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Daily Pivots: (S1) 139.84; (P) 140.17; (R1) 140.70; More...

USD/JPY is staying below 142.45 minor resistance despite today's strong recovery. Intraday bias remains neutral for the moment, and further decline is in favor. On the downside, break of 137.66 will resume the decline from 151.93, to 133.07 fibonacci level, as a correction to the larger up trend. Nevertheless, firm break of 142.45 will turn bias back to the upside for stronger rebound to 55 day EMA (now at 143.44) and above.

In the bigger picture, a medium term top should be formed at 151.93. Fall from there is correcting larger up trend from 102.58. It's too early to call for bearish trend reversal. But even as a corrective move, such decline should target 38.2% retracement of 102.58 to 151.93 at 133.07, or further to 55 week EMA (now at 130.28).

Daily Pivots: (S1) 0.9514; (P) 0.9534; (R1) 0.9568; More...

Intraday bias in USD/CHF stays neutral for the moment as consolidation from 0.9355 is in progress. Further decline is expected as long as 0.9680 resistance holds. Break of 0.9355 will resume the fall from 1.0146 to 0.9287 fibonacci level. Nevertheless, firm break of 0.9680 will bring stronger rebound to 55 day EMA (now at 0.9767).

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. 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 55 day EMA (now at 0.9767) holds.

Daily Pivots: (S1) 1.1766; (P) 1.1862; (R1) 1.1961; More...

Intraday bias in GBP/USD remains neutral as consolidation from 1.2028 is extending. Further rise is expected as long as 1.1644 resistance turned support holds. On the upside, break of 1.2028 will resume whole rise from 1.0351 to 100% projection of 1.0351 to 1.1494 from 1.1145 at 1.2288. However, sustained break of 1.1644 will bring deeper fall to 1.1145 support instead.

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 1.1145 support holds. Next target is 61.8% retracement of 1.4248 to 1.0351 at 1.2759.

Daily Pivots: (S1) 1.0311; (P) 1.0359; (R1) 1.0412; More...

EUR/USD dips further today as retreat from 1.0481 extends but stays well above 1.0092 resistance turned support. Intraday bias remains neutral first. Further rally is expected as long as 1.0092 holds. On the upside, break of 1.0481 will resume the rise from 0.9534 and target 1.0609 fibonacci level. However, sustained break of 1.0092 will turn bias to the downside for 55 day EMA (now at 1.0034) and below.

In the bigger picture, a medium term bottom was in place at 0.9534, on bullish convergence condition in daily MACD. Even as a corrective rise, rally from 0.9534 should target 38.2% retracement of 1.2348 (2021 high) to 0.9534 at 1.0609. Sustained trading above 55 week EMA (now at 1.0566) will raise the chance of trend reversal and target 61.8% retracement at 1.1273. This will now remain the favored case as long as 1.0092 resistance turned support holds.

Dollar's broad based rebound continues into early US session, as support by recovery in yields. While overall markets are trading in mild risk-off mode, there isn't much follow through selling in European stocks and US futures. The greenback's rally could be killed off quickly if risk sentiment turns. But for now, Dollar is the strongest one for today,, followed by Canadian and Swiss. Yen is the worst, followed by Euro and then Aussie.

Technically, judging from momentum, if Dollar's rally is going to sustain, USD/JPY would likely be the first one to break through 142.45 minor resistance. Ideally, other pairs should follow, with EUR/USD breaking through 1.0092 support, GBP/USD through 1.1644 support, AUD/USD through 0.65231 support, USD/CHF through 0.9680- resistance and USD/CAD through 1.3494 resistance. Let's see if Dollar could do that.

In Europe, at the time of writing, FTSE is up 0.02%. DAX is down -0.53%. CAC is down -0.25%. Germany 10-year yield is down -0.011 at 2.006. Earlier in Asia, Nikkei rose 0.16%. Hong Kong HSI dropped -1.87%. China Shanghai SSE dropped -0.39%. Singapore Strait Times dropped -0.66%. Japan 10-year JGB yield dropped -0.0078 to 0.246.

