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Daily Pivots: (S1) 1.3433; (P) 1.3500; (R1) 1.3558; More...

Intraday bias in GBP/USD remains on the downside and outlook is unchanged. Rebound from 1.3158 could have completed at 1.3748 already. More importantly, larger fall from 1.4282 is probably not over yet. Deeper fall would be seen back to retest 1.3158 low. On the upside, though, above 1.3571 minor resistance will turn bias back to the upside for retesting 1.3748.

In the bigger picture, strong support was seen from 38.2% retracement of 1.1409 to 1.4248 at 1.3164. The development suggests that up trend from 1.1409 (2020 low) is still in progress. On resumption, next target will be 38.2% retracement of 2.1161 to 1.1409 at 1.5134. Nevertheless sustained break of 1.3164 will argue that whole rise from 1.1409 has completed and bring deeper fall to 61.8% retracement at 1.2493.

It's been a rollercoaster start to what was always going to be a massive week in the markets and there's little reason to expect that to change in the coming days.

The turnaround on Monday was incredible. From eye-watering losses to ending the day in the green; it's not often you see that kind of action. Investors will no doubt be relieved but that could prove to be short-lived. US futures are back in negative territory ahead of the open - albeit to a much lesser degree at the moment - and even at the close on Monday, the Nasdaq was more than 13% off its highs.

The next couple of days will be huge. So much could hang on the communication from the Fed tomorrow and whether they strike the right balance between taking inflation seriously and not raising rates too aggressively. It's a tightrope situation but if the central bank can find the right balance, more may be tempted by these levels.

It's not just on the Fed, of course. On Monday, it was geopolitics that appeared to tip investors over the edge. The reaction looked over the top but that is indicative of the level of underlying anxiety in the markets at the moment. And if things don't improve this week, we may see more episodes like that.

Which brings us to earnings season and a week in which numerous companies release fourth-quarter results, including a number of big tech names. A disappointing start to the season hasn't helped to lift the mood but that could change this week. If not, the January blues could turn into something far more unsettling.

Fundamentals remain bullish for oil

Oil got caught up in the sell-everything panic at the start of the week, sliding more than 3% at one stage before recovering a little. There wasn't much sense behind the move, but the fact that the dollar was strengthening and crude was already seeing profit-taking after peaking just shy of $90, probably contributed to it.

The market remains fundamentally bullish and conflict with Russia does nothing to alleviate supply-side pressures. If anything, the risks are tilted in the other direction, not that I think it will come to that. Nor does the market at this point, it seems.

Still, it was only likely to be a matter of time until oil bulls poured back in and prices are up again today. The correction from the peak was less than 5% so that may be a little premature, but then the market is very tight so perhaps not.

Conditions remain favorable for gold

Gold continues to be well supported at the start of the week, following some turbulent trading conditions and dollar strength. It continued to hold over the last couple of sessions around $1,830 and has pushed higher with $1,850 now in its sights.

The yellow metal is pulling back a little today, off a few dollars, but it remains in a good position. There still appears to be momentum behind the rally which could continue to take it higher. A move through yesterday's lows could see that slip but at this point in time, conditions continue to look favorable. Of course, the Fed tomorrow could have a huge role to play in whether that continues to be the case which may explain the consolidation in recent days.

A strong recovery for bitcoin

Bitcoin rebounded strongly on Monday, alongside other risk assets that had also been pummelled earlier in the day. It's trading a little lower today but that won't be a major concern at this stage as broader risk appetite is holding up so far. Whether that is sustainable will determine how bitcoin responds and that may depend on the Fed tomorrow.

Bitcoin found support at $33,000 on Monday which isn't far from a hugely important support zone around $30,000. If risk appetite takes a turn for the worse again, we could see that come under severe pressure. If the price can hold above here in the short term, it could be a very positive sign.

Daily Pivots: (S1) 1.1296; (P) 1.1321; (R1) 1.1350; More...

EUR/USD's break of 1.1284 support how argues that corrective rebound from 1.1185 has completed at 1.1482. Intraday bias is back on the downside for 1.1185 first. Firm break there will resume larger down trend from 1.2348 to 61.8% projection of 1.1908 to 1.1185 from 1.1482 at 1.1035. On the upside, above 1.1368 minor resistance will turn intraday bias back to the upside, and extend the consolidation from 1.1185 with another rise.

