewhere, the Canadian inflation – due today, is expected to have eased 0.5% month-on-month in December. A soft inflation read could weigh on the Loonie in the shorter run, but the USDCAD should continue trending lower on the back of a broadly softer US dollar, and a potential recovery in oil prices.