ECB: Lane: One platform for 75bps hike is no longer there

ECB Chief Economist Philip Lane said in an interview that "we expect to raise rates further". But "each meeting is different" and "one platform for considering a very large hike, such as 75 basis points, is no longer there."

"When we were at zero, that did not correspond to anyone's idea of the interest rate level necessary. Going to 1.5 per cent is still below where we need to go," he said. "But the more you've already done on a cumulative basis, that changes the pros and cons of any given increment."

"I don't think December is going to be the last rate hike" he said. "Trying to jump forward to February, to March, to May or June next year, I think it's too early to have very strong views at this point... The more relevant argument than whether to pause is to move at the appropriate time to smaller increments."

CAD/JPY and AUD/JPY recover as Yen weakens

Yen trades broadly lower today following rebound in benchmark US and European yields. CAD/JPY is one of the top movers for the day. It's possible that whole corrective pattern from 110.87 has completed with three waves down to 104.06. Break of 106.70 resistance, and sustained trading above 55 day EMA will affirm this case, and bring further rise to retest 110.33/110.87 resistance zone.

AUD/JPY also rises mildly today but stays well below 95.73 resistance. Firm break there will affirm the case that pull back from 99.32 has completed at 90.81. Rise form 90.81 should then resume and target a test on 99.32 high.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0311; (P) 1.0359; (R1) 1.0412; More...

EUR/USD dips further today as retreat from 1.0481 extends but stays well above 1.0092 resistance turned support. Intraday bias remains neutral first. Further rally is expected as long as 1.0092 holds. On the upside, break of 1.0481 will resume the rise from 0.9534 and target 1.0609 fibonacci level. However, sustained break of 1.0092 will turn bias to the downside for 55 day EMA (now at 1.0034) and below.

In the bigger picture, a medium term bottom was in place at 0.9534, on bullish convergence condition in daily MACD. Even as a corrective rise, rally from 0.9534 should target 38.2% retracement of 1.2348 (2021 high) to 0.9534 at 1.0609. Sustained trading above 55 week EMA (now at 1.0566) will raise the chance of trend reversal and target 61.8% retracement at 1.1273. This will now remain the favored case as long as 1.0092 resistance turned support holds.

Economic Indicators Update

The Dollar Index has risen since last Tuesday, adding 2.5% to lows at 105.16. Speculators paused selling off the US currency in response to data and comments from Fed officials implying a higher interest rate target.

The dollar’s pullback could also be described as a market breather, implying a pause after a rather aggressive decline of almost 7% from November 4th to 15th.

Despite this rebound, major investment houses call the dollar generally overvalued and point out that now could be a good time for a trend reversal. We have discussed this before, noting both fundamental shifts (other central banks have caught up with the Fed in rate hikes, and the latter is signalling a rate cut) and historical patterns (the dollar’s response to global reversals cycles in monetary policy last about a year).

Nevertheless, from a short-term perspective, traders are better to be prepared that the DXY could rise to 108 or even 109 from the current 107.7 before we see the start of a new leg down.

The dollar has been selling off at an elevated pace since November 4th. A consolidation below the 50-day MA is considered an essential first signal for breaking the trend. Interestingly, this line has quickly reversed from an uptrend to a downtrend, indicating that the overall tendency has changed.

The next and more reliable signal on the technical analysis side should be an anchoring below the 200-day MA, which the USD bulls effectively defended last week. Apart from that crucial curve, which the big market-makers use for trend-following purposes, the 61.8% retracement level of the DXY from the lows of January 2021 to the highs of late September passes around 105.

The most conservative technical approach suggests that the current DXY drawdown is a correction after the 20-month rise, followed by a new wave of growth. Nevertheless, the FX dynamics of DM currencies are just an example where we can say that trees don’t grow to the sky. The rule of mean reversal works here unless something breaks globally in the economy. The only such global breakdown would be the insolvency of Japan or another major country or the eurozone’s breakup. So far, while there is no such threat on the horizon, the end of the dollar 20-month uptrend is the main scenario.