In the bigger picture, there are various ways of interpreting the fall from 1.2348 (2021 high). It could be a correction to rise from 1.0635 (2020 low), the fourth leg of a sideway pattern from 1.0339 (2017 low), or resuming long term down trend. In any case, outlook will now stay bearish as long as 1.1703 support turned resistance holds. Sustained break of 61.8% retracement of 1.0635 to 1.2348 at 1.1289 would pave the way back to 1.0635.

Dollar and Yen rise again today as US futures point to sharply lower open. Yesterday's strong U-turn seems lacking momentum to extend. But selling focus has somewhat turned to European session, with Swiss Franc leading the way lower. Commodity currencies, except Kiwi, are mixed. In other markets, Gold is staying in tight range above 1830. WTI crude oil is in range above 83. Bitcoin is also consolidation around 36k.

Technically, EUR/USD's break of 1.1284 support now suggests that larger down trend from 1.2348 is probably ready to resume through 1.1185 low. We'll now see USD/JPY would break through 115.05 minor resistance to reflect Dollar strength. Or it will break through 113.47 to indicate Yen strength, which could be see in downside acceleration in EUR/JPY in this case.

In Europe, at the time of writing, FTSE is up 0.96%. DAX is up 0.55%. CAC is up 0.89%. Germany 10-year yield is up 0.0218 at -0.084. Earlier in Asia, Nikkei dropped -1.66%. Hong Kong HSI dropped -1.67%. China Shanghai SSE dropped -0.258%. Singapore Strait Times dropped -1.08%. Japan 10-year JGB yield rose 0.0018 to 0.141.

ECB Lane: Let's think about 2020, 2021, 2022 as part of a pandemic inflation cycle

In an interview with Verslo žinios, ECB Chief Economist Philip Lane said, "in the near term, there are some risks from the Omicron variant. But I think it's increasingly clear that the impact is only for a few weeks... In that sense, I think there's less concern about Omicron than we had in December."

On inflation, Lane suggested to think about 2020, 2021, and 2022 as "part of a pandemic cycle". "In the first year 2020, inflation was relatively low. In the second half of 2021, inflation turned out to be quite high. And then, as we look into this year, 2022, we think inflation will remain high at the start of this year, but will fall later this year, especially towards the end of the year," he said.

Lane also said if data suggests that inflation would be too high relative to 2% over the medium term, the response would be "to end net purchasing." Then, only after ending net purchases "would we look at the criteria for raising the interest rates".

Germany Ifo business climate rose to 95.7, a glimmer of hope

Germany Ifo Business Climate rose from 94.8 to 95.7 in January, above expectation of 94.7. Current Assessment index dropped from 96.9 to 96.1, matched expectations. Expectations index improved from 92.7 to 95.2, above expectation of 93.0.

By sector, manufacturing rose from 17.4 to 19.9. Services rose from 4.6 to 7.7. Trade rose from -4.1 to -1.3. Construction rose from 7.6 to 8.7.

Ifo said: "While companies' assessments of the current situation were somewhat less positive, their expectations improved considerably. The German economy is starting the new year with a glimmer of hope."

Australia CPI surged to 3.5% yoy in Q4, trimmed mean CPI at 7-yr high

Australia CPI rose 1.3% qoq, 3.5% yoy in Q4, well above expectation of 1.0% qoq, 3.2% yoy. RBA trimmed mean CPI rose 1.0% qoq, 2.6% yoy, also above expectation of 0.7% qoq, 2.4% yoy. The 2.6% yoy rise was the highest since June 2014.

Head of Prices Statistics at the ABS, Michelle Marquardt, said the most significant price rises in the December quarter were new dwellings (+4.2%) and automotive fuel (+6.6%).

Marquardt said: "Annual trimmed mean inflation is the highest since 2014, reflecting the broad-based nature of price increases, particularly for goods."

Australia NAB business confidence dropped sharply to -12

Australia NAB business confidence dropped sharply from 12 to -12 in December. Business conditions dropped from 11 to 8. Trading conditions was unchanged at 14. Profitability conditions rose from 8 to 10. Employment conditions dropped from 11 to 2.

"Overall, the December survey results are consistent with an economy that's starting to slow, with some similarities to the data when NSW and Victoria were first entering lockdown," said NAB Chief Economist Alan Oster. "That probably means conditions will fall in early 2022. However, we don't expect the Omicron variant to derail the recovery longer-term."

