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In November, UK payrolled employees rose 107k or 0.4% mom to 29.9m. That also means a rise of 777k or 2.7% yoy over the 12-month period. Early estimates indicate that median monthly pay rose 8.0% yoy. Claimant count rose 30.5k comparing to expectation of 3.5k.

In the three months to October, unemployment rate rose 0.1% to 3.7%, matched expectations. Employment rate rose 0.2% to 75.6%. Economic inactivity rate dropped -0.2% to 21.5%. Average earnings excluding bonus rose 6.1% 3moy, versus expectation of 5.9%. Average earnings including bonus rose 6.1% 3moy, below expectation of 6.2%.

Full release here.

European equities traded in the red at the start of the week, but equities in the US rebounded as investors are hanging on to hope of slower inflation and reasonably hawkish Federal Reserve (Fed) by their fingernails.

Today and tomorrow will tell whether they are right being optimistic or not.

The latest US CPI data will reveal whether inflation in the US eased, and by how much. It’s highly likely that we will see a number below the 7.7% printed a month earlier. But a number below 7.7% won’t be enough as analysts expected it to ease all the way down to 7.3%.

Last Friday, the PPI figure showed that the US factory gate prices eased in November, but not as much as penciled in – leading to some disappointment among investors. Today, a similar disappointment could erase yesterday’s 1.43% rebound in the S&P500 and could easily send the index below its 100-DMA.

But if, by any chance, we see a softer CPI figure, then the S&P500 could easily jump above its 200-DMA, and even above the ytd descending channel top.

But, but, but...

Today’s US CPI data, unless there is a huge surprise, will probably not change the Fed’s plan to hike the interest rates by 50bp this week. Activity on Fed funds futures gives 77% chance for a 50bp hike, and a slim chance of 23% for another 75bp hike.

What will probably change is where investors see the Fed’s terminal rate, and for how long.

More importantly, it will give us an idea on how the market pricing for the Fed’s terminal rate will clash with the dot plot projections that will come out tomorrow, and that will, in all cases, hammer any potentially optimistic market sentiment.

Therefore, even if we see a great CPI print and a nice market rally today, it may not extend past the Fed decision on Wednesday.

Energy up

European stock investors are uncomfortable this week due to the icy cold weather, that will get the countries to tap into the natural gas, and other energy supplies.

The US nat gas prices jumped more than 30% since last week due to a powerful Pacific storm bringing cold and snow to the norther and central plains in the US.

In the UK, power prices hit another ATH yesterday.

Happily, we haven’t seen a significant rise in the European nat gas futures, which in contrary kicked off the week downbeat.

But crude oil rallied as much as 2.60% on Monday as Russia said that the EU’s $60 cap on its oil could lead to supply cuts, as Goldman said that Chinese reopening could boost demand by 1mpd - which would mean a $15 recovery in crude’s price - and as a key pipeline supplying the US closed following a spill discovered last week.

I think that the oil rebound due to these three factors could be short-lived and may offer interesting top selling opportunities for medium term bears looking for a further dip in oil prices to below $70pb. Because, the Russia is not harmed by $60pb currently, US supplies will be restored and the Chinese reopening may not be smooth due to potential disruptions in economic activity, because people are sick.

Don’t count on strong UK GDP

The British GDP grew more than expected last month and that was mostly due to the rebound in activity after Queen Elizabeth’s death slowed activity earlier. But strikes across the country are so severe that they could wipe half a billion pounds off the hospitality industry’s pre-Xmas earnings. PM Rishi Sunak thinks that military staff could help cover for striking workers.

Cable consolidates gains below 1.23 but is at the mercy of the US dollar. The Bank of England (BoE) is expected to hike by 50bp at this week’s MPC meeting, but the hike will certainly be accompanied by dovish statement as the UK economy is not strong enough to withstand a Fed-like tightening in the middle of an energy, and cost-of-living crisis.

