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Monday, Jan 9, 2023

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Risk sentiment was surprisingly positive in the first week of the year. The stock markets ended on a high note after slowing wage growth in the US and faster cooling in Eurozone inflation. After some flip-flopping, Dollar selling re-emerged in the last session. It might take a week or two more to confirm the overall sentiment. If risk-on sentiment is too persist, the greenback would likely be pressured ahead.

Overall, Yen was the worst performer of the week, followed by Euro and then Dollar. Aussie was the strongest one on risk sentiment, and rumor of easing trade restriction by China. Canadian Dollar was second best as support by its own strong job data. Others ended mixed.

Dow rose as bad news became good news

Apparently, bad news is now good news for the markets. In the US, traders initially hesitated to act on stronger than expected non-farm payroll growth, even though unemployment rate also dropped back to five-decade lows. Slower than expected wages growth was the factor pulling traders back. Then, investors cheered the worse than expected ISM services data which indicated contraction and hit the worst level since 2009.

The net result could be slower tightening by Fed ahead, with possibility of a lower than 5% terminal rate. Indeed, fed fund futures are now pricing in 76% chance of just a 25bps hike at the February 1 FOMC meeting, up from 37% a month ago. But of course, there is still another set of inflation data before the meeting, and thus, the expectations could still change.

Anyways, DOW closed up 700.53 pts or 2.13% on Friday. Pull back from 34712.28 might have completed at 32581.97, after drawing support from 55 day EMA, as well ass 55 week EMA. Further rebound is now in favor in the near term for retesting 34712.28 high. It's still early to call for upside breakout. But even if the corrective pattern would extend with another fall leg, the range could be set already by 38.2% retracement of 28660.94 to 34712.28 at 32400.66.

FTSE hit 3-year high, DAX ready for upside breakout

Meanwhile, it should be emphasized that risk-on sentiment was seen in Europe too. FTSE 100 has indeed closed at a 3-year high, with boost from ONS data that UK gas prices fell -20% in the final week of December. Meanwhile, Halifax reported that house prices fell -2.5% in Q4, the worst decline since 2009. Home construction activity fell at the sharpest rate since May 2020.

For the near term, outlook in FTSE will remain bullish as long as 7302.81 support holds. It's probably now heading through record high at 7903.50 to 61.8% projection of 5525.52 to 7687.27 from 6707.62 at 8043.58.

DAX also closed strongly last week, with help from Eurozone CPI data, which indicated quicker than expected slowing in headline consumer inflation. DAX drew notable support from 55 day EMA and 55 week EMA, which are bullish signs. Immediate focus is now on 14675.84 resistance. Sustained break there will resume whole rally from 11862.84 towards 16290.19 high.

Dollar index recovery capped, slim chance for a bounce

Dollar index's recovery last week was capped below 105.82 resistance, as well as 55 day EMA (now at 106.23). The condition for a near term bullish reversal is there, with DXY pressing 55 week EMA (now at 104.04), as well as 102.99/103.82 long term support zone. However, if risk on sentiment is going to persist, or even intensify, there is little chance for a sustainable bounce in DXY.

Indeed, break of 103.39 will resume the fall from 114.77 to 50% retracement of 89.20 to 114.77 at 101.98, or further, before bottoming. On the other hand, break of 105.82, followed by sustained trading above 55 day EMA, will turn near term outlook bullish for a stronger rebound.

Gold resumed near term rally, heading to 1900

Dollar's sluggishness was accompanied by rally resumption in Gold last week. For the near term outlook will stay bullish as long as 1824.90 support holds. Next target is 100% projection of 1616.51 to 1786.63 from 1728.48 at 1898.80. Firm break there could prompt upside acceleration towards 161.8% projection at 2004.05.

Also, it should be noted that long term consolidation pattern from 2074.84 (2020 high) could have completed with three waves down to 1616.51, after drawing support from 55 month EMA. If that's the case, retest of 2074.84 would be seen in the medium term. That could correspond to more downside in Dollar.

