Sample Category Title

• NZDCAD reversed from major resistance level 0.8760
• Likely to fall to support level 0.8500

NZDCAD recently reversed down from the major resistance level 0.8760 (which has been reversing the pair from last December, as can be seen below).

The downward reversal from the resistance level 0.8760 started the active short-term correction 4.

NZDCAD can be expected to fall further toward the next support level 0.8500 (forecast price for the completion of the active short-term correction 4).

The Australian dollar has posted sharp losses on Tuesday.  AUD/USD is trading at 0.6647 in the North American session, down 0.77%.

Minutes – RBA considered pause

The markets were hoping that the RBA minutes would provide clues as to when the RBA might wind up its tightening cycle, and the RBA appeared to deliver the goods. The minutes indicated that the central bank considered pausing its tightening in December, although in the end board members voted for a third-straight hike of 25 basis points. This marked the first time since the tightening cycle started in May that board members made a case for no change and indicates that the current cycle may be close to its end. The minutes noted that according to the Bank’s forecasts, inflation would not return to the 2% to 3% target for several years, and members also stated that no other central bank had yet paused.

The RBA is being careful not to show its hand, with the minutes stating that there was “considerable uncertainty” in the economic outlook and that rate hikes were “not on a pre-set path”. With the next rate meeting not until late February, it’s wait-and-see time for the RBA. Inflation remains the RBA’s number one priority, but policy makers are aware of the pain that high inflation and rising interest rates are causing to businesses and households. The RBA would love to pause, but it will need to first see evidence that inflation is definitely on the way down. If the RBA ends tightening too early, there is the danger of a price-wage spiral, which would greatly complicate the battle against inflation.

AUD/USD Technical

• AUD/USD has support at 0.6611 and 0.6535
• There is resistance at 0.6752 and 0.6828

Daily Pivots: (S1) 1.0569; (P) 1.0614; (R1) 1.0651; More...

Intraday bias in EUR/USD stays neutral and outlook is unchanged. Further rally is expected as long as 1.0481 resistance turned support holds. Firm break of 61.8% projection of 0.9729 to 1.0481 from 1.0289 at 1.0754 will pave the way to 100% projection at 1.1041. However, firm break of 1.0481 will confirm short term topping and bring deeper fall to 1.0289 support.

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.

Daily Pivots: (S1) 1.2097; (P) 1.2170; (R1) 1.2218; More...

No change in GBP/USD's outlook as intraday bias stays mildly on the downside. Fall from 1.2445 short term top is in progress for 55 day EMA (now at 1.1874). Firm break there will target 38.2% retracement of 1.0351 to 1.2445 at 1.1645. For now, risk will stay on the downside as long as 1.2445 resistance holds, in case of recovery.

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. This will remain the favored case as long as 55 day EMA (now at 1.1874) holds.

Daily Pivots: (S1) 136.05; (P) 136.61; (R1) 137.46; More...

Intraday bias in USD/JPY remains on the downside at this point. Immediate focus is now on 55 week EMA (now at 131.76). Decisive break there will pave the way to next fibonacci level at 121.43. For now, risk will stay on the downside as long as 138.16 resistance holds, in case of recovery.

In the bigger picture, price actions from 151.93 medium term could be just a corrective pattern to up trend from 102.58 (2021 low). Strong support from 38.2% retracement of 102.58 to 151.93 at 133.07 and 55 week EMA (now at 131.76) will set the range for such corrective pattern. However, sustained break of 55 week EMA will pave the way to 61.8% retracement at 121.43.

Yen remains the biggest winner of the day, and maintains most gains in early US session. It remains to be seen how long the impact of BoJ's tweak of the yield curve control would last. But any, Yen is enjoying the ride for now. Australian and New Zealand Dollar are the weaker ones so far, but others are mixed against each other. US and Canadian Dollars are having slight upper hands over Europeans. But respects pairs are generally range bound.