If we are right, the dollar bears are taking profits and gaining liquidity before a new wave of a sell-off in the DXY, which might start this week or next week from levels between 108 and 109 and push it back below 100 before the end of the year.

EUR/USD has resumed its downswing and is in negative territory on Monday. In the North American session, the euro is trading at 1.0238, down 0.81%.

The ECB holds its final policy meeting of the year on December 15th, and it’s practically a given that the ECB will raise rates. But by how much? The current benchmark rate of 1.50% is low compared to other central banks, but the ECB is well aware that a weak eurozone economy will have trouble absorbing further oversize hikes. The ECB’s rate-tightening cycle has been steep, with an increase of 200 basis points in just three months. Still, inflation continues to soar, hitting 10.6% in October, up from 9.9% a month earlier. With inflation in double-digits, there is strong pressure to deliver a 50-bp increase next month. However, policy doves would like to see slower rates of 25-bp in order to minimize an economic slowdown.

German PPI slides

There was a surprise from Germany’s PPI today, which fell by 4.2%, its first decline since May 2020. The consensus stood at 0.9%. Is the sharp decline a mere blip, or does it point to lower inflation in the eurozone’s largest economy? We’ll get a look at German and eurozone CPI reports next week, and a drop in inflation will raise speculation that inflation may have finally peaked.

The Federal Reserve’s barrage of hawkish statements from Fed members has chilled risk appetite and hopes of a Fed pivot. The US dollar has bounced back after taking a beating following the soft inflation report earlier this month. The Fed has long insisted that one or two reports showing inflation is lower does not make a trend, although risk sentiment has soared on every soft inflation report. If November’s inflation data is lower than anticipated, we can expect risk appetite to jump at the expense of the US dollar. The markets have priced in a 50-bp hike next month, although some Fed members have stated that a 75-bp move remains on the table.

EUR/USD Technical

• 1.0359 and 1.0447 are the next resistance lines
• EUR/USD is testing support at 1.0238. Below, there is support at 1.0150

Yen trades broadly lower today following rebound in benchmark US and European yields. CAD/JPY is one of the top movers for the day. It's possible that whole corrective pattern from 110.87 has completed with three waves down to 104.06. Break of 106.70 resistance, and sustained trading above 55 day EMA will affirm this case, and bring further rise to retest 110.33/110.87 resistance zone.

AUD/JPY also rises mildly today but stays well below 95.73 resistance. Firm break there will affirm the case that pull back from 99.32 has completed at 90.81. Rise form 90.81 should then resume and target a test on 99.32 high.

USDJPY showed some significant improvement in the previous 4-hour session, extending the bullish structure above the 140.70 barrier and the 50-period simple moving average (SMA). The RSI is sloping slightly down above the neutral threshold of 50, while the MACD has advanced above the zero level.

In the event the bulls hold control, the 143.50 resistance will come first into view. A violation at this point may see another challenging battle around the 144.55-145.15 restrictive region. If buyers claim that zone this time, the 200-period SMA at 145.80 could immediately add some downside pressure.

Should the bears dominate, driving the price below the 50-period SMA and the key level of 140.70, the spotlight will shift to the 20-period SMA at 140.10, where any step lower will take the pair towards 138.85 and the previous trough of 137.65, which is a two-and-a-half month low.

In brief, although USDJPY continues to face unfavorable trend signals, the odds for an upturn seem to be growing, with the confirmation expected to come above the 200-period SMA.

ECB Chief Economist Philip Lane said in an interview that "we expect to raise rates further". But "each meeting is different" and "one platform for considering a very large hike, such as 75 basis points, is no longer there."

"When we were at zero, that did not correspond to anyone's idea of the interest rate level necessary. Going to 1.5 per cent is still below where we need to go," he said. "But the more you've already done on a cumulative basis, that changes the pros and cons of any given increment."

"I don't think December is going to be the last rate hike" he said. "Trying to jump forward to February, to March, to May or June next year, I think it's too early to have very strong views at this point... The more relevant argument than whether to pause is to move at the appropriate time to smaller increments."

Full interview here.