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USD/CAD's rise from 1.3224 resumed through 1.3699 last week after interim pull back. Initial bias is back on the upside this week. The favored case is still that correction from 1.3976 has completed at 1.3224. Break of 1.3807 will bring retest of 1.3976 high.

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 long as 1.2061 support holds, which is close to 50% retracement of 0.9406 to 1.4689 at 1.2048.

Despite edging higher to 169.26 last week, GBP/JPY quickly reversed. Initial bias remains neutral this week first. On the downside, break of 164.02 support will resume the whole fall from 172.11 through 163.02 support. On the upside, above 169.26 will target a retest on 172.11 high.

In the bigger picture, medium term upside momentum has been diminishing as seen in bearish divergence condition in weekly MACD. Sustained break of 55 week EMA (now at 161.09) will argue that it's already correcting whole up trend from 123.94 (2020 low). Nevertheless, before that, such up trend could still extend through 172.11 high.

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's rally last week argues that correction from 148.38 has completed at 140.75 already. But as a temporary top was formed at 146.71, initial bias is turned neutral this week first. On the upside, break of 146.71 will resume the rise from 140.75 to retest 148.38 high. However, break of 143.48 support will dampen this bullish case and bring deeper fall back to 140.75 support instead.

In the bigger picture, as long as 55 week EMA (now at 138.32) 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 before completing the correction from 148.38.

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).

EUR/GBP's strong rebound last week confirmed short term bottoming at 0.8545. Initial bias is mildly on the upside this week for 0.8827 resistance. Firm break there will argue that whole decline from 0.9267 has completed and turn near term outlook bullish. On the downside, break of 0.8675 minor support will turn intraday bias neutral instead.

In the bigger picture, fall from 0.9267 is seen as a down leg inside long term range pattern. Deeper fall could be seen towards 0.8201/8338 support zone. But strong support should be seen there to bring reversal. Nevertheless, firm break of 0.8827 resistance will turn favor to the case that such decline is merely a correction in the up trend from 0.8201. That is, further rally would be seen at a later stage through 0.9267.

In the long term picture, long term range pattern is extending. But rise from 0.6935 (2015 low) is expected to extend at a later stage, to 0.9799 (2009 high).

EUR/AUD's rise from 1.4281 resumed last week and hit as high as 1.5916. Initial bias remains on the upside this week for 61.8% projection of 1.4281 to 1.5704 from 1.5271 at 1.6150. On the downside, below 1.5724 minor support will turn bias neutral and bring consolidations. But outlook will remain bullish as long as 1.5441 support holds, in case of retreat.

In the bigger picture, strong support from 55 day and 55 week EMA affirms underlying bullishness. As long as 1.5271 support holds, rise from 1.4281 medium term bottom is expected to continue to 1.6434 key resistance next. Decisive break there should confirm medium term bullish trend reversal.

In the longer term picture, sustained trading above 55 month EMA (now at 1.5603) will raise the chance of bullish trend reversal, and at least bring further rally to 1.6434 cluster resistance, 38.2% retracement of 1.9799 (2020 high) to 1.4281 at 1.6389. Firm break of 1.6434 will turn outlook bullish.

EUR/CHF's consolidation pattern from 0.9953 continued last week and overall outlook is unchanged. Initial bias stays neutral this week first. On the upside, firm break of 0.9953 resistance will resume larger rally from 0.9407 to 1.0072 fibonacci level. However, break of 0.9720 will extend the decline from 0.9953 to 61.8% retracement of 0.8407 to 0.9953 at 0.9616.

In the bigger picture, as long as 38.2% retracement of 1.1149 to 0.9407 at 1.0072 holds, price actions from 0.9407 medium term bottom will be treated as a corrective pattern. That is, long term down trend would resume through this low at a later stage. Nevertheless, firm break of 1.0072 will also have 55 week EMA (now at 1.0074) taken out. That would be an initial sign of long term bullish reversal.

In the long term picture, capped well below 55 month EMA, EUR/CHF is seen as extending the multi-decade down trend. There is no prospect of a bullish reversal until firm break of 1.0505 support turned resistance (2020 low). In case of resumption, next target is 138.2% projection of 1.2004 to 1.0505 to 1.1149 at 0.9033.