Market movers today

The market highlight today will be the US CPI for November. We see upside risks to consensus expectations and look for a decline in headline inflation to 7.4% (from 7.7% in October) on the back of lower energy prices, but with core inflation holding steady at 6.3%. Further signs of peak inflation should strengthen the case for Fed slowing the hiking pace to 50bp at its meeting tomorrow, but an upside surprise could trigger another repricing of a higher terminal rate in 2023. With the latest easing in financial conditions and still strong labour market conditions, we think more tightening will be needed (read more in Fed Preview - Tightening pressure persists into 2023, 8 December).

In the euro area, ZEW expectations are on the agenda and it will be interesting to see whether sentiment improved for a second consecutive month in December.

The 60 second overview

Market sentiment: Calm sentiment continued ahead of the key US CPI release today and central bank meetings starting from tomorrow. The New York Fed's consumer survey signalled easing inflation expectations yesterday, with 1y expectation declining to 5.2% (from 5.9%) and 5y to 2.3% (from 2.4%), somewhat more optimistic than the last Friday's University of Michigan survey, which showed 5y expectations still elevated at 3.0%. Overall the strength in the latest round of data, including the November Jobs Report as well as the last week's ISM services and November PPI, still suggests that Fed's communication should remain on the hawkish side tomorrow despite the more moderate hiking pace.

China: November credit growth was weaker than expected, as aggregate financing growth slowed down to 10.0 y/y (from 10.3%). The stimulus measures still supported the M2 money growth, even though investments remain weak. That being said, the optimism around reopening will likely be more important than the current data in the near-term, and for example oil prices edged higher yesterday amid prospects of recovering demand. On the political front, yesterday China launched a trade dispute at the WTO against the US over the export controls of microchips announced in October. The announcement marks another step towards weakening bilateral ties between China and the US, which we have expected to remain tense (see Research China - CPC Congress cements Xi's power - and US-China rivalry, 24 October).

FI: Yesterday's rates markets can best be characterised by a wait-a-see session ahead of today's US CPI and the central bank meetings on Wednesday and Thursday. 10y EGB yields ending virtually unchanged on the day. EUR curves pivoted around the 7-10y point with short end selling off by 5bp only late in the session on no apparent news or central bank comments as most are in blackout. 30y point declined 3-4bp.

FX: Brent oil strengthened 5% intraday from the trough yesterday, which helped support commodity currencies somewhat. Otherwise an FX trading session mostly characterized by positioning before today's US CPI with EUR/USD closing flat on the day despite a trading range of one big figure. As for today, we expect markets to sit tight early in the session and later take its cue from the US CPI figure.

Credit: Yesterday, credit markets continued the cautious sentiment ahead of the US CPI report for November, leaving iTraxx Main unchanged (+0.1bp) at 89.4bp, while iTraxx Xover widened by 5.5bp to close the session at 464.1bp. In addition, the primary market activity was relatively muted.

Daily Pivots: (S1) 0.9841; (P) 0.9858; (R1) 0.9880; More....

Sideway trading continues in EUR/CHF and intraday bias stays neutral at this point. 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, price actions from 0.9407 medium term bottom are currently seen as a corrective pattern, rather than trend reversal. Down trend resumption through 0.9407 is mildly favored at a later stage. This will remain the favored case now, as long 38.2% retracement of 1.1149 to 0.9407 at 1.0072 holds.

Daily Pivots: (S1) 0.8571; (P) 0.8595; (R1) 0.8615; More...

Intraday bias in EUR/GBP stays neutral and outlook is unchanged. Further decline is expected with 0.8674 resistance intact. Break of 0.8545 will resume the fall from 0.9267, and target 61.8% projection of 0.9267 to 0.8647 from 0.8827 at 0.8444 next. On the upside, above 0.8674 minor resistance will indicate short term bottoming, and bring stronger rebound back to 0.8827 instead.

In the bigger picture, current development suggests that fall from 0.9267 is 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.

Daily Pivots: (S1) 1.5520; (P) 1.5591; (R1) 1.5687; More...