EUR/USD Weekly Outlook

EUR/USD dropped to 1.0482 last week as consolidation from 1.0733 extended. But downside was contained by 1.0481 resistance support. Initial bias stays neutral this week first. On the upside, firm break of 1.0733 will resume whole rally from 0.9534. Nevertheless, sustained break of 1.0481 will extend the correction to 1.0289 support and below.

In the bigger picture, focus stays on 38.2% retracement of 1.2348 (2021 high) to 0.9534 at 1.0609. Rejection by 1.0609 will suggest that price actions from 0.9534 medium term bottom are developing into a corrective pattern. Thus, medium bearishness is retained for another fall through 0.9534 at a later stage. However, sustained break of 1.0609 will raise the chance of trend reversal and target 61.8% retracement at 1.1273.

In the long term picture, as long as 1.0635 support turned resistance holds (2020 low), long term down trend from 1.6039 (2008) could still extend through 0.9534 at a later stage. However, sustained break of 1.0635 will confirm bottoming and at least turn long term outlook neutral.

EUR/USD dropped to 1.0482 last week as consolidation from 1.0733 extended. But downside was contained by 1.0481 resistance support. Initial bias stays neutral this week first. On the upside, firm break of 1.0733 will resume whole rally from 0.9534. Nevertheless, sustained break of 1.0481 will extend the correction to 1.0289 support and below.

In the bigger picture, focus stays on 38.2% retracement of 1.2348 (2021 high) to 0.9534 at 1.0609. Rejection by 1.0609 will suggest that price actions from 0.9534 medium term bottom are developing into a corrective pattern. Thus, medium bearishness is retained for another fall through 0.9534 at a later stage. However, sustained break of 1.0609 will raise the chance of trend reversal and target 61.8% retracement at 1.1273.

In the long term picture, as long as 1.0635 support turned resistance holds (2020 low), long term down trend from 1.6039 (2008) could still extend through 0.9534 at a later stage. However, sustained break of 1.0635 will confirm bottoming and at least turn long term outlook neutral.

USD/JPY rebounded after dipping to 129.49 last week, but failed to break through 134.49 resistance decisively. Initial bias remains neutral this week first. On the upside, firm break of 134.49 should confirm short term bottoming, and bring stronger rise to 138.16 cluster resistance (38.2% retracement of 151.93 to 129.49 at 138.06). However, break of 129.49 will resume the whole decline from 151.93 instead.

In the bigger picture, a medium term top was in place at 151.93. Sustained trading below 55 week EMA (now at 131.73) would raise the chance of bearish trend reversal. Deeper fall would be seen to 61.8% retracement of 102.58 to 151.93 at 121.43. This will now remain the favored case as long as 55 day EMA (now at 137.08) holds.

In the long term picture, rise from 102.58, as part of the up trend from 75.56 (2011 low) was put to a halt at 151.93, just ahead of 100% projection of 75.56 to 125.85 from 102.58 at 152.87. There is no clear sign of long term reversal yet. Such up trend is expected to resume at a later stage, as long as 125.85 resistance turned support holds.

GBP/USD rebounded after edging lower to 1.1840 last week. Break of 1.0286 minor resistance argues that correction from 1.2445 has completed after drawing support from 55 day EMA. Initial bias is now on the upside this week for retesting 1.2445 high. On the downside, however, break of 1.1840 will resume the decline to 38.2% retracement of 1.0351 to 1.2445 at 1.1645.

In the bigger picture, rise from 1.0351 medium term bottom is at least correcting whole down trend from 1.4248 (2021 high). Further rise is expected as long as 1.1644 resistance turned support holds. Next target is 61.8% retracement of 1.4248 to 1.0351 at 1.2759. Sustained break there will pave the way back to 1.4248.

In the longer term picture, as long as 1.4248 resistance holds (2021 high), long term outlook will remain neutral at best. Down trend from 2.1161 (2007) could still resume for another low through 1.0351 at a later stage.

USD/CHF gyrated higher to 0.9407 last week but failed to extend gain. Initial bias is turned neutral this week first. On the upside, break of 0.9407 will resume the rebound to 38.2% retracement of 1.0146 to 0.9199 at 0.9561. However, firm break of 0.9199 will resume the whole decline from 1.0146 instead.