BoJ Kuroda keeps an eye on inflation risks while maintaining ultra-easy policy

BoJ Governor Haruhiko Kuroda told the parliament today, "the BOJ will continue its ultra-easy policy so improvements in corporate profits and the economy prop up wages and gradually accelerate consumer inflation."

"We remain vigilant to the risk prices may shoot up before wages begin to rise, or how (rising raw material costs) could hurt smaller firms. We must keep an eye out on these risks, while maintaining our current easy monetary policy," Kuroda said.

Meanwhile, Prime Minister Fumio Kishida said, "it's desirable to create an environment in which companies can pass on rising costs and raise wages, so that increasing consumption spurs economic growth and inflation."

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1296; (P) 1.1321; (R1) 1.1350; More...

EUR/USD's break of 1.1284 support how argues that corrective rebound from 1.1185 has completed at 1.1482. Intraday bias is back on the downside for 1.1185 first. Firm break there will resume larger down trend from 1.2348 to 61.8% projection of 1.1908 to 1.1185 from 1.1482 at 1.1035. On the upside, above 1.1368 minor resistance will turn intraday bias back to the upside, and extend the consolidation from 1.1185 with another rise.

In the bigger picture, there are various ways of interpreting the fall from 1.2348 (2021 high). It could be a correction to rise from 1.0635 (2020 low), the fourth leg of a sideway pattern from 1.0339 (2017 low), or resuming long term down trend. In any case, outlook will now stay bearish as long as 1.1703 support turned resistance holds. Sustained break of 61.8% retracement of 1.0635 to 1.2348 at 1.1289 would pave the way back to 1.0635.

Economic Indicators Update

The Japanese yen is slightly lower, as USD/JPY is trading at the 114 line in the European session.

BoJ Core CPI rises

After years of deflation, Japanese inflation indicators continue to point upwards. The latest gauge to confirm the upswing was BoJ core inflation for December, which rose from 0.8% to 0.9% y/y, above the consensus of 0.7%. Later today, the Services Producer Price Index is expected in at 1.0%. Producer inflation has been running at a faster clip than consumer inflation, as businesses have been reluctant to pass on higher costs to consumers.

The weak yen has widely been blamed as being a key factor in higher inflation, but BoJ Governor Haruhiko Kuroda had a different take earlier today, saying that the surge in global commodities was a much bigger factor in boosting Japan’s inflation than the yen. Kuroda stated that he would not consider the yen as being “abnormally” weak and causing higher inflation. This would seem to indicate that the BoJ is not concerned, at least for now, with the depreciation of the yen, with the USD/JPY rising 3.6% since September 1^st.  The BoJ would not lose any sleep if the yen continued to lose ground, as this would likely lead to higher inflation.

The uptrend is inflation is a new development in Japan, but the bank is unlikely to shift away from its ultra-accommodative policy or raise rates anytime soon. Governor Kuroda has said that a rise in inflation that does not include higher wage growth is not sustainable, which sounds very much like the ‘transient inflation’ phrase that Fed Chair Jerome Powell was using until recently.

Investors are anxiously awaiting the FOMC meeting on Wednesday, with the Fed poised to raise rates in March after a 3-year hiatus. There has also been some speculation that the Fed might depart from incremental hikes of 0.25% and announce a dramatic 0.50% move. This would provide a ‘double punch’ of curbing inflation and sending the markets a strong message in order to restore credibility, which has taken a hit from some market participants that feel that the Fed has been too slow in its response to surging inflation.

USD/JPY Technical

• There is resistance at 114.64 followed by 115.57
• There is support at 113.19 and 112.67

NZD/USD's down trend resumes this week by breaking 0.6700 support and hit as low as 0.6659 so far. Immediate focus is now on channel support at 0.6640. Firm break there will be a sign of downside acceleration. Next near term target is 61.8% projection of 0.7217 to 0.6700 from 0.6889 at 0.6569 and then 100% projection at 0.6372. In any case, outlook will stay bearish as long as 0.6889 resistance holds, in case of recovery.

Meanwhile, note that NZD/USD has taken out 38.2% retracement of 0.5467 to 0.7463 at 0.6701. The development argues that rise from 0.5467 has completed at 0.7643 after rejection by 0.7557 long term resistance. Even if fall from 0.7463 is still a correction, there is prospect of deeper fall to 61.8% retracement at 0.6229 before making a bottom. That chance would be high if the above mentioned channel support is firmly taken out.