EUR/AUD is staying in consolidation from 1.5747 and intraday bias remains neutral at this point. As long as 1.5271 support holds, further rally is expected. On the upside, firm break of 1.5747 will resume larger rally from 1.4281. Next target is 61.8% projection of 1.4281 to 1.5704 from 1.5271 at 1.6150.

In the bigger picture, as long as 1.5271 support holds, rise from 1.4281 medium term bottom is expected to continue to 1.6434 key resistance next. However, firm break of 1.5271 will argue that such rebound has completed, and keep medium term outlook neutral at best. But in this case, more range trading should be seen above 1.4281 low first.

Daily Pivots: (S1) 167.61; (P) 168.32; (R1) 169.50; More...

GBP/JPY's break of 168.99 resistance suggests that rebound from 163.02 is resuming. Intraday bias is back on the upside for retesting 172.11 high. Firm break there will resume larger up trend. On the downside, however, break of 167.09 will turn intraday bias neutral again , and extend near term corrective pattern.

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 160.90) 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.

USD/JPY:

The current general bias for USDJPY on the H4 chart is bearish. To add confluence to this, the price is crossing under the Ichimoku cloud which indicates a bearish market. If the bearish momentum continues, expect USDJPY to continue heading towards the 1st support at 133.007 where the 88% Fibonacci line is. In an alternative scenario, price could head back up to retest the 1st resistance line at 137.657, where the 61.8% Fibonacci line and previous low are located.

Areas of consideration:

• H4 time frame, 1st resistance at 137.657
• H4 time frame, 1st support at 133.007

DXY:

On the H4 chart, the overall bias for DXY is bearish. To add confluence to this, the price is below the Ichimoku cloud which indicates a bearish market. If this bearish momentum continues, expect the price to continue heading towards the 1st support line at 104.648, where the previous swing low is. In an alternative scenario, price could head back up and retest the 1st resistance line resistance at 106.396, where the 38.2% Fibonacci line is.

Areas of consideration:

• H4 time frame, 1st resistance at 106.396
• H4 time frame, 1st support at 104.648

EUR/USD:

Looking at the H4 chart, my overall bias for EURUSD is bullish due to the current price being above the Ichimoku cloud, indicating a bullish market. To add confluence to this bias, price has also broken above the ascending bullish channel. If this bullish momentum continues, expect the price to possibly head towards the 1st resistance at 1.06014, where the previous swing high and 78.6% Fibonacci line are located., before heading towards the 2nd resistance at 1.07652, where the previous swing high is. In an alternate scenario, price could possibly head back down to break the 1st support level at 1.04484, where the previous high and 38.2% Fibonacci line are located before heading towards the 2nd support at 1.02766 where the 61.8% Fibonacci line is.

Areas of consideration :

• H4 1st resistance at 1.06014
• H4 1st support at 1.04484
• H4 2nd support at 1.02766

GBP/USD:

Looking at the H4 chart, my overall bias for GBPUSD is bullish due to the current price being above the Ichimoku cloud, indicating a bullish market. Expecting price to head back up to possibly break the 1st resistance line at 1.22770, where the previous high is, before heading towards the 2nd resistance at 1.26669, where the previous swing high is. In an alternative scenario, price could possibly head back down towards the 1st support at 1.19008, where the 78.6% Fibonacci line is.

Areas of consideration:

• H4 1st resistance at 1.22770
• H4 2nd resistance at 1.26669
• H4 1st support at 1.19008

USD/CHF:

The overall bias for USDCHF on the H4 chart is bearish. In addition, the price is below the Ichimoku cloud, indicating a bearish market. If the current bearish trend continues, expect the price to head back down towards the 1st support line at 0.91932, where the previous swing low and 12.72% Fibonacci extension line is . In an alternative scenario, price could possibly head up towards the 1st resistance at 0.93706, where the previous swing low is .