Technically, it should be noted that USD/JPY is now in proximity to 55 week EMA (now at 131.72) after today's steep decline. The EMA could provide enough support for at least an interim rebound. If that happens, it would likely be accompanied by a strong bounce in Dollar elsewhere, including break of 1.0481 support in EUR/USD and 0.9378 resistance in USD/CHF. Let's see.

In Europe, at the time of writing, FTSE is up 0.04%. DAX is down -0.33%. CAC is down -0.27%. Germany 10-year yield is up 0.075 at 2.279. Earlier in Asia, Nikkei dropped -2.46%. Hong Kong HSI dropped -1.33%. China Shanghai SSE dropped -1.07%. Singapore Strait Times dropped -0.08%. Japan 10-year JGB yield rose 0.1619 to 0.418.

Canada retail sales rose 1.4% mom in Oct, but volume was unchanged

Canada retail sales rose 1.4% mom to CAD 62.0B in October, below expectation of 1.5% mom, and the largest in crease in five month. Sales were up in 6 out of 11 subsectors, representing 84.4% of retail trade. Growth was led by higher sales at gasoline stations (+6.8%) and food and beverage stores (+2.2%). Excluding gasoline stations and motor vehicle and parts, sales rose 0.9%.

In volume terms, retail sales were unchanged for the month.

Based on advance estimate, sales decreased -0.5% mom in November.

BoJ tweaks YCC to allow 10-yr yield to rise to 0.50%

BoJ surprises the markets today by widening the band of 10-year JGB yield from 0.25% to 0.50% today. At the same time, short term policy rate is kept unchanged at -0.10% as expected.

Under the yield curve control framework, the central bank will still continue to purchases JGBs without an upper limit to keep 10-year yield at around 0%. But now, the bank will offer to purchase 10-year JGB yields at 0.50% every business day through fixed-rate operations, effectively allowing 10-year yield to rise towards 0.50% level.

BoJ Kuroda: Yield cap raised to correction distortions in yield curve

BoJ Governor Haruhiko Kuroda said in the post meeting press conference, "Overseas market volatility has heightened from around spring ... While we have kept the 10-year bond yield from exceeding the 0.25% cap, this has caused some distortions in the shape of the yield curve. We, therefore, decided that now was the appropriate timing to correct such distortions and enhance market functions." That's led to the decision today to raise the cap from 0.25% to 0.50%.

"Consumer inflation has hit 3.6% mainly through rising import costs from a weak yen. Furthermore, inflation expectations are heightening. This is pushing down real interest rates and enhancing the stimulus effect on the economy. As such, while we've (widened the band) to correct distortions in the yield curve, the move won't diminish the effect of YCC," he added.

But Kuroda also indicated, "I don't think we need to review YCC or quantitative easing for the time being." "It's premature to debate specifics on changing the monetary policy framework or an exit from easy policy. When achievement of our target comes into sight, the BOJ's policy board will hold discussions on an exit strategy and offer communication to markets," he said.

RBA considered 50bps, 25bps, and no change at Dec meeting

Minutes of RBA's December 6 meeting indicates that the board has considered three interest rate options of a 50bps hike, a 25bps hike, and no change.

The argument for a 50bps increase stemmed from inflation remains "too high", and there were factors support a "more pre-emptive action". For a 25bps increase, the board acknowledged there had bee already a "significant cumulative increase" in interest rates and they would "begin to have more of an effect through the course of 2023". The arguments for now chance placed"further emphasis of the lagged effect" of prior rate increases.

Board members eventually decided that the case for 25bps increase was the"strongest one", as further hike was "likely to be necessary". Members also noted the "importance of acting consistently".

The minutes also reiterated that "the Board expects to increase interest rates further over the period ahead, but it is not on a pre-set path. Members noted that the size and timing of future interest rate increases would continue to be determined by the incoming data and the Board's assessment of the outlook for inflation and the labour market."