Monday, Dec 19, 2022

Tuesday, Dec 20, 2022

Wednesday, Dec 21, 2022

Thursday, Dec 22, 2022

Friday, Dec 23, 2022

Summary

Forecast Changes

• We have not made significant changes to our country-specific or global growth outlooks, and continue to believe the global economy will enter recession in 2023. As of now, we believe over 35% of the global economy will slip into recession next year, and forecast global GDP growth of just 1.7%. Should our global GDP forecast prove accurate, the global economy will grow at the slowest pace since the early 1980s.
• While inflation has likely peaked, we believe central banks will continue to prioritize controlling inflation and will raise interest rates into early 2023. However, tightening cycles are likely to end early next year, and as inflation recedes, we believe most central banks will shift toward supporting growth. We expect select G10 central banks to ease monetary policy by the end of 2023; however, central banks in the emerging markets may decouple and initiate easing cycles earlier in the year.
• Our view on the U.S. dollar is little changed, and we continue to believe the greenback can experience a bout of renewed strength into early 2023. With the Fed likely to deliver more hikes than markets are priced for, a hawkish Fed should support the greenback. In addition, more Fed hikes combined with an ECB that is now set to deliver aggressively on rate hikes should result in further unsettled global financial markets. Volatile global financial markets should attract safe haven support to the dollar and boost the greenback into Q1-2023.

Key Themes

• Our key theme for 2023 is that of trade-offs, meaning, the combination of elevated inflation and aggressive central bank tightening in 2022 is likely to lead to recessionary conditions forming across many of the world's largest economies, both developed and emerging, in 2023. Higher interest rates can hurt consumers across the G10, especially those economies saddled with an elevated amount of household debt and variable rate mortgages.
• The inflation issues that defined 2022 will largely still be present in 2023. While headline inflation is likely headed on a downward trajectory, core inflation can prove to be more persistent and remain above central bank target ranges for all of next year. With inflation still elevated, central banks still have work to do as far as containing price growth. However, with recessions imminent, policymakers are likely to shift toward supporting growth and protecting against deep and prolonged economic downturns.
• Geopolitical developments rattled financial markets and disrupted global economic trends this year, and while the 2023 election calendar is light, politics and geopolitics can still have an impact on the global economy and financial markets. We will be particularly focused on the evolution of local politics in the emerging markets, with more of a focus on previously elected administrations in Latin America as well as upcoming presidential elections in Argentina and Turkey.

Full report here.

Summary

United States: Slowing Price Growth a Welcome Reprieve, FOMC Signals More Work Ahead

• Headline and core CPI surprised to the downside in November, rising 0.1% and 0.2%, respectively. The FOMC slowed its pace of monetary policy tightening, raising the fed funds rate 50 bps to a range of 4.25%-4.50%. Retail sales flopped and industrial production slipped. All signs point to a bumpy road ahead.
• Next week: Housing Starts, Existing & New Home Sales (Tue/Wed/Fri), Leading Economic Index (Wed), Personal Income & Spending (Fri)

International: Here a Hike, There a Hike, Everywhere a Rate Hike

• The European Central Bank (ECB) raised its policy rate 50 bps to 2.00% and announced plans to begin quantitative tightening in March. Its accompanying commentary was hawkish in tone, and we now expect the ECB to raise its policy rate to 3.25% through the first half of 2023. The Bank of England raised its policy rate 50 bps to 3.50% and struck a more balanced tone, while the Swiss National Bank hiked rates 50 bps and Norway's central bank hiked rates 25 bps.
• Next week: Bank of Japan & Japan CPI (Tue/Thu), Canada GDP & CPI (Wed/Fri)

Interest Rate Watch: Markets Scoff at More Hawkish FOMC Rate Projections

• The FOMC may have slowed its pace of tightening, but the committee delivered a hawkish message about how high the fed funds rate may ultimately need to rise and how long it may need to stay elevated. However, markets appear skeptical that the FOMC will deliver, likely due to differing views on inflation.

Topic of the Week: The Trophy (and a GDP Boost) Are on the Line in the 2022 World Cup Final

• After 62 matches, the road ends here for the 2022 World Cup. Argentina and France will duel in Doha this Sunday in an enticing final matchup to decide which nation will be crowned world champions for the next four years. A World Cup win would be a welcome distraction, and potential economic benefit, to either country as both Argentina's and France’s economies are looking far less golden than their football squads.

Full report here.

US

Wall Street will have a busy week of economic data releases and a handful of important earnings.  Investors will pay close attention to Nike’s results after the bell on Tuesday. Nike could provide insight into how strong the Chinese consumer is and provide one of the latest updates for holiday spending.  Other key earnings include General Mills, Carmax, Micron, and FedEx.

Housing economic indicators will be plentiful this week, with weakness expected across building permits, housing starts, existing home sales, and new home sales. Final Q3 GDP is expected to remain at 2.9% and the GPD price index should hold steady at 4.3%.  Personal income and spending data should soften but still remain positive, while consumer confidence is expected to slightly improve.

EU 

As will be the case in many other countries next week, there isn’t too much of note to come from the eurozone next week. The ECB unofficially brought the curtain down on 2022 for the bloc with its 0.5% rate hike, while signaling more will follow. There are a few data points scheduled but nothing stands out that could be a game-changer.