Areas of consideration

• H4 1st support at 0.91932
• H4 1st resistance at 0.93706

XAU/USD (GOLD):

Looking at the H4 chart, my overall bias for XAUUSD is bullish due to the current price crossing above the Ichimoku cloud, indicating a bullish market. If this bullish momentum continues, expect the price to possibly break the 1st resistance at 1786.545, where the previous swing high is located, before heading towards the 2nd resistance at 1832.405, where the 61.8% Fibonacci projection line is. In an alternate scenario, price could possibly head back down towards the 1st support level at 1727.850, where the previous swing high is located

Areas of consideration:

• H4 time frame, 1st resistance at 1786.545
• H4 time frame, 1st support at 1727.850

AUD/USD:

Looking at the H4 chart, my overall bias for AUDUSD is bullish due to the current price being above the Ichimoku cloud, indicating a bullish market. If this bullish momentum continues, expect the price to break the 1st resistance at 0.67711, where the 61.8% Fibonacci line is, before heading towards the 2nd resistance at 0.69161, where the 78.6% Fibonacci line is. In an alternative scenario, price could possibly head back down towards the 1st support line at 0.65849, where it is slightly above where the 38.2% Fibonacci line is.

Areas of consideration

• H4, 1st resistance at 0.67711
• H4, 2nd resistance at 0.69161
• H4, 1st support at 0.65849

NZD/USD:

Looking at the H4 chart, my overall bias for NZDUSD is bullish due to the current price being above the Ichimoku cloud, indicating a bullish market.

To add confluence to this bias, price has broken out of the ascending channel. If this bullish momentum continues, expect the price to head up to the 1st resistance line at 0.64685, where the previous swing high is. Alternatively, the price may head back down towards the 1st support aat 0.63525, where the 88% Fibonacci line is.

Areas of consideration:

• H4 time frame, 1st resistance at 0.64685
• H4 time frame, 1st support at 0.63525

USD/CAD:

On the H4 chart, the overall bias for USDCAD is bullish. To add confluence to this, the price is above the Ichimoku cloud which indicates a bullish market. If this bullish momentum continues, expect the price to head towards 1st resistance line at 1.38082, where the 78.6% Fibonacci line is. In an alternative scenario, price could head back down to retest the 1st support at 1.35029, where the 38.2% Fibonacci line is.

Areas of consideration:

• H4 time frame, 1st resistance at 1.38082
• H4 time frame, 2nd resistance at 1.39775
• H4 time frame, 1st support at 1.35029

OIL: 

Looking at the H4 chart, my overall bias for BCOUSD is bearish due to the current price being below the Ichimoku cloud, indicating a bearish market. If this bearish momentum continues, expect price to possibly break the 1st support line at 76.859, where the -27.2% Fibonacci expansion line is, before heading towards the 2nd support at 70.430, where the -27.2% Fibonacci expansion line is. In an alternate scenario, price could possibly head back up to retest the 1st resistance line at 81.996, where the previous low is located.

Areas of consideration:

• H4 time frame, 1st resistance at 81.996
• H4 time frame, 1st support at 76.859
• H4 time frame, 2nd support at 70.430

Dow Jones Industrial Average:

On the H4 chart, the overall bias for DJI is bullish. To add confluence to this, the price is above the Ichimoku cloud which indicates a bullish market. If this bullish momentum continues, expect the price to continue heading towards the 1st resistance line at 34106.01, where the previous swing high is. In an alternative scenario, price could head back down towards the 1st support at 32490.37, where the 61.8% Fibonacci line is.

Areas of consideration:

• H4 time frame, 1st support at 32490.37
• H4 time frame, 1st Resistance at 34106.01

DAX:

The H4 chart shows a bullish bias, with price breaking through the descending trendline and rising above the Ichimoku cloud. Price is expected to maintain its bullish momentum and rise to the first resistance level at 14709, where the previous swing high is located. Alternatively, the price could fall to the first support level at 13941, where the previous swing high was.

Areas of consideration:

• H4 time frame, 1st resistance is at 14709
• H4 time frame, 1st support is at 13941

ETHUSD:

Looking at the H4 chart, my overall bias for ETHUSD is bearish due to the current price crossing below the Ichimoku cloud, indicating a bearish market. Expecting price to possibly head back down towards the 1st support at 1071.11, where the previous swing low is. In an alternative scenario, price could break the 1st resistance at 1308.21, where the 38.2% and 78.6% Fibonacci lines are before heading towards the 2nd resistance line at 1384.67, where the 50% and 61.8% Fibonacci lines are.