NZ ANZ business confidence fell to fresh record low

New Zealand ANZ business confidence declined from -57.1 to -70.2 in December, a new record low. Looking at some details, own activity outlook fell from -13.7 to -25.6. Export intentions dropped form -5.4 to -10.0. Investment intentions dropped form -8.1 to -20.5. Employment intentions dropped from -4.0 to -16.3. Pricing intentions rose from 58.5 to 59.1. Cost expectations declined form 88.7 to 84.4. Inflation expectations dropped from 6.39 to 6.23.

ANZ said: "The fall in business confidence is certainly dramatic, but while it's at a fresh record low, it would be incorrect to read this as an indication that any recession is likely to be unusually severe. Rather, it's unusually widely anticipated. It's a situation unprecedented in recent decades for a central bank to admit it is deliberately engineering a recession."

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9265; (P) 0.9307; (R1) 0.9328; More...

Intraday bias in USD/CHF remains neutral for the moment, but further decline is in favor with 0.9378 resistance intact. On the downside, break of 0.9214 will resume the fall and target 61.8% projection of 1.0146 to 0.9355 from 0.9545 at 0.9056. However, break of 0.9378 resistance will indicate short term bottoming and turn bias back to the upside for 0.9545 resistance 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.

Economic Indicators Update

Daily Pivots: (S1) 0.9265; (P) 0.9307; (R1) 0.9328; More...

Intraday bias in USD/CHF remains neutral for the moment, but further decline is in favor with 0.9378 resistance intact. On the downside, break of 0.9214 will resume the fall and target 61.8% projection of 1.0146 to 0.9355 from 0.9545 at 0.9056. However, break of 0.9378 resistance will indicate short term bottoming and turn bias back to the upside for 0.9545 resistance 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.

Canada retail sales rose 1.4% mom to CAD 62.0B in October, below expectation of 1.5% mom, and the largest in crease in five month. Sales were up in 6 out of 11 subsectors, representing 84.4% of retail trade. Growth was led by higher sales at gasoline stations (+6.8%) and food and beverage stores (+2.2%). Excluding gasoline stations and motor vehicle and parts, sales rose 0.9%.

In volume terms, retail sales were unchanged for the month.

Based on advance estimate, sales decreased -0.5% mom in November.

Full release here.

USD/CAD has edged lower on Tuesday. In the European session, USD/CAD is at 1.3626, down 0.19%. We could see stronger movement in the North American session when Canada releases the November retail sales report.

Will retail sales bounce back?

Canada’s retail sales were soft in October, as the headline reading came in at -0.5% and core retail sales at -0.7%. The markets are expecting a mixed report for November, with a consensus of -0.3% for the headline and 0.8% for core retail sales. This will be followed on Wednesday with the CPI data for November, with headline inflation expected to rise to 7.4%, up from 6.9% a month earlier.

The Bank of Canada will be following the retail sales and inflation data carefully. The BoC raised rates by 50 basis points earlier in December, bringing the cash rate to 4.25%. The Bank’s current rate cycle has been steep, with 425 points of tightening in just nine months. BoC Governor Macklem expressed a mea culpa on Monday, admitting that the BoC had missed the boat on rising inflation, which was a “very big forecast error.” Still, Macklem said that a turnaround in inflation was near.

Over in the US, the Federal Reserve continues to battle with investors, who are not listening to the Fed’s hawkish message and received a cold shower from a hawkish Fed meeting last week. Former New York Fed President Dudley emphasised this point on Monday, warning that investors were ignoring the Fed at their peril, as the Fed would simply continue to tighten if it saw that conditions were becoming too loose. The Fed has projected a terminal rate of 5.00% to 5.25%, a view seconded by Goldman Sachs. However, the money markets have priced in a terminal rate of 4.88%, somewhat more dovish than the Fed.

USD/CAD Technical

• There is weak resistance at 1.3681. The next resistance line is 1.3766
• USD/CAD has support at 1.3596 and 1.3484