UK 

Strike action is likely to dominate UK headlines over the festive period, with little else to talk about beyond the cost-of-living crisis. The BoE displayed two things with its 0.5% rate hike in December; it currently remains committed to defeating high inflation whatever the cost and there is no unified view on the correct course of action next year. The economy is already likely in recession and that will become clearer in the first quarter, at which point rate hikes will be harder to justify if inflation is falling. That is the focus now in the absence of any notable events next week, beyond a revised third-quarter GDP reading.

Russia

The war in Ukraine and whether either side will make a move over the next couple of weeks will be the key focus as far as Russia is concerned. The central bank has paused its rate-cutting cycle and beyond PPI, it’s very thin on the data front.

South Africa

There is nothing of note on the economic calendar next week. President Ramaphosa is seemingly safe for now, temporarily eradicating political risk from the rand, assuming he is re-elected party leader this weekend, as expected.

Turkey

The CBRT previously indicated that it will pause its easing cycle which should make next week’s rate decision fairly straightforward and uneventful. If we weren’t talking about the CBRT, I would say that with more confidence. As it is, nothing would surprise me, barring a rate hike of course.

Switzerland

The SNB hiked rates as expected to 1% and could go further in the future. Next week though looks a little flat, with the quarterly bulletin the only moderately interesting release.

China

China’s reopening is seeing a surge in cases that could test some healthcare capacity. Any announcements on major changes to policies might be delayed if this surge shows no signs of peaking.

The focus will also fall on rates.  Both the 1-year and 5-year Loan Prime Rates are expected to remain steady at 3.65% and 4.30% respectively.  Efforts are ongoing to stabilize the property sector and commercial banks could lower their quotes on five-year loan prime rates by 10 basis points.

India

No major data is scheduled for release.

Australia & New Zealand

The minutes of the December 6th RBA policy decision will be dissected for any further clues to when they will finish raising rates.  RBA Governor Philip Lowe said that rate rises are “not on a pre-set course”.

Economic data will be plentiful in New Zealand. Both Trade data and ANZ business confidence will be released on Tuesday. On Wednesday, credit card spending data will be released.

Japan

The BoJ is expected to keep rates steady and maintain their dovish guidance. Policymakers want to see how bad global growth gets before removing stimulus.  Traders will look for any hints on whether the BoJ will review its policy in the near future. Attention will also be on whether core inflation continues to accelerate higher.

Singapore

On Friday, the release of Singapore’s industrial production and CPI data will closely be watched.  Industrial production in November is expected to further weaken, while inflation is expected to slightly ease.

Economic Calendar

Saturday, Dec. 17

Economic Events

• The Central Economic Work Conference, an annual economic planning meeting of Chinese leaders concludes with an expected growth target to be discussed
• South Africa’s governing party, the African National Congress, meets in Johannesburg for its elective conference
• Ireland’s parliament is expected to vote in Leo Varadkar as Taoiseach, or prime minister

Sunday, Dec. 18

Events

• World Cup final in Qatar

Monday, Dec. 19

Economic Data/Events

• US House committee investigating January 6th insurrection concludes
• Germany IFO business climate
• New Zealand consumer confidence, performance services index
• ECB Vice President de Guindos addresses the Nuevo Economía Forum in Madrid
• EU energy ministers meet in Brussels
• Russian Defense Minister Shoigu travels to India for meetings with his Indian counterpart and other officials

Tuesday, Dec. 20

Economic Data/Events

• US housing starts
• Canada retail sales
• China loan prime rates
• Eurozone consumer confidence
• Japan rate decision: Expected to hold rates steady
• Mexico international reserves
• New Zealand trade, business confidence
• Taiwan export orders
• Thailand car sales
• ECB Governing Council member Kazimir presents updated economic forecasts for Slovakia in Bratislava
• UK PM Sunak appears before Parliament’s Liaison Committee to discuss foreign affairs and the economy
• Nike earnings
• The Reserve Bank of Australia releases minutes from its December interest rate meeting

Wednesday, Dec. 21

Economic Data/Events

• US existing home sales, US Conference Board consumer confidence
• Australia leading index
• Canada CPI
• Hong Kong BoP
• Japan machine tool orders
• New Zealand credit card spending, consumer confidence
• South Korea trade 20 days
• EIA crude oil inventory report
• RBI Gov Das to speak at a Business Standard event

Thursday, Dec. 22

Economic Data/Events

• US Q3 final GDP, initial jobless claims, US Conference Board leading index
• China Swift global payments
• Japan leading index
• Thailand trade
• Turkey rate decision: May keep rates steady
• UK GDP

Friday, Dec. 23

Economic Data/Events

• US consumer income, new home sales, durable goods, University of Michigan consumer sentiment
• US bond markets close at 2pm
• Japan CPI, department store sales
• Mexico trade
• Singapore CPI, industrial production
• Spain GDP
• Taiwan industrial production, money supply
• Thailand forward contracts, foreign reserves
• The BOJ releases minutes of its October policy meeting