Areas of consideration:

• H4 time frame, 1st resistance of 1308.21
• H4 time frame, 2nd resistance of 1384.67
• H4 time frame, 1st support at 1071.11

BTCUSD:

Looking at the H4 chart, my overall bias for BTCUSD is bearish due to the current price crossing below the Ichimoku cloud, indicating a bearish market. Expecting price to possibly head back down towards the 1st support at 15632.00, where the previous swing low is. In an alternative scenario, price could possibly break the 1st resistance at 17297.00, where the 23.6% Fibonacci line is before heading towards the 2nd resistance line at 18173.33, where the previous swing low is and 50% Fibonacci line are.

Areas of consideration:

• H4 time frame, 1st resistance 17297.00
• H4 time frame, 2nd resistance 18173.33
• H4 time frame, 1st support at 15632.00

S&P 500:

The overall bias for the S&500 on the H4 chart is bullish, with prices above the Ichimoku cloud. If the bullish momentum continues, the expected price to head towards the 1st resistance line is at 4031.44, where the 61.8% Fibonacci line is located. In an alternate scenario, price could return to the 1st support line at 3907.07, where the 50% Fibonacci line is located.

Areas of consideration:

• H4 time frame, 1st support at 3907.07
• H4 time frame, 1st resistance at 4031.44

Daily Pivots: (S1) 144.14; (P) 144.62; (R1) 145.52; More....

Intraday bias in EUR/JPY remains on the upside for the moment. Correction from 148.38 could have completed with three waves down to 140.75. Further rally would be seen to 146.12 resistance first. Firm break there will bring retest of 148.38 high. On the downside, however, break of 143.16 minor resistance will dampen this bullish case and turn intraday bias neutral again.

In the bigger picture, considering bearish divergence condition in weekly MACD, 148.38 could be a medium term top already. Fall from there is probably correcting whole up trend from 114.42 (2020 low). Deeper decline would be seen to 55 week EMA (now at 138.08), or further to 38.2% retracement of 114.42 to 148.38 at 135.40 before completion.

Yen is so far the clearly weaker one in otherwise ranging markets. Rebound in US stocks and treasury yield overnight was a factor in Yen's selling. But after all, there is no follow through weakness for now. Traders are generally still cautious ahead of the four central bank meetings later in the week. Before that, US CPI release today might also trigger some interim volatility.

Technically, USD/JPY's breach of 137.84 temporary top suggests that rebound from 133.61 is resuming. While upside momentum is weak, further rise will remain mildly in favor as long as 135.59 minor support holds. Next target is 38.2% retracement of 151.93 to 133.61 at 140.60, which is close to 55 day EMA (now at 140.80).

In Asia, at the time of writing, Nikkei is up 0.37%. Hong Kong HSI is up 0.36%. China Shanghai SSE is down -0.07%. Singapore Strait Times is up 0.90%. Japan 10-year JGB yield is down -0.0037 at 0.253. Overnight DOW rose 1.58%. S&P 500 rose 1.43%. NASDAQ rose 1.26%. 10-year yield rose 0.044 to 3.611.

BoC Macklem: Higher interest rates are working to rebalance the economy

BoC Governor Tiff Macklem said in a speech yesterday, "Higher interest rates are working to rebalance the economy. Domestic demand is slowing, and we expect growth in gross domestic product will be close to zero through to the middle of next year as the economy adjusts to higher interest rates. This will relieve domestic price pressures, and inflation will come down."

He reiterated the position that the central bank will be considering "whether there is a need to increase the policy rate further". He explained, "This means that decisions to raise the rate or to pause and assess the impact of past rate increases will depend on incoming data and our judgments about the outlook for inflation."