The escalation of US-Russian tensions over Ukraine and hawkish Feds policy is worrying for investors which are moving into cash. We see a sharp sell-off on the stock market which may try to stabilize, but technically weakness appears incomplete. If risk-off will resume, then be aware of more JPY and USD strenght.

EURUSD is trading south with nice five waves down to 1.1300 so more weakness will be expected after a three-wave structure. We are talking about a-b-c that can stop at 1.1360/70 resistance.

EUR/USD 1h Elliott Wave analysis

Cable is coming nicely to the downside, into the third leg of a retracement, which can be wave C but even this one must be made by five sub-waves so be aware of a retest of the lows while the market is below 1.3544.

GBP/USD 1h Elliott Wave analysis

In an interview with Verslo žinios, ECB Chief Economist Philip Lane said, "in the near term, there are some risks from the Omicron variant. But I think it's increasingly clear that the impact is only for a few weeks... In that sense, I think there's less concern about Omicron than we had in December."

On inflation, Lane suggested to think about 2020, 2021, and 2022 as "part of a pandemic cycle". "In the first year 2020, inflation was relatively low. In the second half of 2021, inflation turned out to be quite high. And then, as we look into this year, 2022, we think inflation will remain high at the start of this year, but will fall later this year, especially towards the end of the year," he said.

Lane also said if data suggests that inflation would be too high relative to 2% over the medium term, the response would be "to end net purchasing." Then, only after ending net purchases "would we look at the criteria for raising the interest rates".

Full interview here.

GBPUSD has retraced nearly 50 percent of the three-week rally that began around the 1.3200 handle, but negative forces are diminishing as the drop approaches the lower Bollinger band at 1.3428. The longer-term simple moving averages (SMAs) continue to endorse a broader bearish trajectory in the pair.

The short-term oscillators are tilting more to the downside despite the stochastic oscillator signalling some weakness in bearish pressures. The MACD, in the positive region, is distancing itself beneath its red trigger line, while the RSI is sliding lower in the negative zone. As said, the stochastic lines are attempting to come back from oversold territory, hinting that buyers are fighting back.

If the current price route persists, prompt support could arise from the lower Bollinger band at 1.3428, fortified by the 50-day SMA. However, should the price dip below these obstacles, the nearby 1.3333-1.3384 support barrier may try to impede sellers from fully taking control of the pair. In the event sellers triumph, they could then run the pair towards the one-year low, residing in the 1.3160-1.3200 support area, which holds multiple lows from the first part of December 2021. Nonetheless, downward pressures would need to also break below the adjacent 1.3105-1.3135 support belt to restart the bigger decline in the pair.

On the other hand, if an increase in buying interest overcomes current downward forces, the bulls could face an initial resistance band formed by the 100-day SMA at 1.3528 and the mid-Bollinger band at 1.3572. Should buyers stay in the fight, they may drive the price to test the 1.3661 high before challenging the critical 1.3700-1.3748 resistance section. Only a break of this fortified boundary could encourage the bulls to tackle the neighbouring 1.3803-1.3834 stretch of highs around the latter part of October 2021, in order to try and reinstate a bullish tone in the pair.

Summarizing, GBPUSD is exhibiting a slight tilt to the downside below the longer-term SMAs and the 1.3748 high. That said, for the neutral-to-bearish bias to turn bullish, the price would need to climb above the 1.3803-1.3834 zone, while a decline extending past the 1.3105-1.3134 support band may secure strength in the bearish outlook.

WTI futures have been trading slightly below the long-term ascending trend line over the last few sessions, remaining within the Ichimoku cloud. The RSI indicator is flattening beneath the 50 level, while the MACD oscillator is losing momentum below its trigger line in the short-term. The 20- and 40-period simple moving averages (SMAs) are creating a bearish crossover, confirming the latest down move.

If the price remains below the uptrend line, immediate support could come from the 82.74 barrier ahead of the 23.6% Fibonacci retracement level of the up leg from 66.00 to 87.14 at 82.20. Beneath these crucial levels, the 80.80 support and the 38.2% Fibonacci of 79.13 may act turning points.

On the flip side, a jump beyond the diagonal line and more importantly above the short-term SMAs, the next resistance could be the more-than-seven-year high of 87.14 before the rally continues until the 91.23 barrier.

Summarizing, WTI futures are battling with the long-term rising trend line and if the price continues to fall, the outlook will turn to neutral in the short-term.