In the bigger picture, rise from 0.8756 (2021 low) has completed at 1.0146, well ahead of 1.0342 long term resistance (2016 high). Based on current downside momentum, fall from 1.0146 might be a medium term down trend itself. Sustained break of 61.8% retracement of 0.8756 to 1.0146 at 0.9287 will pave the way to 0.8756. In any case, risk will stay on the downside as long as 0.9545 resistance holds.

In the long term picture, long term sideway pattern from 1.0342 (2016 high) is extending and it's probably in another medium term down leg. Downside will likely be contained by 0.8756 support in case of deeper fall. Overall, range trading should continue until further development.

AUD/USD stayed in the consolidation pattern from 0.6892 last week and outlook is unchanged. Initial bias remains neutral first. On the upside, firm break of 0.6892 will resume rise from 0.6169 and target 0.7135 resistance next. However, on the downside, sustained break of 38.2% retracement of 0.6169 to 0.6892 at 0.6616 will indicate rejection by 0.6871 fibonacci level. Deeper fall should then be seen to 61.8% retracement at 0.6445 and possibly below.

In the bigger picture, it's still unsure if price actions from 0.6169 medium term bottom are developing into a corrective pattern or trend reversal. Rejection by 38.2% retracement of 0.8006 to 0.6169 at 0.6871 will maintain medium term bearishness for another fall through 0.6169 at a later stage. However, firm break of 0.6871, and sustained trading above 55 week EMA (now at 0.6897) will raise the chance of the start of a bullish up trend.

In the long term picture, the down trend from 0.8006 could still be seen as a corrective move, considering that it failed to break through 161.8% projection of 0.8006 to 0.7105 from 0.7660 at 0.6202 decisively. Strong rebound from current level will keep long term outlook neutral first. However, sustained break of 0.6202 will open up deep fall to retest 0.5506.

USD/CAD gyrated lower last week as the decline from 1.3704 extended. For now, price actions from there are still more likely corrective than not. Hence, while deeper decline could be seen, downside should be contained well above 1.3224 low. On the upside, break of 1.3704 will confirm resumption of the rise from 1.3224.

In the bigger picture, as long as 1.3222 cluster support (38.2% retracement of 1.2005 to 1.3976 at 1.3223) holds, larger up trend from 1.2005 (2021 low) is still expected to resume through 1.3976 high at a later stage. However, firm break of 1.3222/3 will indicate that the trend might have reversed. Deeper fall would be seen to next cluster support at 1.2726 (61.8% retracement at 1.2758).

In the longer term picture, price actions from 1.4689 (2016 high) are seen as a consolidation pattern only, which might have completed at 1.2005. That is, up trend from 0.9506 (2007 low) is expected to resume at a later stage. This will remain the favored case as 55 month EMA (now at 1.2953) holds.

GBP/JPY recovered after initial fall to 155.33 last week, but upside is kept well below 162.32 resistance. Initial bias remains neutral this week first. On the downside, break of 155.33 will resume the fall from 172.11 to 153.70 fibonacci level. Nevertheless, considering bullish convergence condition in 4 hour MACD, firm break of 162.32 will argue that such decline has completed, and turn bias back to the upside for 55 day EMA (now at 163.55) and above.

In the bigger picture, as long as 153.02 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 153.02 support turned resistance will argue that the decline has completed, and retain medium term bullishness.

In the longer term picture, as long as 55 month EMA (now at 152.38) holds, rise from 122.75 could still extend higher at a later stage.

EUR/JPY rebounded strongly last week after initial fall to 137.37. But upside is kept well below 142.92 resistance. Initial bias stays neutral this week first. On the downside, break of 137.37 will resume the decline from 148.38 to 135.40 fibonacci level. However, considering bullish convergence condition in 4 hour MACD, break of 142.92 will argue that the correction from 148.38 might have completed. Intraday bias will be turned back to the upside for 146.71 resistance.

In the bigger picture, as long as 55 week EMA (now at 138.55) 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.

In the long term picture, outlook will stay bullish as long as 134.11 resistance turned support holds (2021 high). Sustained break of 149.76 (2014 high) will open up further rally, as resumption of the rise from 94.11 (2012 low), towards 169.96 (2008 high).