Macklem also said BoC is "watching very closely to see how the economy is responding to higher interest rates". It is looking at an job market data, how supply chains are resolving, how business are passing on costs, measures of core inflation, and inflation expectations.

Australia Westpac consumer sentiment bounced from near record low

Australia Westpac Consumer Sentiment Index bounced from near record low and rose 3% from 78.0 to 80.3 in December. But the level remains comparable to the lows see during the pandemic and the Global Financial Crisis.

Concerns over inflation remained dominant among respondents, followed by budget and taxation, economic conditions and interest rates.

Westpac expects RBA to continue to deliver on its "strong tightening bias" in February and hike by 25bps, and signal that there is still more work to be done.

Australia NAB business conditions hold up, but confidence turned negative

Australia NAB Business Confidence dropped from 0 to -4 in November, below zero for the first time since December 2021. Business Conditions dropped from 22 to 20, but remained elevated. Looking at some details, trading conditions dropped from 30 to 28. Profitability conditions dropped from 21 to 20. Employment conditions dropped from 14 to 13.

NAB Chief Economist Alan Oster. "There was a slight softening across a number of industries but the level of business conditions really still remains elevated across the board including in key consumer-facing sectors such as retail and recreation & personal services, and across the states."

"Confidence is now negative, for the first time this year, despite the strength in conditions," said Oster. "The gap between current business conditions and business confidence is now at a record level in the history of the survey – with the exception of March 2020 – pointing to heightened concerns about the resilience of the economy in the period ahead as inflation and higher rates begin to weigh on consumers."

Looking ahead

UK employment data, Germany ZEW economic sentiment will be the main focus in European session. Swiss SECO will also publish economic forecasts. Later in the day, US CPI will take center stage.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 144.14; (P) 144.62; (R1) 145.52; More....

Intraday bias in EUR/JPY remains on the upside for the moment. Correction from 148.38 could have completed with three waves down to 140.75. Further rally would be seen to 146.12 resistance first. Firm break there will bring retest of 148.38 high. On the downside, however, break of 143.16 minor resistance will dampen this bullish case and turn intraday bias neutral again.

In the bigger picture, considering bearish divergence condition in weekly MACD, 148.38 could be a medium term top already. Fall from there is probably correcting whole up trend from 114.42 (2020 low). Deeper decline would be seen to 55 week EMA (now at 138.08), or further to 38.2% retracement of 114.42 to 148.38 at 135.40 before completion.

Economic Indicators Update

GMT	Ccy	Events	Actual	Forecast	Previous	Revised
23:30	AUD	Westpac Consumer Confidence Dec	3.00%		-6.90%
00:30	AUD	NAB Business Confidence Nov	-4		0
00:30	AUD	NAB Business Conditions Nov	20		22
07:00	GBP	Claimant Count Change Nov		3.5K	3.3K
07:00	GBP	ILO Unemployment Rate (3M) Oct		3.70%	3.60%
07:00	GBP	Average Earnings Excluding Bonus 3M/Y Oct		5.70%	5.70%
07:00	GBP	Average Earnings Including Bonus 3M/Y Oct		6.20%	6.00%
07:00	EUR	Germany CPI M/M Nov F		-0.50%	-0.50%
07:00	EUR	Germany CPI Y/Y Nov F		10.00%	10.00%
08:00	CHF	SECO Economic Forecasts
09:00	EUR	Italy Industrial Output M/M Oct		-0.30%	-1.80%
10:00	EUR	Germany ZEW Economic Sentiment Dec		-26.3	-36.7
10:00	EUR	Germany ZEW Current Situation Dec			-64.5
10:00	EUR	Eurozone ZEW Economic Sentiment Dec		-25.3	-38.7
11:00	USD	NFIB Business Optimism Index Nov		90.8	91.3
13:30	USD	CPI M/M Nov		0.50%	0.40%
13:30	USD	CPI Y/Y Nov		7.70%	7.70%
13:30	USD	CPI Core M/M Nov		0.60%	0.30%
13:30	USD	CPI Core Y/Y Nov		6.40%	6.30%